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Sep 15, 2006 (Vol. 26, No. 16)

European Biotechs Face a Funding Crisis

Outsourcing and Partnering Bring Relief

  • Over the past four years, European public markets have focused on floating companies with compounds in Phase II or III. Indeed, a large number of venture capital firms will not even go near a biotech company without a Phase II molecule.

    “This leaves European biotechs with a financing gap,” said Christopher Reilly, Ph.D., vp, global project evaluation at AstraZeneca (www.astrazeneca.com), at the recent “Cambridge Biopartnering Exchange” in the U.K. “Increasingly biotechs are seeking biopharma alliances, but since there are over 4,000 biotechs globally they have to work really hard to get the attention of a big pharma. Raising money by licensing is a tough option because a biotech has to be the leader in its field to get a deal.

    “On the other hand, large pharmas are competing with each other over the best external opportunities. At AstraZeneca, we have really ramped up our external deal-making activity during the past year because we recognize the innovation that exists in small biotechs.”

    Gordon Cameron, CEO of Acambis (www.acambis.com), discussed government contracts as a funding option. “The U.S. government awards the biggest contracts. They can be cost-plus or fixed-fee contracts. Cost-plus allows you to recover costs plus a margin of up to 15 percent, therefore profit is limited. You have to submit detailed time and cost information, which can be onerous. Fixed-price, by contrast, allows more flexibility on margins, and being fixed-price it is a higher risk strategy, but the reporting requirements are much simpler.”

    According to Cameron, having a government contract meant that, on the upside, Acambis was profitable in three years and developed excellent relationships with the U.S. regulatory authorities. On the downside, it had to rapidly build its infrastructure. “You can’t make a business in the long term from government-contract funding, especially if you are working on a cost-plus basis. However, it can help to fund your pipeline; we have had over $600 million from contracts. It is smart money if you are prepared for the pain of only working for one customer.”

  • Stretching the Almighty Dollar

    Many delegates at the conference acknowledged that once the hard fight for funding is won, it has to be spent wisely. To make the money go further many pharmas and biotechs in the U.K. are now out-sourcing various areas of drug discovery and development to India, China, Russia, and Brazil. Speakers who have experience working in these countries offered a bite-sized view of what’s hot and what’s not.

    Malcolm Skingle, Ph.D., director of academic liaison at GlaxoSmithKline (GSK; www.gsk.com), said, “On average it costs GSK ten times less to do research in India or China than it does in the U.K. We also now outsource a good proportion of our mathematical biology to Russia because the staff works hard, is well-educated, and is inexpensive to hire.

    “China is producing two million graduates per year and 200,000 post-docs, so they are offering a good-quality workforce. Additionally, there is a real concern about animal-rights campaigners in the U.K. preventing companies from performing essential drug testing on animals. I think many biotech companies here may look to outsource their in vivo pharmacology to countries where these groups are not so active to get the work done more cost-effectively.”

  • Access to Potential New Therapies

    “Brazil has over 500 small biotechs, and many academics there also want to commercialize their ideas, offering an inexpensive source of potential therapies. Additionally, Brazil has a large rainforest and companies are waiting for clients to access their biodiversity screening to find new drugs,” said John Anderson, Brazil partner at Oriundo, a consultancy firm.

    Mamtha Sharma, senior trade and investment advisor, India, at the British Trade Office, added, “In five years Indian biotech firms have increased in numbers from 30 to 450, and a recent Ernst and Young report estimates that the Indian biotech industry will be worth $3 billion by 2010. Indian biotechs are now very strong in vaccine development, so there are opportunities for Western companies to find inexpensive sources of new vaccines here.”

    The only downside of outsourcing drug development work that was touched upon was the difficulty of getting chemicals and equipment delivered in certain countries. According to a spokesperson at Selcia(www.selcia.com), a chemistry-focused CRO based in Essex, the company had to cease using laboratories in Russia despite the fact that they provided excellent quality work because they could not get the starting materials for the research.

    A more significant problem is protecting IP in many of these emerging markets. “Patent protection and enforcement are still an issue in India. However, India’s new head of science and technology is making efforts to address this problem, and I believe India will soon fall in line with Western patent standards because it will have to,” said Sharma.

  • Opportunities in the Clinic

    Speakers at the meeting stated that India, Russia, and Brazil all offered good clinical trials facilities at a fraction of the cost of using most European trial centers. Ivan Petyaev, Ph.D., chief medical and scientific officer at Cambridge Theranostics (www.cambridgetheranostics.com), said, “Russia has undergone a transformation in the past decade with many of the hospitals now equipped to Western standards. In fact, we have had our Phase II trials in Russia independently audited, and since they met the required standard we will have no qualms about using Russian hospitals for trial work again.”

    The cheaper cost of running trials is not the only reason for outsourcing to India or Brazil. “In India there are many cancer patients who are not treated, making the evaluation of an investigational medicine more robust as there are no drug wash-out effects. Also the incidence of cancers types is different, and we have been able to evaluate treatments on large patient populations, which would not be possible or very difficult in the U.S. and Europe. And, of course, if successful these medicines will bring particular benefit to the broader population in India,” Dr. Skingle commented.

    “In Brazil there are 180 million drug-naive patients, so patient recruitment is much more rapid than in Europe and the U.S.,” Anderson added.

    All the speakers agreed that only some clinical trials centers in these countries are working to the correct regulatory standards. “Brazil is a large country with some very poor areas so you have to choose centers for trials carefully as many public hospitals are deficient,” warned Anderson.

    “Many hospitals in India do not yet operate to GCP standards but centers in London, Oxford, and Cambridge are now brokering relationships with Indian hospitals to share best practice because they realize there is an untapped source of patients,” Dr. Skingle said.

    A more worrying problem is potential patient exploitation. “There is an issue in India about informed consent and whether clinicians are making it clear to patients what they are signing up for. But again there is debate about this, and soon there will be more government input to make the legislation clear in India,” added Dr. Skingle.

  • The Future

    Many at the “Cambridge Biopartnering Exchange” believe that outsourcing areas of drug discovery and development to emerging countries is the way forward for pharmas and biotechs that want to remain profitable. “By 2015 big pharmas need to be running a virtual company where they oversee discovery in biotechs, clinical development by CROs, and manufacturing in countries such as India and China because the strength of big pharma is its ability to market and distribute drugs globally. If they concentrate on running this type of business model they and the biotechs they partner with will succeed,” said Steven Burrill, Ph.D., CEO, of life sciences merchant bank Burrill & Company (www.burrilandco.com).

    “Because quality and agility are everything in the pharma and biotech industry now, outsourcing will increase,” Dr. Skingle noted. “However, those who see dealing with these emerging economies not as a threat to their business but as an opportunity to find the best in class to help accelerate their research will gain untold benefits by working there—it will also help the populations in these countries who will be able to reap the rewards of the research both in revenues and new medicines.”



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