The MX Q&A: David Parkinson, Nodality

During his years leading drug-development efforts at major biomed companies, David Parkinson says his frustration mounted as the industry couldn’t quite make the best use of its scientific advancements where it counted. What bothered Parkinson was that the methods for using the breakthroughs to benefit patients were more suitable for Louis Pasteur’s day than for medicine practiced in the first decade of the 21st Century.

“Our lack of productivity in the industry was not due to our inability to produce molecules,” says Parkinson, now the president and CEO of Nodality, a new South San Francisco–based manufacturer of predictive tests for treating cancer and autoimmune diseases. It was the inefficient therapeutic use of these molecules. “You can call it whatever you want—‘personalized medicine’—I don’t care what it’s called, but what we need to do is categorize patients better than what we currently do,” Parkinson says. “Currently, these classifications are based on anatomy; they’re based on pathologists looking through microscopes as they did in the mid-1800s. While that has had many uses and benefits, it is not useful for efficient, biologically targeted therapeutics.”

With the support of the academic community Parkinson now strongly believes that the biotech industry, and Nodality in particular, is poised to overcome that challenge. Nodality is on the verge of introducing its first commercial test for acute myeloid leukemia, and it expects to soon develop tests for myelodysplastic syndrome and chronic lymphocytic leukemia. Launched in 2006, the company aims to commercialize a proprietary technology called single-cell network profiling (SNCP) that it has licensed from Garry Nolan, a professor of genetics who developed the technique at his Stanford University lab. SNCP can be used to pinpoint disease biology for more effective patient treatment through highly predictive clinical tests, the company says. In addition, the technology’s use of functional biomarkers could reduce the time and expense of drug development.

Since receiving his M.D. degree from the University of Toronto in 1977, Parkinson has had a wide-ranging career in both the public and private sectors. He trained in internal medicine and hematology/oncology at McGill University in Montreal and at the New England Medical Center in Boston. Parkinson served as chief of the investigational drug branch and acting associate director of the cancer therapy evaluation program at the National Cancer Institute from 1990 to 1997. He is also past chairman of FDA’s biologic advisory committee and has held academic posts at the M.D. Anderson Cancer Center and the University of Texas.

Parkinson joined Nodality a little over four years ago from Biogen Idec, where he was senior vice president of oncology R&D. Before working at Biogen he served as vice president of oncology development at Amgen and vice president of global clinical oncology development at Novartis. When he was at Amgen and Novartis Parkinson was instrumental in the clinical development of Gleevec, Femara, and other cancer therapeutics. It’s perhaps understandable then why the Nodality executive describes himself as a “clinician by background[and a]drug developer by inclination for the past 12 years or so.”

MX caught up with Parkinson during the mid-January J.P. Morgan Healthcare Conference in San Francisco. In this in-depth conversation, the executive discusses deal-making developments at the conference, Nodality’s unique combination of diagnostics and therapeutics, the need for changes in reimbursement, the frustrating inefficiency of current medical practices, and why he’s sticking with the healthcare industry sector.

MX: What stood out for you at the J.P. Morgan Healthcare Conference? What was the mood there?

David Parkinson: This is my fourth year of attending the conference, and the mood is clearly more upbeat than last year, which was more upbeat than the year before. One hears of lots of deals being negotiated. It’s even more crowded with even more activity going on outside of the meeting venue. That’s always been the case, but it’s at least my sense that there’s a lot of activity around. That notwithstanding, people do discuss the difficulties of raising capital, particularly for small companies, and the challenges that Big Pharma is facing and that whole opportunity for small companies with pharma interface.
This is a deal-making meeting, and it’s quite clear that there are a lot of deals being discussed.

How about Nodality? What did your company get out of this meeting?

This is a year where we haven’t presented. It’s probably our breakout year in the sense that we’ll be producing our first predictive clinical test. We are establishing major collaborations with pharma companies in both autoimmunity and in oncology. Because we have a proprietary technology platform and this platform, which gives great insight into the biology of complex populations such as malignant cell populations or lymphocyte populations in the case of immunological assays, we are at once a technology platform company and an applications company.

Those applications fall into two categories. One is personalized medicine, [which is] our precision medicine category, where we are producing highly predictive tests to link patients with appropriate biologically targeted therapeutics. The second general category of applications relates to drug development, and our technology, which originally came out of Stanford University in the lab of Garry Nolan, is applicable all the way from discovery research through preclinical.

