How the hunt for lifesaving drugs can be like finding buried treasure

Richard Miller was the cofounder and CEO of Pharmacyclics, a small biotechnology company in Silicon Valley with a stock that had plunged. The company’s big study to test its lead drug candidate in patients with different kinds of cancer that spread to the brain had failed miserably. He had talked to Pharmacyclics’ board about maybe finding new drug candidates, but was unsure what to do next. “Great drugs don’t just grow on trees,” he thought to himself. 

At the same time, Miller knew there were many great drugs trapped in the pipelines of pharmaceutical companies, waiting for someone to discover them like buried treasure. Even after years of innovation, good drugs languished in the bellies of big conglomerates, bureaucracies too burdened with their own processes and procedures to identify and develop these tiny gems. These drugs could be fished out for pennies on the dollar and developed to help patients. And that’s what dreams are made of. You just needed the vision to make it happen—and the money.

Around this time, Miller got a call from Ken Brameld, a young computational chemist at Celera Genomics. In addition to being an entrepreneur, Miller was also a practicing MD and Stanford University clinical professor. One advantage of continuing to practice medicine and keeping a foot at the Stanford Medical Center was that Miller had been able to network with new generations of doctors and researchers and stay on top of their ideas. Miller always seemed to be hanging around, gossiping with the new attending physicians and swapping ideas with the professors. Young resident physicians would regularly ask Miller for advice on their patients and enjoyed being around him. 

Brameld connected with Miller through this network. Brameld visited Miller at the Pharmacyclics offices in Sunnyvale, California on a Friday afternoon seeking counsel. He explained to Miller that Celera had decided to give up on the drug development game and ceased all its activities at its South San Francisco facility. Most of the chemists and biologists had already been laid off. Much of the chemistry building had gone dark. Just a handful of employees remained to close up shop. They had been ordered by headquarters to sell the compounds they had developed. It was a fire sale. 

Brameld wondered what it would take to fish out the virology compounds he had been working on and maybe start his own company around them. He went to Miller seeking guidance. Sitting behind his office desk, Miller shared his experiences and insights about business plans and financing considerations. By this time, Miller’s own entrepreneurial curiosity had been piqued. He wasn’t interested in the virology assets, but wondered if Celera had something else that could work for Pharmacyclics. 

“Tell me what else Celera has sitting on the shelf,” said Miller. Brameld described a program for histone deacetylase inhibitors, known as HDACs, easily the most advanced effort at Celera, as well as the very early-stage program involving BTK inhibitors, drugs that block an enzyme known as Bruton’s tyrosine kinase.

The moment Brameld walked out of his office, Miller picked up the phone. The following Monday, Miller drove up to Celera’s South San Francisco offices. At the 9 a.m. meeting, Miller was direct and forceful as usual. In a conference room, a group of mid-level Celera employees went through a slide presentation for Miller about their therapeutic programs, spending most of their time on Celera’s lead HDAC inhibitor compound, already being tested in patients with lymphoma. Miller said he was not interested in hearing about Celera’s virology drugs. The Celera team pivoted to discuss the BTK inhibitor program that targeted rheumatoid arthritis. 

Miller went home and thought about it. He had spent much of his career as a lymphoma doctor and researcher, and wondered if blocking BTK could be another way to help blood cancer patients? There was new and related work on this idea already being done, some of it in the Stanford lab of Miller’s colleague, which Miller visited weekly. 

After giving it some thought, Miller called Celera and said he was interested in buying the HDAC inhibitor. It easily had the most value because the drug had already advanced to a clinical trial, meaning it was being tested in patients. Miller said he also wanted a blood clotting medicine, and at the end of the call, Miller dropped another request. He wanted Celera to throw in the BTK inhibitor drugs as well. 

The deal came together quickly. Pharmacyclics didn’t have much money, but the company’s board authorized Miller to use stock to do the deal. There was another wrinkle. Normally, pharmaceutical transactions do not involve an actual acquisition of an asset. What a company is buying is the commercial rights to a drug through a licensing agreement. The BTK inhibitor program was such a low priority at Celera that the company had not even filed patents for the compounds. There was just some white powder grunge at the bottom of some test tubes. As a result, Pharmacyclics’ outright purchase of Celera’s BTK inhibitor compounds was somewhat unusual. Because there was no patented intellectual property to license, the company bought the compounds and owned them wholly. The entire deal was so odd that Miller worried that someone from Celera would end up driving over to Sunnyvale and just drop a bunch of test tubes on his desk. Instead, Celera delivered all of the program’s files, including a notebook that had the details of a compound that had been code named CRA-032765. 

