As startup biotechs struggle to balance reduced funding with investor impatience for results, some funders have responded by helping create “virtual” companies focused on a single project they hope will quickly attract biopharma giants scrambling to plug their thinning pipelines.
Big biopharma is taking the bait. In June, Astellas Pharma joined Drais Pharmaceuticals in launching the virtual company Seldar to develop and commercialize Astellas’ experimental drug ASP7147 for irritable bowel syndrome with diarrhea. Two months earlier, the companies formed virtual Telsar Pharma to develop Astellas’ ASP3291 for ulcerative colitis.
Shire bought virtual biotech FerroKin BioSciences in March for $100 million up front and up to $225 million tied to milestones for clinical development, regulatory and net sales. FerroKin has a Phase II iron chelator treatment for patients with iron overload after numerous blood transfusions. And in February, Biogen Idec bought virtual Stromedix for $75 million up front, plus contingent value payments of up to $487.5 million based on development and approval milestones.
In virtual companies, a small, sometimes scattered management team farms out operations—they can include R&D, clinical trials, regulatory affairs, financial and human resources. Some virtuals prefer to keep some operations in-house. Rubicon Biotechnology, which helps smaller companies develop drugs, is in talks to buy or lease lab space. “If you can retain some development capabilities internally, I think at the end of the day, you’ll actually save money. You’re preventing problems from happening,” Richard Richieri, a partner in Rubicon Biotechnology, told GEN.
Richieri, a former head of development and manufacturing at CMO Avid Bioservices, helps small biotechs navigate production challenges as they scale up from bench to GMP production for clinical trials. One challenge, he said, is shifting from processes based on Chinese hamster ovary (CHO) cells to less expensive production systems using yeast or E. coli.
“Instead of 14 days in a bioreactor, you’ll be in there for two or three or four days, for example. And it doesn’t take you weeks to get to that point. It just takes you a few days to get into the fermenter,” Richieri said.
Virtuals have added incentive to control production processes: would-be suitors are waiting longer to acquire them.
“No longer are the Pfizers of the world buying companies in preclinical stages. Now they’re buying companies in their second and third phase. The process of getting there is just as important as the technology itself,” said Cassidy Brady, senior manager of marketing and business development with Pfenex. Rubicon is in talks with Pfenex, which Brady said is drawing a growing number of virtuals among current and prospective customers.
While their executives and investors say virtual companies promote more efficient use of capital, one consultant questions their ability to develop valuable medicines.
Stewart Lyman, Ph.D., owner and manager of Lyman BioPharma Consulting, says virtual companies are more prone than traditional biopharma startups to problems with science since they lack facilities to validate data. That data, he said, can come from entrepreneurs associated with the virtual companies; executives who left biopharmas that didn’t develop those ideas; or previously published studies.
Published data isn’t necessarily foolproof. Key findings for only six of 53 landmark cancer research papers could be reproduced by an Amgen R&D team, according to a study published March 29 in Nature. In online comments, several readers faulted the study for not disclosing full details of the research at issue.
Some virtuals address validation by hiring CROs, posing a potential conflict of interest: “If you tell the CRO you want to have your results validated, some of them (at least) will make every effort to get the result you wish so that they can retain you as a client in the future,” according to Dr. Lyman.