A New Breed of Therapy Development: Patient Driven Biotech Companies

By Alejandro Zamorano, VP of Business Development, LSN

LSN is focused on tracking all classes of emerging players in the life science realm. One of the most interesting new developments is the phenomenon of patient groups starting their own biotech companies. These are known as patient-driven biotech (PDB) companies, and they are essentially the alignment of a philanthropic mission and commercial action.

The structure is typically a patient group nonprofit that provides capital to a for-profit subsidiary company via an evergreen structure. This capital base can then be augmented by additional investors who want to invest in the firm. PDBs can either develop their own assets internally or, more commonly, aggregate assets under a specific indication to shepherd through the development process. Once a portfolio of assets is established, a PDB company will then develop the products internally in order to maintain operational control. PDBs are unique because they leverage three unique attributes which have previously been mutually exclusive to either traditional non-profit foundations or for profit companies: access to capital, access to patients and development resources, and operational flexibility.

Access to capital: PDBs have the benefit of accessing capital markets in a way a nonprofit organization cannot. By enabling the company to issue shares to investors they can open the door to a bigger investor pool. Consequently, by allowing institutional investors to participate PDBs can raise bigger rounds of capital, providing the ability to guide the development of the assets as they mature. In addition, PDBs are also set up to receive philanthropic donation via their nonprofit affiliate that further adds to their capital base.

Access to patients & developmental resources: Due to their ability to harness the expertise and resources of their not-for-profit counterparts, PDBs are uniquely positioned to gain access to key resources and expertise that increase capital efficiency, serving as an attractive model to investors. This can come in the form of patient recruiting, access to tissue samples and indication expertise. As a result of the close association between the two entities PDBs an also leverage an extensive intelligence network of experts that are often first to learn about disease and drug candidate developments. This could lead to discoveries such as the identification of sub populations for the company’s various drug programs.

Operational flexibility: Since the main goal of any PDB is to develop and bring to market a treatment or cure for the target disease, profit is secondary. This provides PDBs with flexibility in terms of valuation and deal structure when negotiating with investors and licensors. By uniquely positioning as a neutral and flexible partner it allows to open doors to institutions that would otherwise consider the company a competitor.

PDB’s are a creative structure which will continue to gain momentum as the industry finds new models to make the drug development process more efficient and effective. Stay tuned as LSN follows this emerging trend.