We’re very comfortable with our accomplishments in taking an academic technology and basically industrializing it for a regulated, clinical test environment and then in partnership with pharma and biotech companies assisting them in the risk-managed and more efficient development of new therapeutics.

We just moved to a new space, which doubles our laboratory space and gives us a room for these new collaborations. It’s a pretty exciting time for us….We’re very comfortable in what we’ve achieved in terms of our technology, in terms of our collaborations we’ve established with the academic community, and we’re just delighted with our new collaborations with business partners in pharma and biotech. We’ll be announcing those over the next little while.

This year?

Oh, absolutely.

So you had a good story to tell at this year’s conference.

Yes, we’ve done this in private meetings. We’ve met with potential pharma and biotech partners; we’ve met with interested investment groups. It is a nice story, actually.

How did the licensing process work with Prof. Nolan? That happened before you arrived.

It did. The company started five-plus years ago, Garry was one of the founders. I have been with the company a little over four years. My own background is in critical oncology and hematology but also in therapeutics development. And I’ve run drug-development programs and clinical trial programs in academic medicine and then for the National Cancer Institute. Then I was also, of course, head of global clinical oncology development at Novartis for years. I headed the oncology therapeutic area at Amgen, and then I headed up oncology R&D at Biogen before I came to Nodality.

We’ve got great investors. We’ve got Kleiner Perkins; we’ve got TPG Biotechnology and Maverick Capital, and then we have strategic investors. What we’ve built is a company that uses a diagnostics technology, a proprietary technology. We have six issued patents and over 30 patent families filed, a number of these could be allowed in the next several months.

What we’ve done is build a company with the tools of the diagnostic industry but that is very, very focused on the application of therapeutics. Most of us have come from therapeutics development backgrounds, and we use these tools because we also brought in test-development technology people and we’ve used this unique technology in ways to match patients efficiently with appropriate drugs for their conditions, whether that be malignancy or autoimmunity. We’re a little [different] with respect to the diagnostics industry because of our intense focus on therapeutics development.

Single-cell network profiling is a breakthrough technology, but is a breakthrough technology alone enough for a biotech or device company to be successful?

Having an important technology—even better, a proprietary important technology—distinguishes us from most other diagnostic companies. But having that technology is a necessary, but not sufficient condition, for success. You say to yourself, “Well, what are the other conditions that one needs for success?” Let’s divide that into two application areas, the first being the development of a commercially clinical test. Well, we have to understand the clinical context in which the test will be utilized, and in many respects our approach is parallel to what we do in the therapeutics development industry….  So we look at the clinical situation with acute myeloid leukemia and we say: “Where are the important clinical decisions made in this disease or any other disease?” Then what we do as a matter of strategy is form partnerships with academic institutions, investigators, and clinical trial groups, and we obtain our clinical samples only around those clinical decision points.

What we’re interested in doing is studying the biology around a situation in which a decision is made and action is taken—that is, giving a therapeutic—and an outcome is arrived at. You call those “clinically annotated samples,” and by studying samples that are informative in that respect we are able to determine the relationship between biology, giving a treatment, and therapeutic outcome. Then we turn that in a very formal, disciplined way—very much like a therapeutics company; we have project teams; we have deliverables, milestones. In terms of our test development we follow all current and expected FDA guidelines with respect to the development of highly predictive tests, the in vitro diagnostics area. We have a CLIA-certified lab, we have a GLP lab, [and] a GMP manufacturing lab for reagents that we use in our final diagnostic tests. In addition, we have a discovery research lab.

So, we have a very formal, disciplined process that works not just for company staff but with objective, external, third-party clinical trials groups. For example, our leukemia clinical trial has been reviewed not just internally but also by cooperative groups, and then also at the National Cancer Institute itself. We work to generate the highest level of evidence, because we believe that our highly predictive clinical tests will be driving clinical decisions about the use of therapeutics in cancer and in a few years in autoimmune disease, and therefore, we expect to be regulated. It’s appropriate to be regulated, because we’re determining the use of regulated drugs.

