BIOTECH FUTURE

As with every innovative sector, the history of biotech is one of unrealistic expectation. Even though each new wave of startups appears to improve on the past, biotech companies seem to consistently overestimate their projected revenues and underestimate time-to-breakeven. Companies seem to require more capital than expected and, no matter how experienced the management team, frequently run into as yet unheard-of challenges. While it may be unreasonable to expect future startups to be any better at anticipating problems than the startups of the past, today's entrepreneurs would be better served being more conservative in their financial projections and estimations of capital markets. For example, with the threat of increasing healthcare regulation, today's biotech startups should assume that they will launch products into a more price sensitive market.

ALTERNATIVES TO DRUG DISCOVERY

As we gain more experience with drugs development, it should be easier to predict how new ones will perform in the clinic. Yet, with more drugs on the market, companies must conduct larger, longer, and more expensive trials to demonstrate a new drug's benefit over standard-of-care. There is no telling whether continued innovation will improve efficiency. In fact, drug development costs have increased over the last twenty years, despite (or perhaps because of?) the rapid pace of innovation.

The scenario brings to mind the Red Queen from Alice in Wonderland, who has to run as fast as she can just to stay in the same place. To win the cost containment race, a small company might need to change the rules it plays by. Below are several ways that may improve the efficiency with which a company gets a drug to market.

PHARMACOGENOMICS

Using pharmacogenomics to select patients most likely to benefit from treatment may significantly reduce the size and cost of clinical trials since fewer subjects are needed in treatment and control arms to establish statistical significance. Pharmacogenomics can also pre-select patients likely to tolerate a drug's side-effects, potentially allowing drugs that might be toxic to some patients to still reach the market if accompanied by a diagnostic to weed out those at risk.

BAYESIAN STATISTICS

A Bayesian approach to clinical trial design would allow investigators to modify treatment mid-trial for one set of patients based on how an earlier set responded, as physicians do in practice. Bayesian statisticians insist that, compared to traditional placebo-controlled double-blind trials, one of their trials can test more hypotheses (e.g. dose range and frequency) using fewer patients, and some centers such as the Mayo Clinic have begun evaluating this new approach in earnest. While Bayesian methods are sometimes used in designing Phase I trials, this practice probably won't be further adopted until and unless the FDA starts hiring Bayesian statisticians to evaluate new drug applications.

PRODUCT INCUBATION

With companies increasingly looking for late-stage drug candidates, some academic research institutions left holding hundreds of promising drugs targets are considering doing drug discovery and early clinical development themselves. The goal would be to use public, philanthropic, and possibly corporate funds to generate clinically validated drug candidates that companies would want to license.

PRODUCT REPOSITIONING

Companies willing to forego novelty have commercialized old drugs in new ways for a fraction of the time and cost it takes to get a novel compound to market. Examples of these alternative business models include:

  • License a fully or partially developed drug and develop it for a novel indication, for a novel market, or using a novel formulation.
  • Reformulate a generic drug to make it substantially better.
  • Develop combination products (2 or more coformulated drugs) for known or novel indications.

Compared to discovering new drugs, reformulating and repositioning old ones involves less risk and expense because the old drugs are often already well understood. The trade-off is that, to ward off generic competition, a repositioned drug may rely on Method-of-Use patents, which may be easier to break or circumvent than Composition-of-Matter patents. This is a compromise worth considering while the cost of developing new drugs continues to grow.

Eventually, companies pursuing this strategy may run out of late-stage drug candidates to reformulate or reposition and will need either to discover their own drugs or pay others to do it. Hopefully by then, a better understanding of how novel compounds behave in the clinic will make the old discovery-based biotech model viable.

Product In-Licensing

Why would one company (Buyer) want to license a drug that another company (Seller) is happy to sell? Unless the Buyer has different capabilities or priorities from the Seller, the drug will meet the same fate. While the licensing strategy is sometimes abused by companies willing to buy a candidate of questionable value out of a desperate need to start touting a pipeline, there are often legitimate reasons for a drug to trade hands. Examples of sensible in-licensing opportunities may include:

  1. Big pharmaceutical companies may lose interest in candidates with less than $500M annual sales potential or will terminate entire divisions for strategic reasons (e.g. lack of sales capability in certain markets). These companies may then out-license partially developed or approved drugs.
  1. Seller has terminated development because drug was ineffective in a particular indication. Buyer will test the drug in other indications where it may be more effective.
  2. Seller is a non-US company lacking the resources of the Buyer to commercialize a drug in the United States.
  3. Seller terminated development because the drug, while effective, was not safe enough or was not easy to administer. The Buyer can reformulate the drug in such a way as to improve its safety or dosing profile.

Note: Big Pharma may not be motivated to devote the business development resources to out-licensing a candidate in which they have lost interest.

PROFITS, PROFITS, PROFITS

Undoubtedly, biotech entrepreneurship is still a frontier. The only thing you can know for sure is that no one ever went broke making a profit. While using profits as an end goal may seem like common sense to some, many companies become so distracted by the need to develop a new technology, secure a partner, raise money, or arrange an exit for investors that they forget that these objectives are not ends unto themselves.