With the sale of Paladin Labs Inc. to the highest bidder in his rear view mirror, Jonathan Goodman believes he can strike gold again with his new company Knight Therapeutics
For Montréal entrepreneur Jonathan Goodman, 2014 has been a very big year. After all, there aren’t many CEO’s in the biotech space who can say they took a company they’ve founded from a market cap of just $6 million through to a sale of over $3.2 billion.
The sale of Paladin Labs, one of Canada’s most successful specialty pharmaceutical companies to Pennsylvania-based Endo Health Solutions took many by surprise. But perhaps even more surprising than Goodman’s decision to walk away from the company he founded in 1995, was his decision to jump right back into the game with the launch of Knight Therapeutics on the same day of the landmark deal.
It’s a question he gets asked a lot, even today, “you sold your business for $3 billion, why didn’t you take a week off or even a day?”
“I love selling drugs, I kind of feel like it’s what I was born to do,” he says.
And why wouldn’t he feel this way? Based on the success of Paladin, it’s obvious he’s very good at it. The most compelling evidence of this is the interest that Knight is generating from the industry and in the investor community. Perhaps it is because many see Knight as a sort of Paladin 2.0, and the reason for that is that Knight’s core business strategy is very much the same.
Even things such as the company name (Paladin in the dictionary is defined as a knight in shining armor), the logo, colours and fonts share similarities. Most importantly, like Paladin, Knight Therapeutics is a specialty pharmaceutical company focused on acquiring and in-licensing innovative pharmaceutical products for Canadian and select world markets.
As Goodman explains, “It’s about carving out our piece of the pie in markets that the big players don’t care as much about, markets that are inefficient. For example, Canada roughly represents only 1.86 per cent of the world pharmaceutical market, hardly worth it to a big pharma company, but for a company such as Knight, it can be very lucrative. As I like to say, big pharma’s trash is often our treasure.”
According to Goodman, in addition to focusing licensing efforts towards certain undervalued markets, the company plans to source its products in the same fashion as Paladin, buying low risk, late clinical stage products through licensing deals and partnerships.
“Preclinical risk is something I’m just not comfortable taking,” he says. “It’s too difficult to discern what will work and what won’t. I’ve always preferred to chase products in the later stages of the clinical development path. These are products that need just a little bit of a tweak to get approved and we will spend the money to do that.”
The best part is Knight won’t have the burden of facing the same uphill battles that other start-ups do. The company’s biggest asset is its cash, of which it has plenty of.
“Within the first three weeks of operating we raised $255 million without even trying and the message I’m getting is the investor community is thrilled with us and they like our plan of execution. I know how to sell drugs in Canada, and I think that fact is not lost on them. More importantly, there’s a certain level of trust going through this a second time. It’s very important that when you say you’re going to do something you do it. You set your milestones and you meet them on time. That’s how I ran Paladin, and that’s how I’m going to run Knight.”
With the balance sheet sitting pretty, Goodman believes the company needs to now deploy the capital it has raised. He already has big plans on how this money will be spent and the shopping spree has already started. While a specialty area of therapeutic focus has yet to be decided, he expects it won’t take long to find one.
“At Paladin, I used to joke that our specialties were urology, endocrinology and opportunology. With Knight, since its early days, it’s too soon to tell. But the strategy is the same; we’re in the market to capitalize on opportunity. That’s really the core of our business going forward. And the source of these new products will include the aforementioned pharmaceutical companies willing to trade off Canadian rights for their products, as well as emerging specialty pharmaceutical and biotech companies who have developed something interesting and mature.”
Such is the case with the company’s recent acquisition of Orphan Canada Inc. Through the purchase it acquired new staff as well as two new products.
“The two assets we brought in are very near term, in fact, they’re approved in other markets. We just need to get one of them approved in Canada, and the other we’re looking to expand on by getting a new indication approved.”
There’s also the caveat that through its ownership of Orphan Canada Inc. the company has partnered with Concordia Healthcare.
“Our goals are completely aligned, they’re focused on the U.S. market and we’re focused on Canada so it’s easy to work together.”
According to Goodman, more deal flow is on the horizon in terms of seeking out and adding new products to the portfolio with the company looking at approximately 80 such opportunities. In addition to this, Knight has two other assets at its disposal— a voucher that allows the bearer to get faster review time by the U.S. Food and Drug Administration; and rights to Impavido, an oral treatment for leishmaniasis, a tropical disease transmitted by the sandfly. Both were inherited from Paladin when Knight was launched. Of the two, Goodman considers
Impavido rather insignificant in the grand scheme but keeping this product and getting it approved was a means to an end he says.
“It’s the reason really that we have this sort of uncashed lottery ticket U.S. “priority voucher”. When I was selling the company, what was important to me was getting the best value I could for the company. During negotiations, I conveyed to Endo that we expected to get this product approved by the FDA in a couple of weeks and it was going to come with this priority voucher. To include it in the sale I wanted more cash. In the end, Endo wasn’t willing to pay for it; they said they didn’t value it. So I said perfect, if you don’t want it, I’m going to keep it and give it to my shareholders.”
Goodman recalls that the whole conversation lasted just 30 seconds, but it led to the first brick in the foundation of Knight being laid. And in the end, Knight got its approval for Impavido and with it the voucher. As such, Endo’s missed opportunity has turned into Knight’s gain.
“What’s unique about it really is that it’s like a fast pass in terms of your FDA process. The program was designed by professors at Duke University to encourage drug companies to develop drugs for diseases where there is no market incentive, i.e. tropical infectious diseases. The idea is to create economic incentive for companies to create drugs for these neglected disease areas and if you do, you get this voucher, you give it to FDA and they will review any product in six months instead of a year. The key there, it can be used on any product. Just imagine what a big pharma company would pay for six more months of patent protection.”
And yet with all this going for it, Goodman admits there was a time Knight Therapeutics almost didn’t happen, a time where he very nearly left the business of biotech altogether.
Due to complications stemming from a cycling accident that happened in 2011, Goodman felt he longer could head up a company. The accident which was hugely disruptive to his life had him in a coma for five weeks, and led to several hospital complications including contracting C. difficile. This forced his long-time partner at Paladin, Mark Beadet to step into his role. Goodman endured a long struggle back to health, and it was a scary time, one with lots of self-reflection, he says. When he was well enough to return, he found things had changed too dramatically and he longer enjoyed running the business.
“I had always run Paladin as a sort of benevolent dictator, and those that know me know I’m a bit of a control freak. In my absence, Paladin became more of a democracy and it couldn’t go back to the way it was. So, I felt that if I couldn’t run the company the way I wanted to, I didn’t want it anymore and made plans to sell it.”
But as the offers started to roll in, Goodman started to have a change of heart.
“I thought to myself, I love what I’m doing, why would I give this up and during the process, my cognition improved to the point that I felt I could still run a pharmaceutical company. That’s really when I decided that selling Paladin didn’t mean I’d have to leave the business, that creating Knight was a very real possibility.”
And now, for Goodman, it’s all happening very quickly.
“People say Paladin was an ‘over-nightsuccess,’ but in reality that is not entirely true. It took a lot of time, a lot of luck and patience,” he says. Refreshed, rejuvenated and excited about Knight’s prospects he adds; “I’m a lot more experienced and a lot wiser the second time around. I guess the best evidence is if I didn’t think I could do it again, I wouldn’t have written a cheque for $65 million.”
If the Paladin story can be likened to a blockbuster movie, there’s a very good chance that Knight Therapeutics could be Goodman’s blockbuster sequel.