If there is one thing that excites me about the biotech industry, it’s the possibility that everything that we think we know about how to treat a disease will get turned on its head. A great example of this is the Nobel Prize winning work by Barry Marshall and Robin Warren on the role of H. pylori and stomach ulcers. Despite the dogma at the time that blamed ulcers on stress and poor diet, Marshall and Warren combined creative thinking and careful scientific exploration to prove all of it wrong. And to top it all off, their discovery lead to a treatment regime that cures H. pylori infections (and typically ulcers as well) in over 80% of patients.
T. suis ova
Coronado Biosciences isn’t there yet, but they just announced that they will be submitting an IND application later this year for their novel treatment of Crohn’s disease, CNDO-201. What makes this treatment so unique is that it composed of T. suis ova, or, as they are more commonly called, pig whipworm eggs. The theory behind this treatment is the so-called “hygiene hypothesis“, or the idea that as we improve our living conditions through the elimination of what were once common infections, we are disrupting the development of our immune system. Since humans have suffered from these infections for hundreds of thousands of years, the thought is that our immune system depends on exposure to these pathogens for its proper development. Immune system regulation pathways are far from simple, so I’ll leave it up to the reader to investigate the details, but simply put, the hypothesis is based on T-helper cell feedback between Th1 and Th2 cells. Basically, stimulating Th1 cells (through exposure to bacteria and virus) downregulates Th2 activity, which is responsible for the inappropriate immune responses that lead to conditions such as allergies and eczema. It gets even more complicated when we start talking about autoimmune diseases such as Crohn’s disease or multiple sclerosis, since these are Th1 mediated immune responses, however, theories have been put forth to explain the role of pathogen exposure in these diseases as well.
What makes this news so exciting is that Coronado Biosciences is prepared to move forward with clinical trials in this area based on some very positive data from a number of independent investigator trials (you can find the trial results on their website). In one open-label, non-comparative study of 29 patients with Crohn’s disease, 66% of patients entered remission at 12 weeks and this increased to 72% of patients at 24 weeks. This is quite remarkable as the tool-of-last-resort for treating Crohn’s disease, anti-TNF-alpha drugs such as Remicade and Humira typically see remission rates in ~30% of patients. The caveat of course is that this was a open-label study with a small number of patients and until more rigorous studies are completed, we won’t truly know the efficacy of this treatment. Until then, I’ll keep my fingers crossed and continue to give Coronado Biosciences a pat on the back for exploring a truly novel treatment paradigm, that if successful, could fundamentally change how we treatment autoimmune diseases.
I heard this phrase a number of times while working in the pharmaceutical industry. It was used to describe the behavior of the big pharma R&D departments when it came time to decide what were the “hot” development programs. For example, we would go years with only a token interest in schizophrenia and then suddenly the company would label the program as “high priority”, seemingly at the same time as every other big pharma. One couldn’t help but make the comparison to a team of 5-years who don’t play their positions in a soccer game, but rather just run after the ball. For the more cynical types, it seemed like another example of big pharma’s inefficient R&D strategy.
For those who keep up on the industry news, you can’t help but notice a new ball that all the companies are chasing: oncology. At the moment, nearly all the big pharma and biotech companies have substantial investments in oncology, not to mention the huge number of start-ups who are also focusing on new cures for cancer. But are they really just mindlessly chasing the newest flavor of the month?
If we look a little closer at the oncology space, particularly in light of the research, regulatory and reimbursement issues facing the industry, the strategy starts to make a little more sense:
- There is a lot of scientific knowledge out there about cancer, be it new targets, genomic data or disease mechanisms and more coming out every day, particularly from academic labs. If you’re going to work in a therapeutic area, it’s not a bad idea to choose one where you’re not completely in the dark (yes, I’m thinking of amyloid plaques and Alzheimer’s disease).
- There are many rare cancers that affect very small patient populations. Targetting these cancers makes it easier to justify smaller clinical trials to the FDA which translates into lower development costs.
- The high unmet medical need for many cancers can often help get fast track, accelerated approval or priority review for your application from the FDA, reducing regulatory burden and decreasing time to market.
- There is a clearly defined approval pathway (relatively speaking) with FDA-accepted clinical trial endpoints (i.e. overall survival, progression-free survival, etc) that reduce the risk associated with clinical trial design.
- If you’re developing a drug for a cancer with no currently available treatments, the FDA will often relax clinical trial requirements (i.e. single arm trials vs. a placebo or a best available treatment comparison trial).
- With respect to the more rare cancers, it’s easier to justify a therapy that costs tens of thousands of dollars when an insurance company will only have to pay for a handful of patients.
- Although personalized medicine is only in its infancy, some of the more robust biomarkers have come from oncology namely ER, PR and HER2 for breast cancer. As comparative medicine increases in importance, being able to identify patients who are likely to respond to your drug can help with reimbursement.
- And finally, cancer affects nearly everyone, either directly or indirectly through friends and family. That makes it a hot-button issue (just look at the row between Roche, the FDA and patient groups over Avastin for breast cancer) and less likely that an insurance company will deny reimbursement when the data isn’t 100% clear.