Behaving in this way—that is, under full regulatory guidelines—also makes us a perfect partner, given our technology, with pharma development companies because they need partners that can actually work to the kinds of standards that are expected in the development of new therapeutics.

You describe a high level of detail in developing the technology. Is that how Nodality distinguishes itself from its competitors?

I think it distinguishes us from the traditional diagnostics industry. But in fact it’s a necessary evolution of specialty diagnostic companies that are really utilizing the new biotechnologies in ways that allow for highly predictive and sometimes prognostic diagnostic tests. When your tests become increasingly important in clinical decision-making, that’s a situation where FDA has said, “Okay, we’re with you. We believe in you, and therefore we’re going to regulate you and not leave this any longer to the practice of laboratory developed tests.” It seems to me that it’s a natural evolution of the level of sophistication of the diagnostics industry in the sense that as the clinical tests become more important in clinical medicine that they should expect to be regulated.

Now the challenge that the entire new  molecular diagnostics industry is facing is that—while the regulators have understood the importance of this new technology and while increasingly you see the public [supporting] the concepts of personalized…medicine, [and]the broader medical community and certainly advocacy groups understand the importance of this new genomic technology— the state of reimbursement of clinical tests, as driven largely by Medicare policy, is actually to pay for time and materials and not to recognize the kinds of high levels of clinical evidence, or “clinical validity” in the diagnostics world. That’s not recognized currently with respect to reimbursement of tests.

Presumably, this will all evolve. But until it does, this is a huge challenge for the business model of clinical test development companies. Hence, a company like ours that has the advantage of a proprietary technological platform can utilize that in partnership with biotech and pharma companies in parallel. Our success as a company is not dependent on an early generation of revenue from clinical tests. Because if it were, we’d be in trouble.

How long will it take before this reimbursement challenge starts to evolve to where it’s more favorable for diagnostic companies?

It’s hard to call, but we’re starting to see groups [move in that direction]. For example, Palmetto, which is the Blue Cross/Blue Shield provider in California and a number of other states, has released guidelines about what they expect to see in these kinds of clinical tests before they will reimburse. And in fact they just approved for reimbursement—and this was just announced publicly, I think, yesterday—a test for thyroid cancer diagnosis introduced by one of our sister companies, Veracyte. This will happen sort of one at a time. What would certainly accelerate the development of the molecular diagnostics industry would be policy change from Medicare. I know that there are groups for policy change in Washington, but that’s not going to occur quickly and unlikely to move forward in an election year.

We can’t leave ourselves in a situation where our future as a company is at the risk of unknown timelines or policy changes to reimbursement. What we can do, though, is continue in parallel with the academic community our development of these highly predictive tests, because one of the best drivers to get change is to actually show that you can develop these tests. They can be incredibly useful in improving patient care at the same time as potentially making much more efficient and rational the use of therapeutics in patients with cancer and autoimmune diseases. Those are the kinds of perspectives I bring to this field. That’s why I’m actually doing this.

You know, I’m a clinician by background; I’m a drug developer by inclination for the last 12 years or so. I became frustrated while leading large, international and global drug-development groups for the industry that…our lack of productivity was not due to our inability to produce molecules. Industry is very, very good at producing molecules, which are able to do what they’re supposed to do biologically. The inefficiencies and the risks and the failures are the inability to position the patient populations appropriate to the use of these therapeutics. You can call it whatever you want—“personalized medicine.” I don’t care what it’s called, but what we need to do is categorize patients better than what we currently do. Currently, these classifications are based on anatomy; they’re based on pathologists looking through microscopes as they did in the mid-1800s. While that has had many uses and benefits, it is not useful for efficient, biologically targeted therapeutics.

In the area of cancer prevention and cure you’ve worked in both the public sector at the National Cancer Institute and the private sector. What are the benefits and drawbacks of each, and what can the two learn from each other in order to move forward in helping patients?

Those are really great questions, and I speak with a strong bias for the oncology community, where frankly there’s been the greatest parallel public and private development. When I was first involved in cancer drug development, there were relatively few companies actually in the field, and most of the agents came out of large-company programs that seemed like they might have applications for oncology. But the companies didn’t have a lot of expertise, and frankly they didn’t have a lot of strategic intent, because it wasn’t a paid therapeutic area in terms of revenue. In the absence of a large industry presence, the National Cancer Institute had a several-decades history of really running its own drug-development program.

As you say, I had a lot of experience with the public program, and I consider it to be a perfect complement to what goes on in the industry world. Over the last 20 years what’s happened is that in the industry…really highly talented individuals see the industry as a perfectly acceptable therapeutic and professional career. In fact, [there’s] back-and-forth between academia and industry. I’ve had many opportunities to go back and forth as I wanted to. In general, I would say that the strengths of the industry are the resources, the organizational infrastructure, the ability to focus on getting something to a point where it makes a difference in terms of…getting a drug registered and therefore out of the investigational venue and into actual clinical medicine so that the drug’s available in every pharmacy.

For example, it’s very gratifying to be able to work on Gleevec, because there we took an idea that came from academic biomedical research—basic research going back decades—and we used the powers of the pharmaceutical industry’s…technology to identify the appropriate patient population [and] come up with an agent that was specific for the target associated with this particular population of leukemic patients. Then in about 3½ years using the entire power of this global company, we were able to change the natural history of chronic myeloid leukemia. That’s the power of the industry.

Meanwhile, part of the reason we were successful was the fact that all around the world, supported by public dollars, there were academic clinical trial groups whose raison d’être was basically to do clinical trials of new therapeutics in chronic myelogenous leukemia. So we partnered with them, and that helped drive the process to the benefit of people with CML. Although the company ran the global drug development program entirely, it partnered with clinical trial groups that were partly funded by public funds around the globe. There are many examples. Even in my current position, I continue to interact with and support activities at the National Cancer Institute, just because I believe so strongly in the importance of the public clinical trials. Along the way, I have also interacted with other public entities, including FDA, where I chaired advisory committees and sat on other science boards, just because what we’re doing is so complicated that although the industry brings particular resources and technical strengths you need the academic community because they are the source of new biological information and they are also the group taking care of these patients. Then you also need to engage government, scientific, and regulatory individuals, because they’re part of the ecosystem, too. And it works best when everybody is pulling together, and then ultimately it goes to the regulators. They are the arbitrators, but I’ll tell you it’s much easier for them to arbitrate when the entire community has been engaged [together] to get it right.

Touching on some of the comments you just made, I know that Nodality is a member of the California Healthcare Institute. In a CHI survey released in January biomedical company CEOs say that access to capital, burdensome regulations, and a lack of R&D innovation are big threats to industry growth over the next five years. That sounds kind of dire. Do you have any thoughts on these issues?

First of all, I’m part of that survey—just full disclosure. We are members; they’re must be hundreds of CEOs. They’re right. I touched on the reimbursement hurdles. I also indicated that while I think it’s appropriate that FDA regulate highly predictive tests, the fact that FDA is now regulating these tests and higher levels of evidence are being required means that the amount of resources and the time to actually develop and commercialize these tests have now increased dramatically. That is a huge challenge to the models of financing these start-up molecular diagnostic companies.

How much of an increase are we talking about?

If you developed a clinical test, and you were able to develop this test in a single lab and establish its analytic validity, you could commercialize it if you published a paper or two. That was all you had to do. And now—and I’m indicating I think it’s appropriate—FDA has said, “I’m sorry. These tests are so important in the practice of medicine that we intend to regulate them, because frankly they’re driving the use of the drugs we already regulate.” What that means is that a lot of diagnostic companies now have to acquire the skill sets to develop these levels of evidence. That’s actually not trivial.

When you said, listen, Nodality sounds like it’s a lot more complicated and maybe differentiated from many of the other kinds of diagnostic companies historically, well, you’re absolutely correct. But historically the industry was not required to develop these levels of evidence. Furthermore, they were not rewarded for doing so. The role of the diagnostics industry was basically to develop the tests, and then it was the role of the academic community to develop the evidence around the meaning of the test. But, you know, those tests didn’t utilize the kinds of sophisticated technologies now being utilized.

We’re now in a transition state. The technologies are more powerful. The potential for developing much more important clinical tests is present. The regulators have said they agree, and therefore you need to increase the levels of evidence. The cost, the time, the resources, and, frankly, the risks have increased before you can even commercialize a test and start to get revenue. And yet when you get to the other end you don’t have the easy recognition of the value of the test, and therefore there isn’t a reward system.

