Business Rx: Tau Therapeutics

June 19, 2011

Andrew Krouse was working at the University of Virginia when he learned about a revolutionary technology his neighbor, a professor of medicine, was developing that could be the key to cancer treatment. Not long after, Krouse joined the team and is now president and chief executive of Tau Therapeutics, a life-sciences company based in Charlottesville that is developing a nontoxic pill it believes can stop cancer and block the side effects of chemotherapy and radiation.

The pitch

Krouse

“Our clinical priority for the technology we licensed from U-Va. is a program we call Interlaced Therapy. It promises to significantly enhance the efficacy of chemotherapy in a number of serious cancers. It works by halting the dividing cancer cells so that standard chemotherapies are more powerful. We have patented and received orphan drug designation on a drug that was on the market for hypertension and are repositioning this drug for the treatment of cancer. By taking our nontoxic drug in a sequential combination with a standard chemotherapy, we hope to minimize chemotherapy’s terrible side effects and greatly enhance the effectiveness of these therapies. There’s also the potential to overcome drug resistance.

“Our ultimate goal with this technology is a nontoxic drug that simply stops the growth of whatever cancer is sitting in your body so that you live a longer, healthier life.

“We’re about to sign a contract with the National Institutes of Health’s Adult Brain Tumor Consortium — the leading consortium of brain cancer hospitals in the country. They are going to underwrite and conduct our Phase 1b and Phase 2 proof-of-concept clinical trial (to show that this drug actually does what we claim it does), beginning this fall. This is a significant achievement for us. Right now, we’re manufacturing our drug supply for trials to treat a form of brain tumor called glioblastoma multiforme. In addition to this trial, we are planning additional clinical trials in melanoma, pancreatic and ovarian cancers as well as radiation therapy for brain metastasis.

“We have raised nearly $20 million and need to raise additional funds to complete these trials. So far, for every dollar raised from angel investors, we have received two dollars in non-dilutive grants from foundations, the government and pharmaceutical partnerships. We have very engaged angel investors that could continue to fund our company, but they are not veterans of the pharmaceutical industry. I also have an offer from a very large pharmaceutical company to fund our company if we can find a venture capital firm to co-invest and handle the terms of the investment.

“Where should our company go from here to grow? Should we pursue the strategic partnership with the pharmaceutical company and a VC firm, or should we seek more financing from angel investors?”

The advice

Elana Fine, director of venture investments, Dingman Center for Entrepreneurship

“Given the stage of your company and complexity of getting cancer treatments to market, I think the timing is right to bring in institutional investors. Developing, initiating and maintaining clinical trials require significant sustained capital investment and research and development experience that is generally beyond the scope of an angel investor. The strategic partnership/venture capital option will allow you to tap into the right expertise to clear regulatory hurdles and potentially position your company for a future acquisition. Because you have what looks like an interesting portfolio of therapeutics, it would be worth trading equity for a potential arsenal of cash and expertise to make sure you are allocating your assets correctly across your different drugs.

“If you do go this route, really look for the right venture capital firm. You need a firm that has experience in this area and will shepherd you through this process. Although a premiere VC may not always offer the highest valuation, it may give you the ‘seal of approval’ that everything you’re doing is by-the-book. Combined investment from both a venture firm and strategic pharma can make a positive impact on your company, but make sure you select the right partners. Talk to a few firms. A lot of early stage biotechs have followed this model, so you know it works.

“If you do pursue this route, by no means are your angel investors excluded if they can pay to participate in this round of investment. Then you have the expertise you need and you’re not shutting out your original investors.”

The reaction

Krouse

“That is a great idea of including our angel investors in a round of financing with a venture capital firm. It is an option that may certainly interest them and I would be pleased to offer. We’ve been very fortunate — we’ve come really far very quickly with relatively little money, and that has kept our investors very involved. I’d like to keep them involved and continue to grow the way we should to get our therapies to people battling cancer.”

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