Going one step further, these benefits seem to translate into higher success rates. Just look at BIO’s presentation here (slide #9).
So maybe the observation that companies are acting like a 5-years playing soccer isn’t exactly fair. There are real reasons that certain therapeutic areas are more attractive than others and as scientific knowledge, regulatory rules and reimbursement strategies change, these differences can be substantial. Moreover, since these reasons often relate to issues that affect the industry as a whole, it shouldn’t be surprising that companies exhibit what appears to be a herd-mentality.
However, the question remains, is it the right strategy? Should companies be chasing diseases that provide the path of least resistance, or should they be breaking new ground in areas where the path isn’t so clearly laid out? What should the balance be between the two? I’m interested to hear what you think.
Update: Ernst & Young just released their “Beyond Borders: Global biotechnology report 2011” which you can find here. If you need any further convincing of the shift towards oncology, look no further than page 95 of the report where you’ll find this graph of US companies pipelines’ by indication:
For the biotech entrepreneur looking to raise funds for a new start-up, pitching to a venture capital firm seems like a straightforward process, right? Highlight your management team, the unmet need, your development plan and the potential return to the investors. Not so fast. The biotech VC industry is being seriously squeezed at the moment: limited partners are shying away from biotech investments and profitable exits are becoming scarce as the public markets and big biopharma companies push down valuations. Biotech VC firms are still making investments of course, however, they are using much different selection criteria. So what should a biotech entrepreneur do to increase the odds of getting VC funding?
It starts with an understanding of what biotech VC firms don’t want.
Biotech VC firms don’t want an expensive, long-term development plan
As the cost of drug development continues to rise, biotech VC firms are increasing their focus on capital efficiency. You want a ten million dollar financing round to set up a new lab, hire a team and run a variety of preclinical studies? It’s probably not going to happen. VC firms want to see a development plan that will get them to a meaningful milestone as quickly and cheaply as possible. Need to hire another scientist to run a preclinical study? Forget it, outsource it to a CRO. Want to test your drug in one more animal model? Don’t bother unless it’s critical to reaching your next milestone. Get familiar with terms like “lean proof-of-concept” and “virtual biotech”.
Biotech VC firms don’t want to do an IPO
Biotech VC firms don’t just want to know what you’re going to do with their money, they also want to know how they’ll get their money back (hopefully with a healthy return). You may have dreams of your own NASDAQ ticker symbol, but if you want VC funding, don’t even think of mentioning an IPO as an exit option.
Why? The chart below from BIO answers that question.
Since the IPO market reopened in 2008, almost every biotech that has gone public has been forced to take a very large discount on their target price. This not only reduces the VC firm’s return, but the smaller amount of capital raised often puts a fear in the public markets that the biotech will have to do another dilutive financing round just to raise enough capital to reach the next development milestone. This just depresses the share price even further.
Biotech VC firms don’t want vague exit plans
So we know that biotech VC firms want to understand how they’ll exit their investment, but an IPO is out of the question. Maybe the biotech entrepreneur should just focus on an “acquisition” or an “out-licensing deal” with a big biopharma company as an exit? That won’t cut it. The days of biotech VC firms investing without a detailed and carefully thought out exit strategy are long gone. A much better approach is to include specifics: Who are the potential buyers of your company? Does your technology fit with their portfolio strategy? Does your development milestone provide a candidate profile that acquiring companies look for? How much do they usually pay for an acquisition? How do they structure it? Do they pay in one lump sum or do they provide a small up-front payment followed by a series of earn-outs? The more homework you do and the more you can make the VC firm believe in your exit strategy, the better.
You may be thinking “Not all VC firms are the same! I’ve got a game-changer here and the rules don’t apply to me.” That may be true. Not all VC firms are the same and this article only addresses the broad trends occurring in the industry. However, the more you understand the challenges being faced by biotech VC firms and address them in your pitch, the more likely you’ll secure the funding you need.
This post was taken from an article I wrote for the Dartmouth Entreprenurial Network newsletter, which can be found here.
You may be wondering what this blog is about and who I am. Well, let me give you a little background…
I’m an organic chemist by training and came to the US almost 10 years ago to work in the pharmaceutical industry as both a process chemist and a medicinal chemist. It was a great experience, but I made the decision to return to school to pursue a business education. I graduated from the Tuck School of Business this past spring and accepted a job in San Francisco. After driving 3600 miles over 8 days, I have finally landed in the Bay Area.
I started this blog to share my personal observations about the biopharmaceutical industry from both the perspective of a scientist and someone on the commercial side of the industry. I have a particular interest in biotech entrepreneurship and the creation of new drugs through the commercialization of scientific discoveries, hence the title of this blog and its focus.
The one thing I love about this industry is that it is always in flux, now more than ever. The challenge of not only developing new drugs, but delivering them in a price and safety concious environment is putting huge pressure on the industry. If the last 10 years are any indication, in 5 years, the biopharmaceutical industry will look nothing like it does today and I’m excited to be a part of its evolution. I hope that you’ll find my observations and analyses insightful and that after visiting this blog, you’ll come away feeling a little smarter…