What does that mean? That gets back to what those biotech executives said in the survey, and I would have said exactly the same thing: Listen, the hurdles are great, the business models are challenging, the investment community is skittish because they haven’t seen a lot of commercially successful molecular diagnostics companies emerge. Everybody believes in the potential, but everybody also recognizes the hurdles.

So this is where policy change that could help minimize the hurdles ultimately will lead to the utilization of these tests, which to my mind is absolutely necessary if we are to move to a more efficient practice of medicine. Right now, the practice of medicine is quite inefficient. The ability to match a patient with appropriate therapeutics, get the right dose of that therapeutic, know whether the therapeutic’s making a difference, know when it stops making a difference, know how it should be used in combinations—it’s all really quite limited and the potential of these new technologies is to change all that. You know this euphemism “right patient, right drug, right time”? It sounds like a marketing thing, but when you think about, it’s what you would want for yourself.

Pfizer Ventures and other investors provided Nodality $15.5 in March 2010. According to a December 2011 article in EETimes, the CEO of a medical design company said that VC funding has dried up over the past few years. You were saying at the top of our conversation that you see some positive signs at the J.P. Morgan conference this year and last year. This executive also says the regulatory climate is forcing companies to go Europe, and I’ve heard that from other CEOs I’ve interviewed. How is Nodality faring in regard to these issues?

First, the movement of companies to Europe, as I understand it—and I have some insight into this—is largely about device-related companies and the CE mark. I understand that’s a phenomenon, and I know from personal experience because I’ve been involved in conversations that it’s a major concern to the [Obama] Administration. So they’re talking about ways of trying to help.

When I said there was a lot of deal-making going on at J.P. Morgan, what I don’t know is who’s making those deals. The issue is where are the sources of capital? You know better than I do about relative sources of capital from the venture world versus investment by pharma and large biotech. Those are the kinds of deals that I hear about and those are the larger deals. Sometimes it’s the venture groups around the pharma companies, but increasingly we’re seeing partnerships, mergers, and acquisitions of assets by pharma companies.

Now we’re just starting to see the kinds of things that we’ve been working on, which are major strategic collaborations between pharma and diagnostic companies with technologies that can give them a competitive advantage in their drug development. That’s our focus. We believe our technology can do that, and I suspect that as pharma begins to understand that the problem in productivity of drug development is not just the lack of molecules [but] a lack of insight into how to efficiently risk-manage and develop these molecules and that there are actually solutions to managing that risk and accelerating time, we’re going to see a lot more strategic collaboration between pharma and companies like ours.

Is Nodality itself an acquisition target down the line?

All I know is what I need to do. Our first challenge was to develop the technology and industrialize it. It was a great academic technology, but we needed to make it something that [could be regulated] and we’ve done that. The next thing we needed to do was to prove that it could actually develop predictive clinical tests of unprecedented accuracy; we’ve done that. And the next thing we need to do is to show examples and convince pharma partners that we could get them a leg up in terms of their drug development, and we’re absolutely doing that.

The interesting thing about us is that we are both a technology platform and an applications play. And we work right at the interface of diagnostics and therapeutics. It confuses people, and I say, “Look at our model,” because we represent the future of therapeutics and diagnostics development. I’m very proud of the way we are organized. What does that mean in terms of our future? Ach, I don’t know. I can’t predict; all I can do is execute.

Will the change to first-to-file in the new U.S. patent law have any effect on Nodality or Stanford IP going forward?

I don’t believe so. We’re a small company, and we file pretty quickly on our inventions because we have an in-house IP attorney. Our general counsel is an IP attorney. That was part of my own strategy, because we are an invention machine, an innovation machine. So it doesn’t really change things very much from our perspective.

On a positive note a recent story in the L.A. Times Business section detailed how different market sectors performed in 2011, and the healthcare segment came in third in the S&P 500’s index for the year. In a macroeconomic sense I’d take that as good news for medtech, wouldn’t you?

What were the first two? I’m curious. Maybe I’ll switch industries.

The first sector was utilities, and the second was consumer staples. Utilities funds performed 14.8% better than they did in 2010, consumer goods were up 10.5%, and healthcare funds rose 10.2%.

Well, I don’t know anything about utilities or consumer staples, so I’d better stick with what I’m doing, I guess. (Laughs.)