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CASE STUDY
A Site Selection Web Exclusive, March 2010
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Molecular Magic

Morphotek’s dynamic technology is changing the landscape of cancer therapy, and changing Greater Philadelphia’s skyline in the process.

Case Study
Morphotek’s new pilot plant will occupy a site (left) across the street from its headquarters (right). HSC Builders & Construction Managers is leading a team pursuing LEED certification for the new project.
rendering courtesy of Eisai

by ADAM BRUNS
I
Nicholas Nicolaides, Ph.D., President, CEO & Co-founder of Morphotek, Inc.
Nicholas Nicolaides, Ph.D., President, CEO & Co-founder of Morphotek, Inc.

dentified most closely with the discovery work of the late Centocor co-founder and Philadelphia-area life sciences leader Hubert J.P. Schoemaker, therapeutic monoclonal antibodies have given rise to a number of companies, products and jobs in the region's teeming bio cluster. On March 8 they gave rise to a new $80-million, 60,000-sq.-ft. (5,574-sq.-m.) pilot manufacturing plant for biologics from Morphotek, Inc., a subsidiary of Tokyo-based Eisai Co., Ltd.

And they did so without any major incentives for the project, save the need to grow.

The new plant, expected to employ up to 56 people when it begins churning out molecules in 2012, will be situated across the street from Morphotek headquarters in the Pickering Creek Business Park in Exton, Pa., on the outskirts of Philadelphia. A few days after the groundbreaking, Morphotek President, CEO and co-founder Nicholas C. Nicolaides was still amazed at how far the company had come in one decade, and pleased with how his firm has been treated by Eisai since its 2007 acquisition for $325 million.

"I can tell you it's very unique when you have a large organization buying a small one but letting it run as an autonomous subsidiary," says Nicolaides, a molecular geneticist. "It's not every day three co-founders are still hanging around in the executive positions." In fact, of the 46 people at Morphotek at the time of the acquisition, only six are missing today: nearly all went back to school, and one has taken an executive position at another company. "Our executive team is being cherry-picked by venture capitalists now, because they delivered a success story," says Nicolaides. The company employs approximately 140 today.

The co-founders include Philip Sass, COO, and Luigi Grasso, chief scientific officer, who along with Nicolaides in 2000 licensed a cell line evolution technology from Johns Hopkins University, where Nicolaides held a research fellowship in oncology. The original paper is on display on the walls of Morphotek's complex. Its applicability originally seemed oriented toward agricultural products, but mass consolidation and technology proliferation in that sector in 2001 led to the shelving of that strategy and a focus on biopharma.

"There were a couple of problems," says Nicolaides. "The three of us weren't wealthy, and we had not started a company before. If we didn't have the Internet, we wouldn't be sitting here right now."

In fact, he says, it was a non-electronic medium — the Yellow Pages — that brought the trio to further groundbreaking discoveries: the University Science Center incubator in Philadelphia, and Ben Franklin Technology Partners of Southeastern Pennsylvania, which invested $50,000 at launch in 2000 and another $150,000 in January 2001.

"We saw in Morphotek a strong platform technology, an intellectual property position to protect that platform and a team experienced in business development, research and in operations," says Jennifer Hartt, director of investments, Life Sciences Investment Group, for Ben Franklin Technology Partners of Southeastern PA. "We saw a company and team that, with the assistance of BFTP funding, could grow here in Southeastern PA, even though the original technology had been in-licensed by the company from a university outside the area," adds Terry Hicks, vice president of the organization's Investment Group.

That seed capital did what it was designed to do, propelling the raising of $42 million from 17 angel investors. After a series of financing rounds, the company moved out of its incubator space in 2004, finding its current home, a former chemical manufacturing plant that was quite affordable in the wake of the dotcom crash.

"It was a 40,000-square-foot [3,716-sq.-m.] facility," explains Nicolaides. "The landlord redid the façade, gutted the middle, and we put in about $1.5 million. The majority was warehouse then, but we were planning for success."

A Manufacturer In Spite of Itself

Today that success is evident on a tour through the company's battery of labs, including a robotics lab that features custom-made equipment that took six months to design and another six months to install and validate.

One vestige of the dotcom era endures: a combination game room and break room located on the facility's aft section, with pool table and foosball inside, and a volleyball net outside awaiting the coming of spring.

After becoming the "biologics engine" for Eisai in 2007, the R&D portion of Morphotek's footprint more than tripled as part of a $20-million investment made in 2008. Gradually the firm morphed from a platform company offering services to one that was developing its own products.

"We said when we started that we could not be a pharmaceutical company," says Nicolaides, primarily because of large risk and large capital requirements, usually hinging on one initial product. "If that product doesn't make it, you're done. We said we'd be a broad service provider, and felt we could generate enough revenue to be self-sustaining. When the dotcom bubble burst, there was no venture capital. We said, 'If we're a product company, we're going to be multiple products.' "

In March 2009, as those products began to queue up for the journey through the phased pipeline toward FDA approval, the decision was made to pursue in-house manufacturing. "Hopefully, 80 percent of the pipeline will be in-house in three to five years," says Nicolaides. The company currently outsources its manufacturing to a Lonza Biologics plant in Portsmouth, N.H., and will continue to do so in some measure even after the new facility is up and running.

"They don't only serve Morphotek, they serve multiple companies, and you have to hit the slot," says Nicolaides of the inevitable schedule challenges of outsourcing. "Now we're not competing with anyone else but ourselves. Each one of these programs is quite expensive up front. This facility will pay for itself in a couple years because of the number of molecules we're taking  forward. We create the molecule, and then produce it in these large bioreactors. There is more flexibility than just having a third party partner."

