CMEA 8 Is Kaput, But A Would-Be Partner Moves On With Wellspring

Two months ago, CMEA was touting its upcoming eighth fund and two new partners with a string of early-stage biotech successes on their resumes. The fund is now dissolved, but one would-be CMEA 8 partner has moved on with a new asset-centric incubator.

Diversified venture firm CMEA Capital has had on-again, off-again plans to launch a new fund dedicated to the life sciences for some time now. Those plans now are very much off.

After months of planning CMEA 8, two of the would-be partners are no longer associated with the firm. As they confirmed the fund’s break-up to START-UP, a sexual harassment suit against the firm and a former executive went public. Despite the timing, there is no indication that the unraveling of CMEA 8 is linked to the lawsuit. To be clear, the two would-be partners who are no longer listed on CMEA’s web site, Troy Wilson, PhD, and Kent Hawryluk, are not mentioned in the legal complaint.

Before news of the lawsuit broke, sources with knowledge of the fund told START-UP that work on CMEA 8 had ended. Wilson and Hawryluk’s web pages, with descriptions of the new fund, had been removed from the CMEA web site. After the suit became public on March 7, Wilson and Hawryluk, along with the fund’s third partner, CMEA life sciences managing director Karl Handelsman, would make no comment except for a joint statement to START-UP: “CMEA 8 is dissolved. The decision was mutual and we have amicably parted ways.”

As recently as mid-January, all systems seemed to be go for CMEA 8, with buzz building at the JP Morgan conference and both Wilson and Hawryluk profiled on the firm’s web site as CMEA 8 founding partners. The text on Wilson’s page read, in part, “Troy Wilson is a successful, serial entrepreneur with a passion to build companies that create significant value for employees, investors and, most importantly, patients. He brings that passion to his role as Founding Partner of CMEA 8, which is focused specifically on early-stage, life science investments. Faced with patent expirations and declining productivity, Pharma continues to acquire products and companies to drive future growth. ‘Our goal is to build products and companies to fill that gap,’” says Wilson. “‘We want to identify promising scientific innovation in university labs and advance it to the point where it fills the pipeline needs of Pharma.’”

At some point in late January or February, Wilson and Hawryluk’s pages were removed from the site.

Wilson was the co-founder of Intellikine Inc., a San Diego biotech that brought CMEA and other investors a potential 6x return, collectively, when Takeda Pharmaceutical Co. Ltd. acquired it in early 2012 for up to $310 million and absorbed the company into its Takeda Oncology unit. [See Deal] Hawryluk is a veteran VC based in Indianapolis whose successes include Marcadia Biotech Inc., bought by Roche in late 2010 for about $300 million up front. [See Deal]

Hawryluk declined to comment on his future plans. But Wilson and his former Intellikine colleagues have been building a self-described “drug discovery incubator” called Wellspring Biosciences LLC, a variation on the increasingly common theme of asset-centric biotech company creation. The group recently announced its first deal.

Wellspring is a kind of holding company that houses research employees and benefits but none of the intellectual property that stems from their research. Using only $1 million raised from friends and family, Wellspring’s scientists are pursuing a comprehensive approach to drugging signal transduction networks, but Wilson is reluctant to say more about the science. His experience at Intellikine, which was in fierce competition with several firms to develop selective PI3 kinase inhibitors, left him cautious: “The lesson we learned is that in doing business development we educated the world in how to make selective PI3K inhibitors. This time we want a lower profile.” (See (Also see "It's Apples Versus Oranges in the PI3 Kinase Race" - Scrip, 1 Oct, 2009.).)

He also wants to build what other biotech entrepreneurs and investors have been working on, in various flavors: a more flexible corporate structure that lets buyers pick off single assets and provides investors a return, while keeping the core scientific platform and team intact. Other variations that have launched in the past couple years are Inception Sciences Inc., Forma Therapeutics Holdings LLC, and Nimbus Therapeutics.

“There’s no easy way to parse assets apart when you’re in a Delaware C-corp,” says Wilson. “And if you have scientists creating and innovating, you want to monetize the assets but not tear the band apart.”

Wellspring has already spun off its first asset-centric offspring, Araxes Pharma LLC, around an oncology program that the Johnson & Johnson division Janssen Biotech Inc. (part of Janssen Pharmaceutical Cos.) is funding. [See Deal] Janssen’s R&D oncology group headed by Peter Lebowitz, MD, PhD, has paid an undisclosed amount for an option to license exclusively the program. The decision point to exercise the option for the program, which is focused on an undisclosed target, will come after Phase I, says Wilson. Janssen is paying an up-front fee, R&D funding, and potential milestones and royalties. All other details remain undisclosed.

CMEA itself is trying asset-centric development with its in-house Velocity Pharmaceutical Development LLC, which draws funding from CMEA VII. At one time, Velocity was slated to be CMEA’s eighth fund, with major backing from Eli Lilly & Co. The firm got as far as distributing marketing material for it, and in early 2011 underscored the new fund’s asset-centric focus with this magazine. (See (Also see "Atlas, CMEA Test New Biotech Model " - Scrip, 1 Apr, 2011.).)

In mid-2011, Velocity had changed its stripes. It launched as a company, not a discrete fund, and CMEA managing general partner Jim Watson outlined its financing plans to the media and said there would be no CMEA 8. (See (Also see "Financings Of The Fortnight Notes A Change In Strategy For CMEA's Velocity Fund" - Pink Sheet, 24 Jun, 2011.).) In late 2012, Velocity CEO and CMEA life sciences managing director David Collier, MD, told START-UP the firm had two in-licensed assets in hand. (See (Also see "NeXeption, Not The Rule: Another Twist On Asset-Based Financing" - Scrip, 26 Nov, 2012.).) It later said it had created a virtual company, Spitfire Pharma Inc., to push forward a clinical peptide candidate in-licensed from EuMederis Pharmaceuticals Inc.

All the while, Handelsman, Hawryluk, and Wilson were planning the revival of CMEA 8. What exactly they envisioned isn’t clear, but it’s quite possible it was meant to be another try at an asset-centric model. In fact, on Wilson’s now defunct CMEA page, he was quoted as saying that Wellspring was “exactly the sort of company we want in CMEA 8.”

Meanwhile, CMEA’s lawyers are due to respond formally to the legal complaint in April. Three women, all executive administrative assistants, have accused former chief operating partner John Haag of years of harassment, much of which is spelled out in graphic fashion in the complaint, incident by incident.

Long-time CMEA life-science partners including Handelsman are mentioned in the 17-page complaint, sometimes in unflattering light, but are not listed as individual defendants. However, the firm itself, which is a limited liability corporation, is named as a defendant, in part because the plaintiffs allege that retaliatory and harassing behavior continued after Haag left the firm. They have left room to name other individuals.

Handelsman referred questions about the lawsuit to CMEA’s lawyer, Lara Villareal-Hutner, who responded with a prepared statement that read, in part: “CMEA acted at all times professionally and with integrity, underscored by the fact that for the last eight months the administrative assistants continued working for the Firm, and resigned only after retaining an attorney and filing this lawsuit. While the statements asserted in this lawsuit are salacious, CMEA is confident that the true facts supported by evidence ( not others' self-interested mudslinging ( will determine the outcome of this case. As such, CMEA is fully prepared to vigorously defend itself and its reputation, and is supremely confident in its ability to prevail.”