Monthly Archives: October 2011

Financing early stage biotech

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I read Bruce Booth’s blog, Life Sci VC, when I get the chance, and he’s often lent his skills to Nature Biotechnology. We had him into our offices as part of our Meet the Author series, for example, where he discussed his article on biotech IPOs.

We’ve been cross-posting relevant material from his blog on Trade Secrets, rebuilding the posts from scratch. The truth is, they never look quite as good rebuilt as the do in the original, so I’m providing the link this time. He’s written an interesting piece on funding for early stage biotech. Read it here.

Brady Huggett

Brazil as host

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Biotechnology is growing in Brazil but has not reached the level of other countries. The biotech industry in the country is about the size of biotech in Georgia /USA.

Part of the problem is that there is competition with other countries, particularly China. Part of the problem is the regulatory limitations in Brazil, particularly in the area of intellectual property rights (IPR). I see some signs, however, indicating that international companies, big and small, are interested in moving to Brazil. I got in touch with two of these companies — Amgen and Bio-Sourcing. Amgen is an old giant, and Bio-Sourcing is a small company that will be dealing in Brazil with genetically modified animals to express pharmaceuticals for the veterinary area.

Based upon the growth rates of about 12% per year of the pharmaceutical sector in Brazil, Amgen expects that the country will become the fifth largest pharmaceutical market in the world by 2015 (up from 8th today). Amgen hopes to make its medicines available to patients in major markets around the world, including Brazil and its quickly expanding middle class. A key element of Amgen’s strategy is to ensure that the medicines produced by the company will in time be recognized by the Brazilian government, medical professionals and patients as best-in-class. They believe that despite regulatory difficulties, Brazil provides a favorable environment for clinical trials.

Thus, Amgen will invest not only in clinical trials but also in scientific research to demonstrate the quality of their products in their main therapeutic areas: oncology, hematology, nephrology and bone health. Its development interests span areas as inflammation, neurology and metabolic disorders. Considering clinical trials, Amgen distinguished in Brazil an interesting multiethnic population with a balanced age profile, competitive costs and high quality of research standards and professionals. Laboratorio Bergamo, a local, traditional therapeutics company bought by Amgen last year, will produce products for clinical trials. One can see that Amgen took its decision after an in-depth analysis that might eventually be followed by other companies in the pharmaceutical sector.

Bio-Sourcing exploits a unique technological platform that they believe has become the world leader in animal transgenesis. Bio-Sourcing is thus able to provide the industry with a cheaper production process that is both flexible and environmentally safe, according to sustainable development standards. The company develops its own pipeline of innovative products. Its molecules are produced through genetic engineering, within the milk of big mammals such as cows or goats. To this day, milk remains one of nature’s primary products, and is recognized as safe by regulatory authorities. It also allows for direct delivery, thus avoiding heavy purification constraints. This technology is a new breakthrough in human and animal nutrition as well as in dermo-cosmetics. Moreover, it is highly suitable to the production of monoclonal antibodies at a very low cost. Lastly Bio-Sourcing aims to play a part on the animal selection market, by mastering cloning and animal transgenesis techniques.

Bio-Sourcing is the sole owner GTC world exclusive license, which includes its technology, its produced proteins, its means of production, and its technology transfer to Bio-Sourcing, as well as its patents on all sectors except human drugs. GTC has already registered a medicine produced through animal transgenesis, both to FDA and EMEA, which is currently administered to patients. GTC has also developed numerous molecules, the main part of which being monoclonal antibodies.

Bio-Sourcing’s managing team has entered into discussion, at the decision-making level, with a major group in Brazil focused on monoclonal antibodies. Those industrial discussions seek to validate bioproduction projects that would be of interest to industry leaders in the country and might work safely and with efficacy in Brazil, according to the regulation in place by the CTNBIO – Brazilian National Biosafety Commission.

On the one hand, BioSourcing will consider only products previously reviewed and approved by industrials. And Bio-Sourcing will allocate its production and development means to its Brazilian subsidiary.

Accustomed to Brazil’s language and culture, Bio- Sourcing’s CEO has already made contact with local players. Brazil is highly receptive to transgenesis techniques, but it also has attractive production costs, great know-how in milk industrialization and a dynamic internal market – all of which should help Bio-Sourcing succeed.

Bio-Sourcing already has its own patents, in particular regarding an innovative molecule that could become a blockbuster, thanks to multiple applications in different sectors. Its management team has experience as chairman, CEO, chief business officer and chief scientific officer in major international groups. Clearly, Brazil being a giant in animal husbandry has attracted Bio-Sourcing, but in this case the regulatory environment in Brazil might have played in its favor, too.

