Biotech chameleons: Quark Pharma aims for $81M IPO

(UPDATED: See below.)

For some reason, biotechnology is rife with chameleons — companies that suddenly and radically alter their scientific strategy, disease focus or business model, sometimes to recover from a major failure, and sometimes just to be whatever faddish investors want them to be.

Today, for instance, Quark Pharmaceuticals — now a Fremont, Calif., developer of drugs that work via a new mechanism known as “RNA interference” — said in an SEC filing that it now hopes to raise as much as $80.5 million in an IPO. (That SEC document is here).

Quark, which is backed by Larry Ellison’s Tako Ventures, describes itself in the filing as a “clinical stage biopharmaceutical company” with an “initial focus” on drugs that work via RNA interference, or RNAi — a Nobel Prize-winning technique for “silencing” particular genes using carefully engineered snippets of RNA. It has two RNAi-based drugs already in human testing — RTP-801i, for a form of blindness called age-related macular degeneration, and AKIi-5, for kidney failure. RNAi drug development is getting a lot of big-money attention these days, as witnessed by Merck’s $1.1 billion acquisition of the RNAi biotech Sirna Therapeutics last year. (Pfizer has signed on to co-develop Quark’s RTP-801i.)

Quark, however, is a relative newcomer to RNAi, although that fact isn’t exactly clear in its filing. It acquired both of its leading drug candidates from Atugen AG, now a unit of Silence Therapeutics (which, confusingly enough, was formerly known as SR Pharma). The name Quark Pharmaceuticals is also new; until this month, the company was known as Quark Biotech, and before that as Expression Systems.

In other words, Quark’s conversion to RNA interference, or RNAi, looks like a classic chameleon move, made possible by its ability to quickly in-license drug candidates based on a hot new technology, thus allowing it to tout itself to investors as a cutting-edge biotech.

Based on what I know at the moment, I can’t say one way or another if Quark’s RNAi work is truly cutting-edge. I do, however, know that the company has an interesting and unusual pedigree that for most of its history had nothing to do with RNA interference.

Although founded in California in 1994 as Expression Systems — the name presumably refers to gene output, or “expression” — the company has long maintained its principal research facilities in Israel. Over much of its history, in fact, the company has frequently been classified more as an Israeli biotech than an American one. Consider, for instance, its listing on the Israeli Life Science Industry Web page. In addition, Quark’s SEC filing lists among its risk factors the fact that “[w]e have significant operations in Israel, which may be adversely affected by acts of terrorism or major hostilities.”

In 1997, the company renamed itself Quark Biotech and began to focus on genome-based drug development — that is, on identifying genes linked to specific diseases and then finding drugs that turn off those genes or otherwise mitigate their effects. In general, this sort of strategy hasn’t worked out so well, both because most of these disease-gene links have been faulty and because most genes have only a limited impact on disease.

Like other companies at the time — most notably Lexicon Genetics and Deltagen — Quark apparently thought it could identify these genomic drug targets by breeding mice in which important genes had been “knocked out.” A multi-year genomics research collaboration with the Cleveland Clinic Foundation led it to take the unusual step of moving its headquarters to Cleveland in 2001. Just two years later, however, when the company announced that it had created a mouse that totally lacked cholesterol — a discovery momentous enough for Science to publish it — the Cleveland Clinic wasn’t among its collaborators, and the company’s headquarters had moved again to Fremont, Calif.

Quark’s involvement with RNAi seems to date only back to 2004, when it licensed RNAi technology from the Silence Therapeutics unit Atugen. That collaboration pertained specifically to a gene called RTP-801 that appeared to play a major role in inflammation. The next year, the two companies expanded their agreement to cover RNAi drugs for five other undisclosed genes. Silence Therapeutics revealed that AKIi-5 was one of them in this press release:

SR Pharma expects to begin the clinical development of its proprietary AtuRNAi therapeutic molecules for systemic cancer indications in 2007. SR Pharma has sublicensed the AtuRNAi compound RTP-801i to Pfizer through its collaboration partner Quark Biotech Inc. for the treatment of Age-related Macular Degeneration (AMD) and a number of other indications. This compound entered the clinic in early 2007. In addition SR Pharma has licensed a further AtuRNAi compound, AKIi-5, to Quark Biotech Inc. This compound has been granted an IND for acute kidney injury and is expected to enter the clinic in 2007.

That’s just part of Quark’s interesting history. It has long worked with several Japanese pharmaceutical companies, which explains why its second and third-largest shareholders are two Japanese investment partnerships, the Trans-Science Global Bio-Technology Fund and Asuka DBJ Investment LPS. (Ellison’s Tako Ventures is the largest investor, with 42.3% of the company.)

Quark hopes to price up to 5.75 million shares between $12 and $14 apiece, which would make Tako’s 5.6 million shares worth as much as $78.4 million. Overall, the company could have a market capitalization of as much as $256 million following the offering.

Biotech chameleons like Quark are fascinating because of the ease with with they shed their skin and morph into something new, often without ever looking back. Some, of course, do so for perfectly legitimate business reasons, while others seem most eager to catch new trends and to ride them as hard as they can.

It’s often hard to tell which is which, though, which is one reason I hope to occasionally spend some time looking at particular biotech chameleons to see how far their public image diverges from their actual history. After all, there’s nothing wrong with making a fresh start — at least so long as potential investors know exactly what they’re getting into.

UPDATE: Turns out Silence wasn’t such an authoritative source on the details of its partnership with Quark. I revisited the subject and laid out the company’s obfuscatory language and how it Quark’s actual role in developing its RNAi drugs in this post.