Case Study #4 – Matthew Callahan, successful serial biotechnology entrepreneur

January 29, 2020 | Blog

Track Record of Success

Matthew Callahan is a serially successful entrepreneur. In particular, he has a proven track record in the life science industry and is responsible for 4 Food Delivery Association (FDA) product approvals in the dermatology industry.

Matt Co-founded iCeutica, which was acquired by Iroko for AUD60m in 2011 and successfully generated more than AUD120m in revenue for iPernica (now Nearmap (ASX:NEA)), which at the time of writing (Jan 2020) is valued at more than USD1bn.

Matt Co-founded Botanix Pharma (ASX:BOT), his latest biotechnology business in the dermatology industry. Botanix uses a proprietary technology called Permetrex™ to enhance the topical delivery of synthetic Cannabidiol (CBD) into the skin to more effectively solve unmet needs of patients suffering from acne, dermatitis and psoriasis. Matt and his team patiently waited for the legalisation of this synthetic Cannabis compound after discovering that the combination of CBD and Permetrex™ could be used to solve the problems that existing acne, dermatitis and psoriasis products have failed to overcome. Each dermatology market is a multi-billion dollar annual sales opportunity, where, for example, in the acne market, there has been no Food and Drug Administration (FDA) approved product in over 20 years. 

How is Matt avoiding the most common entrepreneur mistake of building a product that no one needs?

There is a significant unmet patient need for effective therapies in the global acne, dermatitis and psoriasis market due to little to no new products being developed. Also, there has been many products withdrawn from the market because of their significant side effect problems. 

In particular, there has been no new acne drug approved by the FDA in more than 20 years. As a result, there remains unmet patient and treatment need, including: 

  1. the need for a topical product that inhibits production of oils or lipids by the sebaceous glands; 
  2. antibiotic-independent mechanisms for infection; and
  3. an agent with the efficacy of the leading oral product (isotretinoin or ‘Accutane’), but which is potentially free of its serious side effects. 

Essentially, the only way to effectively treat skin disease is to take oral medicine. Topical creams fail to deliver the medicine to the infection that sits well-below the skin (in the dermis) because no one has come up with an effective way to get the drugs in topical creams to penetrate deep enough below the skin. The drugs just sit on the skin after they have been rubbed in, so they are ineffective at solving the problem. This means the only way to get the drug to the infected area is orally.

However, the leading oral product, Accutane has a ‘Psychiatric Disorders’ warning, including serious long term side effects including depression, psychosis and, rarely, suicidal ideation, suicide attempts, suicide, and aggressive and/or violent behaviors.

In addition to failing to meet optimal safety profile, these oral products still fall to address itch, redness etc. 

What does a topical solution that is safe and effective look like?

Matt discovered that Cannabidiol (CBD) can be used to effectively treat and prevent skin disease. However, challenges with the impurity and variability of the CBD drug substance, and the difficulty of delivering it into the dermis effectively, had significantly stunted CBD’s development as potential solution. 

Botanix Pharmaceuticals’ approach of utilising a pure manufactured synthetic form of CBD combined with a novel skin delivery technology, Permetrex™, are focused on solving both of these challenges. 

How big are the opportunities in dermatology?

The acne, dermatitis and psoriasis markets are each worth billions of dollars in annual sales globally, with each one growing year on year. For example, in the acne market where competitive products with tolerability and safety concerns, as well as antimicrobial resistance challenges, have generated significant annual sales (e.g. Solodyn’s peak gross sales were approximately USD$1bn).

How is Matt beating his competitors at solving unmet patient needs (something most startups would crash and burn trying to do)?

Matt discovered that there was significant scientific evidence supporting CBD’s effectiveness in treating and preventing skin disease.

However, no well-controlled Food and Drug Administration (FDA) regulated human clinical studies have ever been conducted with CBD to treat skin disease. Also, no products with CBD have ever been approved to treat skin disease.