Luiz Antonio Barreto de Castro

New Bioentrepreneur article

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We’ve posted a new article, Shape Shifting, to the Bioentrepreneur site. The piece examines how to mold a company’s pipeline and opportunities, making it most attractive for partnering or buyout. It was written Bob Baltera, CEO of Amira (at the time), and the title refers to the necessity of changing the shape of a company as it progresses.

But shape shifting could also refer to the article itself. The process began early this year, after a meeting with Bob at the JP Morgan healthcare conference. The article went through several drafts and took months to put together — long enough for Amira to be snapped up by Bristol-Myers Squibb for $325 million, with another $150 million hooked to milestones.

Which meant we had to go back and reshape the article before publication to reflect this new outcome for Amira. Even without milestone payments, the buyout is a big win for Amira investors, who had put $28 million into the firm. It is outcomes like this that keep VCs interested in biotech.

You can read the HTML version of the article here, and the PDF version here.

Brady Huggett

Key strategic choices – ‘when’ to plug into the value chain

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Companies must make many strategic decisions in developing a business model. My last post looked at key strategic choices about ‘what’ a company could develop, and it considered trade-offs and implications of decisions that greatly impact the risks, costs and rewards of drug development. This post looks at another important element of the business model – ‘when’ a company should plan to plug into the value chain and earn a return for its investors.

Typical mechanisms for plugging in include licensing, sale of the product, sale of the company, or sale of part of the company via an initial public offering (IPO), whereby investors receive a return. In theory, this can happen anywhere along the product development value chain, from idea/discovery to marketing a physical product to consumers – as long as a willing partner or buyer can be found. But actually, there are certain factors around a drug development opportunity that can enable or constrain the feasibility of investors receiving a return at various stages in the drug development process.

Take a look at Figure 1. The central column lists certain attributes (factors) of a drug development opportunity that, if enabling, will leave open a wide range of commercially viable options for when a company can plug into the value chain and take value off the table for investors. However, certain factors, if they are constraining, will point a firm to plug into the value chain at a specific point in the drug’s development path. Some constraining factors – such as high cost, high risk, and lack of internal skills or assets – will drive a company to plug in earlier on the development path.

Fig. 1

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A RIPCO (royalty income pharmaceutical company) business model would then be typical. But other constraining factors, such as weak intellectual property protection, a high degree of in-house knowledge not easily transferred to a partner, or the need for specialised manufacturing assets, may drive a company toward plugging in at the other end of the value chain (selling a physical product). A FIPCO (fully integrated pharmaceutical company) business model might then be appropriate. In an earlier post I provided a diagram showing the parts of the value chain covered by commonly employed business models in the drug development industry.

Access to capital has to be one of the most common constraints in the sector. Without a doubt, capital constraint will drive a company toward plugging in earlier. However, I purposely left finance out of Figure 1, as I did not want firms to perceive this constraint as large enough to keep them from thinking about what their ideal business model would be if they did have adequate access to capital.

Firms may have more options than they think they have. As you progress down the development path, building value and reducing uncertainty, financing opportunities may emerge that were not available to you before. I’m a big fan of keeping options open, but in order to do that, you need to recognise those options exist in the first place. Real Options Reasoning (ROR) is an approach to strategy that involves identifying and nurturing options, and it fits very well with the biotech sector since the development of a drug occurs in a series of reasonably discreet steps that favour option-like investments. I might talk about ROR in a future post, but over the next couple of months we’ve still got ‘how’, ‘where’, ‘who and ’for whom’ to discuss…. a biotech start-up has a lot of strategic decisions to face!

Janette Dixon

Brazilian Biotech Map

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The Br-Biotec, with the support of APEX-Brazil and the collaboration of BIORIO and CEBRAP, performed a significant evaluation of the biotechnology enterprises in Brazil. Partly the idea was to focus on identifying companies in Brazil that have biotech as their main activity or are developing major biotech projects.

We tried to answer questions such as: How many biotech companies exist in Brazil? Where are they? In what field are they working? What are their revenues and how many employees do they have? Regarding their businesses: Do they export, import, have patents, and/or collaborate with research institutions?

We included in the study biotechs as defined by the OECD and Nature Biotechnology. (For Nature Biotech’s feature on public biotechs, go here.) Based on the applied methodology, we estimated 237 biotechs in Brazil.