In the end, Miller negotiated to pay a rock-bottom price of $2 million in cash and another $4.5 million of stock upfront for the three programs. The total added up to $6.6 million after deal costs were factored. In the $6.6 million transaction, the Celera team ascribed next to no value to the BTK inhibitors. Celera didn’t even bother to secure future milestone payments from any Pharmacyclics development of the BTK inhibitor program. There was no expectation that this program would go anywhere. The way members of the Celera team saw it, the company essentially included CRA-032765 in the deal for nothing.

CRA-032765 would still have a long and perilous way to go before reaching patients. But it would become known as Imbruvica, a game-changing medicine for patients suffering from chronic lymphocytic leukemia, the most common form of adult leukemia. About half of the drug would later be sold for $21 billion and by 2020 it would become the fourth top-selling cancer drug on the market, generating $6.6 billion in annual sales and climbing.  

***

On the surface, the sleepy town of Oss, Netherlands seems like something of a backwater, surrounded by cow and pig farms. About an hour’s drive southeast from Amsterdam, the town has 92,000 people, a few windmills, and Catholic churches, in contrast to the Protestantism that dominates the rest of the country. But wedged between Oss’s modest houses, made of red brick and terracotta roof tiles, lies Pivot Park, a cradle of modern cancer science that has impacted the world in a way few people realize. 

Pivot Park is the biopharma campus where a local slaughterhouse owner had founded a company called Organon in 1923. Their first product was insulin extracted from the pancreas of pigs. Both the slaughterhouse and Organon became part of AkzoNobel, the massive Dutch chemicals conglomerate. Like most huge multinationals, AkzoNobel would regularly acquire and divest various units. In 2007, it was Organon’s turn to be flipped. AkzoNobel sold the company, now a broad human and animal health business, to New Jersey–based Schering-Plough for $14.4 billion. 

Around the same time, a talented Organon chemist working in Oss, Tjeerd Barf, had been focusing his attention on BTK inhibitors, much like the scientists at Celera Genomics had done. Barf’s major supporter was a man named Allard Kaptein. With graying hair and glasses, the tall and thin Kaptein was a popular biologist at Organon’s Oss complex. The kind of group leader a chemist like Barf always preferred to work with, Kaptein had a sharp sense of humor and knew how to bridge chemistry with biology in a way that spurred early drug development.

As Barf and his team advanced work on the BTK inhibitor, Kaptein eventually headed a second team of about a dozen additional scientists. This was a gifted group, each of whom was juggling multiple projects. Some of them were also excited about a different cancer therapy that blocked a protein called programmed cell death receptor 1, or PD-1. Both the BTK and the PD-1 projects were being run out of the same Oss building. 

Kaptein’s group focused on making a particularly selective molecule, meaning it would mostly only block BTK and nothing more. It was not clear that such an approach made sense. But the chemists hoped a cleaner, or more selective, compound would limit toxicity while treating rheumatoid arthritis. They came up with a thing of beauty: a warhead that irreversibly bound to BTK while hitting little else. They tested it in a mouse with rheumatoid arthritis and the mouse’s condition improved. The drug was given a code name, SCH 2046835. 

As the scientists in Oss went about their work, they were oblivious to the corporate negotiations underway across the Atlantic Ocean. In 2009, only two years after they became part of Schering-Plough, the entire Schering enterprise was gobbled up by Merck, an even bigger New Jersey pharma giant, for $41 billion. Merck did the deal for many reasons, but mostly so it could get its hands on Schering’s allergy spray, Nasonex. In the process, Merck also acquired Organon’s complex in Oss, including Kaptein, Barf, their BTK inhibitor, and the PD-1 project. 

Merck had little interest in what had been going on at its new and remote Dutch outpost. The Oss complex was just another asset to be bought and sold. 

