Domainex CEO flags the return of the biotech startup

Dr Eddy Littler, CEO of fast-growing Cambridge drug discovery company, Domainex believes the sector will soon begin to produce a new crop of exciting young startups as wider market trends shake out and investors are given time to recharge their batteries.

Domainex, which will move into a new, larger facility on Cambridge Science Park next month, operates a hybrid model, offering drug discovery services to external clients while developing its own pipeline of cancer drugs in parallel.

“What the sector needs above all else is a few success stories. It is the overall atmosphere and culture that gets the sector going. A few new products getting into and through clinical trials and some good new relationships with big pharma will give the industry a boost and is also likely to reinvigorate the investment community. That will make funding available for the next generation of startups,” Littler said.

Domainex itself is on a high, with its contract research activities in profit and hitting what Littler describes as a “sweet spot”. Revenues have increased substantially over the past 18 months, he says.

Littler says his company is itself considering raising cash 12 to 18 months from now, but stresses that it will be an investment to take the company forward - and in particular develop its own internal pipeline -  rather than simply providing working capital.

He said: “Although venture capitalists have become more cautious and picky, it is still possible for good companies with good management and good science/technology to raise cash. I have a friend who is going through the process at the moment - and will be successful - and I know a number of other people who are also raising cash. It’s just that it’s harder work.

“The life sciences industry also needs time to a certain extent - for VCs to recover from the losses they have made, raise new funds and rediscover their appetite for the sector”.

Government has a role to play in the revitalisation of the life sciences sector, Littler says, in creating an environment that supports entrepreneurs in setting up companies and venture capitalists to invest in them.

“One of the ways it has been successfully doing that is the well-targeted, non-dilutive cash it makes available through the Technology Strategy Board - and it’s important that it continues to do so. In particular, the TSB has been very effective at getting collaborations off the ground, which are of increasing importance within the sector. It remains to be seen, however, whether the level of support provided to biotech by the RDAs can be replicated by the Leps (Local Enterprise Partnerships).”

Littler believes the Cambridge biotech cluster is reflective of the situation in the rest of the UK and Europe in that the picture is “patchy”. Parts of the sector are doing well: With big pharma closing down many of its R&D facilities, services businesses like Domainex are picking up the slack.

But things are much tougher for pure-play biotechs, which require a great deal more external investment to develop their products to the stage where they can out-license them.

According to Littler, life sciences entrepreneurs should pay attention to prevailing market conditions when they are deliberating on the vital issues of business model and exit strategy.

“We have been able to build a business without huge investment - we have taken on angel investment and use income from our services business to control burn rate. This reduces risk to our investors.

“We have made sure that we have always directed sufficient resource at our internal projects although we have found it cost-effective to supplement that with specialist contract research, where necessary. But we always make sure that our work for our clients is top notch. If we want to develop our own drugs it absolutely has to be".

Littler puts the chances of a biotech listing on the stock markets, at least in the short term, at “fairly remote,” but stresses that things can change rapidly. He believes the market trends still point to the trade sale as the most obvious form of exit:

He said: “Big pharma is reducing its early stage research at a time when its pipelines are already thin. A lot of people will be watching the M&A market to see if big pharma’s appetite for innovative biotech increases further - the signs are that it will do - and that could give the sector a boost and possibly remove the bottleneck in creating new businesses”.

Domainex moved on to Cambridge Science Park three years go, but for most of 2010 and 2011, all of the company’s chemists and most of its biologists have been working on external contracts - at the expense of its internal programmes - because of a shortage of space.

The company decided its best option was to take a larger unit on the Science Park and has opted for a standalone unit, offering 70 per cent more floorspace than their previous facility and crucially, more fume cupboards for chemists.

“There were a couple of occasions in 2010 when we were not able to take on work because we did not have enough space for the extra staff. We seriously looked into options like running night shifts but had to let the work go in the end.

“As well as giving us more space to expand into, our new home is a dedicated, standalone building. It gives us a clear identity, which is where we need to be in the next phase of our development.”

Domainex currently has 30 employees and will make the calculation on how many new scientists will be recruited when it has settled into new building.

As part of its expansion, the company has invested £250k in a state of the art piece of screening equipment allowing the company to operate fragment screens and other systems. The technology, which will go on-line in June will bolt into Domainex’s existing technology platforms to give it a “seamless pipeline of integrated services,” according to Littler.