Natural extract forms of CBD have been proposed as treatments for a range of diseases and are currently being studied in numerous advanced clinical trials conducted by other pharmaceutical companies, to treat epilepsy, pain and arthritis (amongst other indications).

Upon further investigation he realised that using natural extracts will be very difficult to get FDA approval because there are more than 80 different types of cannabinoids and the FDA considers each one a separate drug.

How is Matt avoiding the prohibitive cost and time required to get natural forms of CBD approved?

Matt realised that if you create products that utilise a pure and very high quality manufactured synthetic form of one of the chemicals found in natural cannabis extracts, that being CBD, then you avoid the huge timelines and costs because you only need to get one drug approved instead of showing how all of the 80 work together and separately.

Botanix Pharmaceuticals’ products utilise a synthetic form of the natural plant extract which has never been studied in FDA regulated clinical trials for skin disease. 

So, Matt worked out a way to overcome the challenges with the impurity and variability of the CBD drug substance that hamstrings competitors, but he still had to work out a way to effectively deliver CBD across and into the skin. 

How does Permetrex™ work?

It can be likened to pouring petrol onto concrete. What happens when you pour petrol on concrete is that during the evaporation process the petrol is pushed into the concrete, which causes a permanent stain (unlike water). The diagram below explains how the combination of CBD and Permetrex™ works to push the CBD beneath the skin and into the dermis, which overcomes both of the problems that competitors cannot.

www.asx.com.au/asxpdf/20200113/pdf/44d6yp7msplg09.pdf

To demonstrate the effectiveness of CBD and Permetrex™, Botanix’s acne product (BTX 1503) Phase 2 Trial results showed that its safety profile was above all comparative products (very safe – no adverse effects) and its efficacy is in line with target product profile (e.g. Accutane). 

Also, Botanix is currently conducting Phase 2 trials for dermatitis and psoriasis products which, based on Phase 1 results, show the potential to outperform existing products in those markets as well.

What did Matt do to build a team with a diverse skill-set to overcome the common problem of building the wrong team?

Matt put together a scientific team, who similar to him, have a successful track record of developing, protecting and commercialising novel scientific products and processes.

In particular, Matt, Dr William Bosch and Dr Eugene Cooper, each have unique experience in the drug delivery industry, having been closely involved in developing and/or gaining approval for more than 10 combined FDA approvals for products that utilise novel drug delivery systems. 

Furthermore, Matt has built a team of people whom he has worked with successfully before. For example, him and Dr Bosch are the co-inventors of the Solu-Matrix technologies used in their previously successful company iCeutica, which was acquired for USD60m in 2011.

In addition, the current key members of the management team having compelling and unique experience in rapidly conducting clinical and gaining FDA approval for new products (more than 20 FDA approvals between them).

What did Matt do to ensure that Botanix has enough money to execute and avoid over-promising and under-delivering like most startups?

Matt saw an opportunity to get new dermatology products approved in 4 years, which is a third of the time it usually takes to get FDA approval (~12 years). Also, by choosing to use topical creams instead of tablets and a pure and very high quality manufactured synthetic form of CBD combined with Permetrex™, drug approval can be achieved at less than a quarter of the average USD$1bn cost.

Also, Since 2015, Botanix has met every milestone they have promised investors on time and under budget. This is a direct result of Matt and his world-class team’s proven track record of success in FDA approvals.

As a result of under-promising and over-delivering, Botanix has raised over USD50m (at the time of writing in January 2020) and the valuation of the company increased by more than 500% between 2016 and 2018, following the company beginning stage 2 trials. 

So, what does this mean for you as an investor?

As you can see from this example, successful entrepreneurs make investors more money, more often because they are able to overcome the major reasons why startups fail. This is reflected in the statistics, which found that first-time and failed entrepreneurs had a 20.9% and 22.6% chance of success, respectively, whereas already-successful entrepreneurs had a 30.6%.

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