The company's proprietary human antibody is based on the company's "morphogenics" technology that can essentially be applied to anything that replicates DNA, he explains. The ability to apply this platform to antibody technology allows the company to develop drugs that can target molecules associated with diseased tissue.

"One bottleneck to developing effective therapeutic antibodies is generating antibodies that bind very tightly to the target molecule, which is called an affinity," he says. "By employing our platform technology to cells that produce antibodies to disease-associated molecules, we're able to take cells producing low-affinity antibodies, evolve them and identify evolved sibling cells that produce an antibody with increased affinities. The other application of the platform for developing therapeutic antibodies is the ability to enhance production of antibodies from cells for large-scale manufacturing For this application we are able to take cells producing the antibodies, but them through this process, and generate evolved sibling cells that produce more antibody per cell which translates to overall higher production for large-scale manufacturing."

Morphotek's disease-molecule discovery work continues through academic partnerships with such institutions as M.D. Anderson Cancer Center, Universitat Frankfurt am Main in Germany, Memorial Sloan Kettering, the National Cancer Institute, Johns Hopkins and the University of Pennsylvania, among others. The company signed five such agreements in 2009. It also has received Dept. of Defense funding to develop two antibodies that could be used to protect humans against the toxic effects bio-warfare agents. "We're pretty good with tech transfer," says Nicolaides of the uncommon number of university alliances. "We don't need to own every part of a research program, just the antibody development and validation part for which our research team is well-skilled."

Expedited Evolution

During a week of visiting small but powerful biotech firms across Greater Philadelphia, a common theme emerged: quick progress through the FDA approval process by novel technologies deserving that expedition. Morphotek is no exception, having been granted a special protocol assessment by the FDA.

Nicolaides says the positive data from phase II trials of the company's lead compound, farletuzumab, in ovarian cancer has been robust in terms of remission length, leading to an agreement with the FDA on the specific outcomes needed in a Phase III trial for potential approval. Earlier this year, a Phase III pivotal trial was launched with the goal to treat 900 patients across 32 countries. If the company is able to execute its plan and the clinical results show that farletuzumab can provide enhanced therapeutic benefit to women with relapsed ovarian cancer, then the company and is parent, Eisai, will be prepared to file a biologics license agreement in the fourth quarter of fiscal year 2012.

"If we hit a number demonstrating statistical efficacy, along with other parameters such as safety and proper procedures in the clinical trials and manufacturing we should be in a good position to be granted a license," says Nicolaides. "Phase I to data from a pivotal trial in seven years is rapid. The average in the industry is 12 years.

He says the algorithm behind the company's lead compound farletuzmab can be applied toward compounds in other therapeutic areas, including other oncology indications, inflammatory disease, neurovascular disease and infectious disease. Currently there are 17 compounds in the Morphotek pipeline, coincidentally mirroring the number of investors the company attracted in its initial round of venture financing in 2000.

"The need to expand further will depend on where we are at the time," says Nicolaides. He expects employment to reach approximately 170 this year, and possibly the low 200s within the next couple of years. In the meantime, the company will now occupy over 120,000 sq. ft. (11,148 sq. m.), and has invested more than $100 million. "Local government is enthusiastic about us being here," says Nicolaides. So is the area work force, owing in part to the hiving of jobs by big pharma. Nicolaides says there are about 10,000 people in the sector looking for jobs: "We're getting to pick who we want, from a really qualified work force."

In the end, the scope of the site search was essentially next door. When that structure was no longer available, Morphotek went all the way across the street, where three buildings were purchased in September 2009. Proximity is important. What's more, says Nicolaides, "moving labs from one location to another is a pain."

"We're trying to keep a culture with a lot of interaction," explains Nicolaides, who admits having run up against parking and sewage volume constraints as the company grew. In addition to the manufacturing capability of the new facility, it also affords Morphotek some simple breathing room.

The company leader calls the local government "fantastic" to work with in addressing environmental issues and permitting processes with dispatch. And he says no incentive package was necessary. That seems to corroborate the findings of a study funded by Heinz Endowments and released in January by Good Jobs First, which concluded that Pennsylvania should eschew incentives shootouts with other territories and fiddling with tax codes and tax breaks because most high-tech jobs come from expansions of existing companies or the creation of new firms.

So a big package of public money was not a required ingredient to keep Morphotek morphing. But if you count that seed planted a decade ago by Ben Franklin Technology Partnerships, small packages count for a lot.

"It was important to get the validation and bring people around that did that, to support the due diligence of these 17 investors," says Nicolaides of the seed funding and support, which included accounting and legal guidance. "If Ben Franklin didn't put in that money, we wouldn't be standing here right now."

Then again, there's no real standing involved.

"We could outgrow here," muses Nicolaides, "if things go well."


Story in Pictures

Pictured at the Morphotek groundbreaking ceremony on March 8, 2010, are (l.-r.): U.S. Representative Jim Gerlach (PA - 6th District); Philip Sass, Ph.D., Executive Vice President & COO, Morphotek Inc.; Kim Thiboldeaux, President & CEO, Cancer Support Community; Mr. Haruo Naito, President & CEO, Eisai Co., Ltd.; Nicholas Nicolaides, Ph.D., President & CEO, Morphotek, Inc.; and Hideki Hayashi, Senior Vice President, Chief Product Creation Officer, Eisai Co., Ltd.
photo courtesy of Eisai
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