The results show that the private sector is mainly concentrated (about (95%) in the six states in Brazil: São Paulo (40,5%), Minas Gerais (26,5%), Rio de Janeiro (13,1%), Rio Grande do Sul (8,0%), Paraná (4,6%) and Pernambuco (4,2%).

Human Health stands for 40% of companies; animal health, 15%; reagents, 14%; agriculture, 10%; environment, 10% and bioenergy at 8%.

The majority of Brazil’s biotechs are less than 5 years old. And 85% are micro or small-sized, earning less than 2,4 M reais per year (around US$1.5M dollars). 65% have less then 20 employees.

Biotech have highly educated professionals: for companies with 1 to 10 employees, 40% are PhDs and around 20% are MScs.

25% of Brazil’s biotechs export. But also, 86% import, especially reagents and equipment.

Half of the biotechs in the country still benefit from incubators and technology parks. And of great importance are universities and research centers, since 95% of companies have a relationship with these institutions, and most of them established formal partnerships to co-develop products or processes, to use infrastructure, to hire services or to train personnel.

Public funding is also important to the development of the private sector: 78% of companies received public funds (FINEP, CNPq, BNDES and States Foundations), showing how important the policies concerning science, technology and innovation are in Brazil. On the other hand, venture capital investments are still a great opportunity, as only 14% of companies have venture capital investors.

40% of companies have patents deposited or issued, with most of them in the patent office in Brazil, and a smaller number in offices abroad.

The country also has a significant presence in academia. Some examples are agronomy (around 8,000 researchers, considering both faculties and graduate students), veterinary medicine (3,300), and biochemistry, pharmaceutical sciences and pharmacology (5,100).

Despite the agglomeration in some cities, other specialized areas are also very important: genetics (2,000), infectious diseases (1,600) and immunology and microbiology (1,500).

The Brazilian system of graduate studies is well structured, but is highly concentrated in some regions. There is a need to develop better interaction between the science and the private sector in order to increase the number of companies in some regions of the country.

(For more on the methodology, and for the report itself, go here.)

With all the incentives from the Brazilian government, a growing economy and good science we strongly believe that biotech will became an important economic sector for the Brazilian economy. We hope that a better understanding of Brazilian biotech helps investments and development of the private sector, policy formulation and new research on biotech in Brazil. Additional information about the recently created Brazilian Biotech Association can be obtained by going here.

Fernando Kreutz

India’s Vision 2020 – BioPharma Strategy – R&D

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In order for India’s biopharmaceutical players to compete effectively on the global scale for biosimilars market by 2020, the private sector as well as Government of India (GOI) will have to invest a considerable amount of capital in building the manufacturing capacity and skills base to provide the necessary enabling environment. The Department of Pharmaceuticals, GOI in partnership with Association of Biotechnology Led Enterprises (ABLE) and PricewaterhouseCoopers (PwC) have attempted to address this opportunity and provided the key recommendations into six broad sections, which you can read about here.

The first section is focused on the research & development area of the biopharmaceuticals sector which is divided into seven sub-sections.

1. Build protein characterization laboratories and GLP-certified animal study facilities

The biopharma product development process includes both the method of manufacture and high-end bioanalytical product characterization to verify the equivalence in quality to the original drug. Foreign regulatory authorities require evidence to the applicable standards as part of the regulatory submission. The validated product (bioanalytical-proof) is then tested in a GLP-certified animal laboratory and the data from bioanalytical studies and animal tests are submitted to the regulator for permission to conduct a clinical trial.

India currently has very few GLP-certified animal laboratories and only one GLP-certified protein characterization laboratory at the National Centre for Biological Sciences (NCBS) in Bengaluru. The country needs at least four more GLP-certified laboratories. The GOI should therefore fund the construction of the necessary facilities in national scientific institutions and laboratories, as well as in CROs. It should also promote collaboration between academia and industry. In addition, the GOI should offer duty waivers or other incentives to encourage existing service providers to branch into biologics development, using the Research-as-a-Service (RaaS) model – which would, in turn, attract multinationals wanting to outsource such activities and improve revenue generation. India’s public institutions are not equipped to provide such services because they do not have sufficient understanding of the regulatory requirements.

