Next Phase Newsletter

By Jack Fuller, Business Development, LSN

The dramatic increase in cost-to-market for drugs over the last decade has put increasing pressure on drug discovery efforts to do more with less; accordingly, several different models have cropped up in the last few years. One strategy that has been gaining popularity with drug developers is the rescue and repurposing of drugs, often times by virtual pharma companies. A virtual pharmaceutical company typically in-licenses an asset, then out-sources all phases of research and manufacturing, while maintaining core executive and project management individuals.

Virtual pharma teams are generally made up of individuals with several decades of drug development experience, who recognize that it is not always necessary to take a candidate from square one. Many drugs are developed through IND enabling studies, only to fail in clinical trials due to poor bioavailability, off-target effects, or a lack of efficacy for a particular indication. At this point, several things can happen.

In a small- to medium-sized biotech company, often times the only option is to close up shop and sell off the company’s assets – including the failed drug candidate – in order to exit the investors without more loss. A savvy virtual pharma executive sees this as an opportunity to then rescue this failed drug for an indication not necessarily thought of previously. Similarly, just because a drug candidate is developed for a particular biological target, does not mean that it is the best or sole possible use of the drug. Repurposing is where a drug that is currently being sold for one indication is redeveloped and tested for use in an alternate indication – often times for a rare or orphan indication.

The US government is also getting involved in discovering new uses for existing molecules, as the National Center for Advancing Translational Sciences (NCATS) launched a program in 2012, in which several large pharmaceutical companies contributed 58 existing compounds to academic researchers in order to help re-engineer the research pipeline. These strategies are an attractive alternative to reduce the enormous average cost – $900 Million – and time – around 13 years – that it takes to develop a drug from start to finish.

Small biotech companies will always have a place in the market, as they are the ones translating the next generation of scientific discoveries into the next generation of revolutionary therapies. Rescuing and repurposing has become another example of the adaptability of the life science sector. In this case it is the formation of a niche market that experienced drug development teams are filling with alternative vehicles – such as Virtual Pharma companies – to provide the marketplace with a steady stream of therapeutics.

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By Michael Quigley, Research Analyst, LSN

The CRO space is currently going through a restructuring that is driving CROs in one of two directions if they wish to remain competitive. The shift involves a group of global “giant” CROs holding exclusive, high profile partnerships, which have been eating away at the market share for mid-tier CROs, who rely on smaller deal structures to generate profits (since they cannot compete with the resources of their larger counterparts).

These mid-tier firms are also being pressured by smaller, more specialized boutique CROs who focus their efforts on particular diseases / technologies, and are capable of tailoring more client-specific arrangements. The growth of these niche organizations is being driven by the increase in companies developing specialized medicines that are capable of proving efficacy in clinical trials more clearly. As a result of the growth in these two extremes of the space, what is emerging is a group of CROs that are effectively stuck in the middle, and losing market share. (1)

Enter Private Equity

CROs are becoming increasingly attractive to PE firms as everyone from emerging biotechs to big pharma continue to push for strong pipelines of drug candidates, creating a steady demand for clinical testing. One opportunity that several PE firms are taking advantage of is making acquisitions of multiple medium-sized CROs in order to merge their resources, thus making them competitive with the “giants” in the space. Several of these deals have already taken place this past year, and some PE firms are positioning themselves for more. Other PEs are preforming massive buyouts of the “giant” CROs in order to provide them with the resources required to further expand. (2)

Implications for Emerging Life Science Companies

The increasingly competitive nature in the CRO space is an optimal situation for emerging companies interested in their services; both the large and the niche CROs of the world compete for the business of emerging companies. However, they offer different benefits. The larger group offers competitive pricing, as well as the proper expertise and resources required to perform clinical testing of a product in multiple markets around the globe. Alternatively, the niche group competes by offering a higher level of customer service and interaction, as well as a vast knowledge of the technology, and the specific regulatory hurdles that come with it.

One attribute shared by both groups, however, which will be paramount to their success, is their ability to find and contact emerging companies to set up contracts before their competition. These two groups competing for the business of emerging biotech and medtech companies will ultimately benefit the emerging companies as well as their investors, as the CROs will have to offer cheaper prices or better service to remain competitive.

1. Ha, Kimberly. “Mid-tier CROs Face Pressures Staying Independent as Consolidation Wave Intensifies, Bankers Say.” Financial Times. Financial Times, 28 May 2013. Web. 26 June 2013.

(2) Garde, Damian. “Top-heavy Market Makes times Tough for Mid-size CROs.” FierceCRO. FierceCRO, 3 June 2013. Web. 26 June 2013.

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By Max Klietmann, VP of Research, LSN

The NIH has been faced with considerable difficulties as of late in terms of finding the required means to continue moving science forward at the early stage. However, the group recently announced a commitment of $12.7 million to a novel project – funding further research on assets that have been cast-off by big pharma in key indication areas that represent a significant unmet medical need (e.g. Alzheimers, Duchenne, etc.). The initiative has been fittingly named Discovering New Therapeutic Uses for Existing Molecules, and it may be a groundbreaking solution to several problems facing drug development today. These include reducing time to market, alleviating early stage investment risk, and creating even more incentive for research scientists to orient themselves towards commercialization of research.

Shortening time to market

The Discovering New Therapeutic Uses for Existing Molecules program’s single greatest benefit to the market is that it drastically reduces time to market. Rather than starting from scratch when developing compounds, researchers affiliated with the program are granted access to abandoned drug candidates owned by big pharmaceutical companies. These drugs may have been abandoned for a variety of reasons, and are now stagnant IP, sitting in a filing cabinet. This program puts them back to good use – One can think of it as subsidized out-licensing back to academia. The key is that these drug candidates have already undergone human safety trials. With this piece of the puzzle already taken care of, researchers have a much better shot of bringing them to market rapidly.

Investment risk reduction

Another big advantage to the program is that these assets have a reduced risk profile for investors seeking to capitalize on the opportunity. The NIH program will support the research for up to three years, allowing reasonable time to complete Phase IIa trials, at which point the projects will need to find other sources of financing. This gives investors an opportunity to invest in assets with a strong pedigree and minimal equity dilution risk, quite far down the pipeline.

So what does it all mean? At the most basic level, this pilot project represents a willingness on the part of the NIH to get creative. This program is very different from traditional research grants, and it shows that the agency is thinking within the context of the industry as a whole. This translates to a more attractive environment for investors, better deal terms for entrepreneurs, and more products making it to market. Keep your eyes on this program, as it will be a good indicator of how the NIH may be orienting itself on a larger scale moving forward.

1. “Discovering New Therapeutic Uses for Existing Molecules.” Discovering New Therapeutic Uses for Existing Molecules. NIH, n.d. Web. 20 June 2013.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital