Biotechnology companies heard a clear message at the 12th annual Biotech Investment Conference, in Millbrae, Calif.: To get cash, you need a good management team to get a product to market. Acquiring capital is the major challenge emerging biotechs face. And, without products to sell, there are limited ways to obtain capital, making the task daunting.
Yet, 2004 was expected to be a comparatively great year for investment in biotech. According to MPM Capital, biotech investment will top $5.7 billion in 2004 — surpassing the record high of $5.1 billion in 2001. Where are these dollars going? A large chunk is moving to companies with products already in clinical trials, leaving early-stage biotechs starving for capital. One potential consequence is that many biotechs’ activities will stall, resulting in their closure or the sale of their property rights to stronger companies.
A BETTER MOUSETRAP?
Gil Van Bokkelen, PhD, president and CEO of Athersys, a biopharmaceutical company with therapeutic product programs in obesity, asthma, cognition, and regenerative medicine, agrees that access to capital is one of emerging biotechs’ greatest challenges due to the high level of risk involved. So, how has Cleveland-based Athersys been able to fund its research and development projects while luring long-term investors? Van Bokkelen says his company is attractive because of what he calls its unique drug-development philosophy, which goes beyond a focus on compound potency and specificity. “We conduct extensive characterization of potential drug candidates with regard to toxicity testing, pharmacokinetics, and biodistribution earlier in the drug-development process. Many factors that frequently cause products to fail in the later stages of development can be assessed more aggressively and earlier in preclinical development. That way, we can weed out things sooner and much less expensively. It’s more effort on the front end, but ultimately, we think it’s worth it, because it will produce higher quality candidates.”
In addition, Van Bokkelen explains, unlike many emerging biotech companies — which generally focus on a single product platform such as pharmaceuticals, antibodies, stem cells, or protein — Athersys takes a somewhat broader view. The company utilizes several proprietary technologies, either established internally or accessed through partnerships. “We have the ability to develop pharmaceuticals, proteins, or stem cells, or even antibodies through our partnership with Medarex. This gives us greater flexibility in testing and determining which is the most effective product modality for a given disease,” Van Bokkelen says. “Not too many companies think about the process that way.”
Another key difference is Athersys’ emphasis on a portfolio-driven rather than a target-driven approach. “In obesity, for example, we are not just going after one particular target of interest; we are going after multiple targets in parallel,” says Van Bokkelen. “For each target, our goal is to develop several distinct classes of compounds.” Drug candidates in a portfolio can be developed and tested in parallel to identify winning approaches, or to look for complementarity. “Everybody in our organization understands our goal: to get the best, safest, most effective compounds,” he says. “At the end of the day, we don’t really care which target proves to be the best, as long as we can produce a safer and more effective product.”
Athersys also has used its proprietary technology platforms to develop partnerships with pharmaceutical and biotechnology giants Pfizer, Bristol-Myers Squibb, Medarex, and Johnson & Johnson, to reduce its dependence on outside sources of capital. Partnership revenue reduce its dependence on outside sources of capital, though Van Bokkelen adds that such revenues “are not even close to supporting the capital needs we have for the more valuable aspect of our business — the portfolio of drugs we are developing.”
Van Bokkelen maintains that Athersys’ front-end focus has positioned the company to become a biotech leader over time. As a result, he says, Athersys has three to four programs that are well positioned to go into clinical testing in the next 12 to 18 months — and more are on the horizon. “For a company of our size, that is pretty unusual. Smaller companies often do not have that kind of breadth. We have been able to achieve quality and diversity very economically and efficiently.”
Biodrug Wholesalers Seek Additional Fees
The Centers for Medicare and Medicaid Services is reviewing a request from the Specialty and Biotech Distributors Association —a drug wholesalers’ trade group — to begin charging storage and handling fees on expensive oncologic and other biotech drugs that are administered in a physician’s office. These fees are expected to amount to 2 to 3 percent of the cost of the product. Advocates for lower drug prices argue that the fees are unnecessary. Wholesalers are trying to recoup anticipated lost revenue linked to changes in Medicare law that simplified the pricing of biotech drugs and eliminated most discounts and rebates, (see Drugs & Diagnostics, page 17).
Ohio Leads Pack in Attracting New VC.
Many states are working hard to attract investment capital for their nascent biotech industries. Many so-called rust-belt states —which have seen what was once their worldwide leadership position in manufacturing all but disappear — are placing their bets on technology-based industry.
Ohio, now in its third of a 10-year initiative called the Third Frontier Project, is one of those states. Third Frontier is a technology-boosting program designed to steer funding to tech-research centers, universities, incubators, and technology-based companies. And apparently, the state’s investment in the program has paid off. According to a study conducted for Pharmaceutical Research and Manufacturers of America, by the Milken Institute, Ohio experienced the largest relative growth of total biotech venture capital of any state between 2001 and 2003. In 2001, a mere $1.4 million in venture capital was invested in Ohio’s biotech firms; by 2002, investment had grown to $41.7 million, followed by $32.9 million in 2003.
Fastest rates of biotech VC growth, 2001–2003
Relative statistical growth (U.S. average = 100)
SOURCE: “BIOPHARMACEUTICAL INDUSTRY CONTRIBUTIONS TO STATE AND U.S. ECONOMIES,” MILKEN INSTITUTE, SANTA MONICA, CALIF., OCTOBER 2004
Use of RA Injectables Doubles Among Young
The number of people age 19 and younger taking specialty drugs to treat rheumatoid arthritis has increased 133 percent since 2002, according to figures compiled by Medco Health Solutions, the pharmacy benefit manager. In addition, spending on RA drugs within this population jumped 160 percent over the same period.
Medco’s data also indicate that specialty drugs now account for about 10 percent of all pediatric pharmacy spending.
Chit-chat
Novartis has purchased Triad Therapeutics’ p38 kinase inhibitor program…. Ricerca Biosciences has spun off Auburn Pharmaceuticals…. Venture capital: JDS Pharmaceuticals raised $62 million in its latest round of venture capital; Targacept raised $33 million; Amphora Discovery, $20 million; and Endocyte, $22.6 million…. Invitrogen has purchased DNA Research Innovations and Bio Asia, the latter a supplier of reagents and other materials for China’s research community…. Japan’s Kyorin Pharmaceutical will purchase ActivX Biosciences for $21 million…. Tapestry Pharmaceuticals has closed its genomics division…. and AstraZeneca has purchased a minority stake in Cambridge Antibody.