2. Create a national animal breeding facility

India needs a National Animal Breeding Facility to produce high-quality animals for preclinical studies and to generate certified data that meet international standards and scrutiny. Recently, the GOI announced plans to establish a large centre to breed dogs and monkeys for use in clinical research, and the Department of Pharmaceuticals has invited expressions of interest from both public and private institutions with relevant biomedical expertise. However, at least one rodent facility and two large-animal facilities are required to develop MAbs and biosimilars by the biopharma industry in the country. The Committee for the Purpose of Control and Supervision of Experiments on Animals (CPCSEA), acting under the aegis of the Department of Forestry, currently controls all animal facilities, including registrations, but lacks the expertise to conduct proper scientific inspections and is understaffed. Therefore, the GOI need to intervene to better equip the CPCSEA to match the international standards.

3. Provide financial assistance for ensuring compliance with global standards

All facilities for characterizing proteins, breeding animals, conducting animal studies and performing viral testing will need to operate to international standards. Therefore, the GOI needs to provide financial assistance with the cost of hiring consultants to advise the global regulations.

4. Expand viral testing and evaluation facilities

India does not have enough facilities for testing and evaluating the viral safety of biologics derived from characterized cell lines of human or animal origin, in compliance with International Conference on Harmonization guidance ICH Q5A (R1). The GOI will have to consider constructing more testing and evaluation facilities. At the same time, the Indian regulatory agencies need to ask for the ‘viral clearance’ as a pre-condition for approval of all domestic biomanufacturing plants.

5. Promote the development of preclinical service providers

Consider the fact that the market for toxicology and bioanalytical services is worth about $12 billion and only 15% is outsourced. The GOI could provide credit and/or tax incentives to help preclinical service providers establish such facilities in the country. There are not many facilities for offering such services other than bioanalysis and toxicology studies to speed up the number of early drug candidates being developed by companies and to outsource these activities.

6. Provide practical support for conducting clinical trials worldwide

Any Indian biosimilars company that wants to sell a biosimilar in a regulated market will be required to conduct clinical trials of that biosimilar against the reference product in the country concerned. This represents a major financial risk, therefore, the GOI could provide assistance in engaging consultants to design and execute world-class trials.

7. Simplify the procedures for importing and exporting biologics

The procedures for importing comparator drugs, test materials, Genetically Modified Organisms (GMOs) and Living Modified Organisms (LMOs) into India for research purposes, and for exporting biologics out of India, for clinical studies in other countries, are very cumbersome. India also lacks cold storage facilities (and most biologics are heat-sensitive).

The GOI should therefore simplify the process for importing biological samples and participate in negotiating government-to-government treaties for handling biologics (which would make it easier to export biosimilars that are manufactured in India). In addition, it should encourage the construction of cold storage throughout the supply chain and mandate faster clearance times at customs to avoid loss of material in transit.

In the next blog post, I will discuss the manufacturing and commercialization aspects of the biopharmaceuticals sector, as it pertains to India’s vision 2020 strategy.

Viren Konde

Retail biology

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The recent sad news about Steve Jobs got me thinking about the evolution of markets. In the early years of “information and communication technologies” (ICT) there was an obvious focus on the mainstays. People like Jobs and Bill Gates focused on the hardware and software that would ultimately drive the nascent industry.

Biology is following a similar path, with a natural focus on the development of the main platforms that have gradually improved and been refined much in the same way as ITC. However, like ICT, many (myself included) expect that we are on the brink of an explosion of new, smaller, but very important fragment markets that are best described as consumer biology or perhaps retail biology.

Just as fortunes were made by the designers and manufacturers of the humble mouse mat after the launch of the Apple Macintosh, we are likely to see consumer products exponentially increasing. It is difficult for us now to fully appreciate the number of tiny ICT devices that populate our cars, kitchen goods and even children’s toys; but the time is ripe for a new generation of biotech entrepreneurs to look for novel ways to create consumer products using biological advancements.

It isn’t clear what these products will be or where they might come from, but the starting embers of this revolution can be seen in projects like MIT’s synthetic biology BioBrick programme for schools, where engineering principles are applied to creating genuine, novel and, importantly, useful biological tools. Again, taking a page out of the ICT book, the synergy that could be created by combining novel engineering, exciting design and biological innovation is difficult to overemphasize. There is no way to gauge the potential size of retail biology, but it’s likely to be huge. The initial products probably will be in the food or energy sectors but not on a massive industrial scale. More likely to be smaller, domestic-scale ideas with the potential to catch fire.