Within a few months, the BTK program in Oss ground to a halt. Merck started looking to shut down its newly acquired complex in Oss. Kaptein, Barf, and their team members would soon be laid off. But Kaptein and Barf believed that they were onto something special. They decided to create a company and try to extract their BTK inhibitor from Merck. 

Like many Dutch fathers, Kaptein had a son who played soccer. They lived in Zaltbommel, about a 30-minute drive from Oss on the A2 motorway leading to Amsterdam. Kaptein’s 12-year-old boy played for the local soccer club, Nivo Sparta. After one of his son’s games, Kaptein huddled in a canteen area to stay dry during a rainstorm. As his son showered and changed, Kaptein started making small talk with one of the other Nivo Sparta dads, Hans van den Bighelaar. The fathers had driven their boys to the game together and just watched them run up and down a soggy field. They talked about the layoffs at Oss and Kaptein’s dream of grabbing his BTK inhibitor on his way out the door. But he needed money and was not shy about admitting it. Van den Bighelaar said he knew someone from his long-distance running club who might be helpful: a biotechnology venture capitalist named Edward van Wezel. 

Kaptein set up a meeting with van Wezel and sent him a business plan for the BTK inhibitor. They ended up agreeing to work together. But a large problem remained. The Dutch still hadn’t secured the rights to the drug they wanted to develop. It belonged to Merck.

It’s not easy to convince a huge pharmaceutical conglomerate to sell, or out-license, you a compound, even one it doesn’t want. Van Wezel worked for months to secure the rights. He had two things going for him. For starters, Kaptein and Barf had influence with senior leadership at Organon, who pushed Merck to sell the drug. Then there was politics. People had taken to the streets to protest Merck’s decision to close research and development at Oss, eliminating two thousand Dutch jobs. The protesters carried signs that read “profits grown, jobs cut.” Preferring to avoid conflict with a major European government, the American pharmaceutical giant began discussions with the Dutch government about divesting its unwanted Dutch assets and leaving them in Pivot Park. 

One of the assets that Merck started negotiating to sell was the PD-1 inhibitor that some members of Barf’s team had worked on. Somehow, PD-1 landed on a list of drugs Merck was looking to out-license. It even made its way onto a term sheet that valued it at an extremely low number. But late in the negotiations, Merck abruptly stopped the sale of the drug. That PD-1 inhibitor went on to become Keytruda, an immunotherapy that would be used to treat at least 16 different cancers, most prominently lung cancer. Former president Jimmy Carter was one of the millions of grateful recipients. It became Merck’s top-selling product, generating $17.2 billion in 2021, more than one-third of Merck’s revenue and growing. For all intents and purposes, Merck was Keytruda. That Merck ever acquired and retained the drug came down to dumb luck. 

For his part, van Wezel had been put in touch with a Merck director of corporate licensing in Whitehouse Station, New Jersey. Licensing out the BTK inhibitor was far from the director’s top priority. Nobody at Merck thought much about the molecule. Van Wezel had sent the licensing director a term deal sheet. As a placeholder, he wrote in a nominal sum for the up-front payment: $1,000. From time to time, emails would go back and forth. At one point, Merck indicated it would only license the drug for cancer, ensuring it would not compete with any of Merck’s existing drugs in other therapeutic areas, like rheumatoid arthritis. If it had not been for Kaptein and Barf’s allies at Organon, and a healthy dose of Dutch government pressure, the whole thing would have collapsed. But van Wezel finally closed the deal, promising Merck approximately 5% of any net revenues the drug generated. 

Nobody at Merck changed the initial cash payment on the term sheet. The drug was purchased for an up-front payment of $1,000.

Today, the drug is known as Calquence. It has become the preferred drug of choice for patients starting on a BTK inhibitor to treat chronic lymphocytic leukemia. A few years ago, British-Swedish drug giant AstraZeneca bought Calquence for $6.6 billion, and today it’s approaching $2 billion in annual sales, which are growing at a 77% clip. 

From the upcoming book For Blood and Money: Billionaires, Biotech, and the Quest for a Blockbuster Drug by Nathan Vardi. Copyright © 2023 by W.W. Norton. Reprinted by permission of W.W. Norton.