For example, in energy, decades of research into the use of biological “feedstocks” for the production of biofuels – mainly biodiesel – are now bearing commercial fruit. Many countries (and some US States – notably Iowa) have taken leadership positions and made huge commitments to this fledgling industry. It’s fair to say that the jury is still out on whether this enormous investment will ever make biofuels the sole replacement for fossil fuels in transportation, but how about retail consumer-level biofuels? Surely, we could very soon see our local Home Depot or Home Base stores selling small toaster- or microwave-sized bioreactors that fit on our patios and generate fuel for our mowers, mulchers or BBQ. With a clever design and some genetically modified microalgae (e.g. from Craig Venter’s Synthetic Genomics, or George Church’s Joule Unlimited) we might have a whole new industry of consumer energy products.

In the food industry, a fear of diminishing food security in the 21st century could get consumers happily shopping for generic protein sources, rather than specific meats like beef, pork or chicken. This surely offers opportunities for entrepreneurial biotechnologists to create novel means to use currently unpalatable sources, such as insects or molluscs. In fact, entophagy (to use the correct terminology), is alive and well in Southeast Asia but is an almost negligible market in the West. Clever biotechnology could, by either altering the insects themselves or by altering their environment, find efficient and sustainable ways to industrialise the farming and harvesting of large flying insects in a similar way to our current harvesting of prawns and shrimp from the oceans. Fresh frozen “locust burgers” in our local supermarkets may not be that far off.

Similarly, the recent invasion of huge numbers of giant African snails that has blighted Florida and many Caribbean islands could easily be turned to the advantage of entrepreneurial scientists with an innovative way to package the protein content.

I will miss Steve Jobs, especially his focus on innovative design and his way of delivering the final product with a flourish. He once famously said, “You know a design is good when you want to lick it.” I now officially throw down the gauntlet to this generation of biotech entrepreneurs – show us something that we want to lick.

Chris Hillier

Five Day Filter

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With a long weekend coming up (Monday is Columbus Day here in the US), here are some of the week’s most interesting biotech tidbits from around the globe. Read! Enjoy! Comment!

Michael Francisco

The Israel-US Connection

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The Israeli and American biotechnology industries are quite closely intertwined, with collaborations ubiquitous in academia, the clinic and in the financial community.

What seems to makes the interplay successful is that there is no fixed pattern- players on both sides change roles according to various needs and opportunities. For instance, the U.S. seems to be a bigger draw for academic studies in this relationship, but when it comes to clinical or industrial work or finance, companies will simply go where the best deal is.

A good example is Prolor Biotech, a developer of therapeutic proteins that owes its origins to the almost de rigueur custom of Israeli life science Ph.D.’s doing post-docs at American institutions. Dr. Fuad Fares did so in the late ’90s when he joined a research team investigating fertility hormones at Washington University in St. Louis. The team developed a technology – a short, naturally occurring amino acid sequence known as CTP – that could increase the life span of hormonal injections used to promote pregnancy. Merck & Co. eventually licensed CTP in order to develop Elonva, a hormonal injection that requires a once-a-week dosage compared to the once-a-day dosage of the non-CTP version.

Dr. Fares returned to Israel in 2001 and established a start-up in a business incubator, looking for additional therapeutic protein applications for CTP. In 2005 he was joined by Dr. Avri Havron and Shai Novik, veterans of both the US and Israeli biotech industries. They accelerated development by raising funds in the US, first from investment angels and then later through an IPO on the over the counter (OTC) exchange in New York because, “At the time (2007) the Tel Aviv capital markets lacked experience in the life sciences and we didn’t think we could get funding in Israel,” says Novik.

But by 2010 things had changed. The Tel Aviv Stock Exchange (TASE) had become more interested in the life sciences, and more than 50 biomeds were traded locally. Prolor did a dual listing on the TASE, joining Teva Pharmaceuticals, Protalix, and other biopharma companies with public shareholders on both sides of the ocean.

The trans-Atlantic give-and-take is also evident in the way that the company does its R&D and clinical development. Prolor now has four CTP-enhanced proteins in its pipeline, including a growth hormone product that is about to enter Phase 3. Yet the company was able to do all this with a very small in-house staff of about 25 employees.

That’s because the company does “early stage R&D in-house here in Israel, and then sub-contracts the preclinical and clinical work to outside providers all around the world,” says Novik, noting that the company does its protein manufacturing in Massachusetts and toxicology studies in Michigan.

Novik sums it up this way: “We run our company the American way, but by being located in Israel we have lower cost structures than comparable companies in the U.S., and we are able to draw from a great pool of local talent. Also, we are able to get state support, apply to binational funds and thereby maximize our assets.”

Bernard Dichek