The Cost of Developing a Drug: That Mythical Figure

Biotech followers in 2003 were told that the time and costs for developing a drug are around 10 years and $800 million thanks to a study from Tufts that suggested those numbers. That money figure has ratcheted up since then, as most assume that, along with everything else, drug development costs are also steadily increasing. 10 years and $1.2 billion is tossed around these days, and seems like a fair calculation of inflation.

Now, a study in the journal BioSocieties has people talking about that figure again. The study suggests the median cost of developing a new drug is way below the Tufts estimate all the way down to $59 million, though with several caveats. (The authors of the BioSocieties paper are Donald Light of Princeton, New Jersey, and Rebecca Warburton, a professor at the University of Victoria, in British Columbia, Canada.)

We’re covering that news in more detail in an upcoming issue of Nature Biotechnology, but Bruce Booth has an interesting blog post discussing the article.

The truth is that the figure can probably be fodder for parlor talk forever, unless every single drug developer opens its books and we get a look at detailed costs over the past 20 years, and that’s not going to happen.

Brady Huggett

Minimum Viable Products in Biotech

MVP2.PNG

Hat tip to the source.

A major pillar of Lean Startups is their use of Minimum Viable Products (MVPs) to test the validity of a product within a marketplace. By definition, a MVP has the minimal number of features that is required to test a given market hypothesis. A MVP allows the originating startup to gather invaluable feedback from customers, which in turn accelerates the feedback cycles around every aspect of development. Put differently, the use of an MVP avoids spending extensive time and resources building a finished product before validating the product concept with customers. When used in the context of validated learning, MVPs are a valuable tool for identifying product-market fit.

MVPs have been discussed extensively elsewhere (see related links below), usually in the context of information technology (IT) companies. The success of the MVP model has been validated in the IT industry, and a common operating procedure for IT product deployment is now early launch followed by rapid product iteration. Software based products, and specifically consumer web products are amenable to such rapid development, as the engineering challenges are well-defined even when significant. In contrast to most software / web based products however, products rooted in the hard sciences like the biotechnology or bioengineering sectors (and yes we lump all sciences together where progress is “hard” to come by), have an appreciable level of technical risk in addition to the market risk that MVPs are designed to address. To successfully map the MVP model onto the hard sciences, such technical risks need to be considered in the context of the large upfront capital and time investments required to abrogate them.

Re-framing the MVP model to include mitigation around the technical risk as well as the market risk is both appropriate as well as imminently necessary. We believe that MVP concepts can and indeed should be applied to fundamental research driven industries like biotech. Having entrepreneurs in these fields use MVPs and validate learning will lead to more capital efficient commercialization of technologies. This will benefit the entrepreneurs, founders and employees, as well as the funding organizations involved, be they VCs, foundations or the government. Because of the different set of starting assumptions inherent to these industries mentioned, we suggest the following three steps to adapt MVP concepts to these industries.

  1. Test product concepts to identify product/market fit.
  2. Conduct MVP-focused research.
  3. Explore adjacent marketplaces for the technology.

Test product concepts to identify product/market fit.

MVPs are used to evaluate the product/market fit. This concept can and has to be rigorously applied to the hard sciences. Too often researchers have an “if we build it they will buy it [come]” mentality, only to later find the developed technology lacks commercial relevance. As such, the first requirement of developing a technology for commercialization is to identify markets you think can be impacted by the technology, and then use an MVP to test the validity of the product within these markets. In the context of research intensive products, testing market need before demonstrating technical feasibility may seem premature and one may receive pushback from the researchers involved. However, to turn a scientific project into a commercial success, one needs to investigate the fit with greatest prejudice, and do that across multiple markets. This means talking to the end users early on. As compared with months of technical R&D that might be misdirected at worst or undirected at best, gaining a detailed view of multiple potential product-market fit scenarios is a high return-on investment effort.

Due to the constraints placed on the commercialization by the time/capital-investment function, entrepreneurs need to pursue clever ways to test product concepts in the marketplace prior to achieving technical proof. One important test is to create the appropriate product profile and socialize this to potential customers within the field. For example, for therapeutics this will involve identifying key stakeholders for a given indication and present to them a product profile of the anticipated active drug, including how it will be administered, dosage regimes, interaction with other drugs that are co-administered and potential side effects, etc. For example, if you’re developing a cancer drug, it will be critical to speak with oncologists, cancer patients, survivors, and payors. Understanding how your therapeutic could be adopted in the context of the current treatment regime is critical and most often clinical decisions are made on factors other than what molecular target is being drugged. This effort will illuminate the opportunities and point to the key challenges that need answering at the earliest stages of technology development. A crucial mistake many startups make is failure to take the current process into account. Never just assume that if you can successfully develop a product the customer will change his use pattern to accommodate you.

Conduct MVP-focused research

Research is often perceived to be a necessarily meandering path. However, as the development effort moves toward the application of the technology in the marketplace, applied research has to be efficiently guided. This requires an R&D process be in place and a significant amount of discipline from everyone involved to ensure that experiments are designed from the bottom up to really answer the important questions about the MVP product. For anyone aiming to develop any successful product, rigorous focus and capital efficient behavior is needed. It’s challenging and very difficult to implement a culture of laser-focused research effort, but fundamentally, a small biotech startup or commercially focused research lab has no choice if it wants to develop a product in times where raising capital on promising research alone is not a winning pitch. It should be noted that if the goal is to develop strong IP based on novel and early-stage science the parameters are different and we will cover those aspects in a following post.

Explore adjacent marketplaces for your technology

Last but certainly not least, early-stage research can and does create technologies that can have many applications – many startups are founded on the premise of a platform technology (technology push). This is often referred to as the “hammer looking for a nail” syndrome, and in many cases the most interesting nails are outside of the entrepreneurs domain of expertise. There are many examples of adjacent markets where products met their ultimate success. For instance, discovery of a drug target that impacted unexpected indications (e.g. Viagra was originally a cardiac drug), applied physics developments used in biotech applications (e.g. Pacific Biosciences optical waveguide technology used in sequencing), genetic engineering used in many industrial biology applications (eg. Genencor’s industrial enzyme production), and bioinformatics analysis technologies generally applied to the big data industry (eg. GNS’ foray into financial and systems analysis).

In summary, using an MVP based on a product profile enables the entrepreneur to be able to nimbly test product concepts in adjacent markets and generate invaluable feedback for further iterations of the MVP and final product. Additional posts will dig deeper into MVPs for different types of biotechnologies.

Here are some links to related content:

The Lean Startup

Minimum Viable Product Guide

Four Steps to the Epiphany, by Steve Blank.

James Taylor & Michael Koeris. Originally posted on Biotech Start.

How VCs build companies today

We published in the December issue of Nature Biotechnology a news analysis detailing some of the funding models being used by today’s life science investors. Some are looking to expand syndicates, ensuring that funding is there for follow-on rounds. One is sometimes providing huge A rounds by itself. And though many favor an “asset-based” approach, the R&D platform engine is not as dead as might be thought.

We’ve removed the article from behind our pay firewall, and you can read it here for the next month or so. It should be informative to the Trade Secrets audience.

Brady Huggett

News of the world – in map form

When the news flow supports it, we run a map of sorts in the pages of Nature Biotechnology, rounding up biotech-related items from around the world. This one we published in the December issue, now live on our website. If you’re a subscriber, you can see it here. If not, I’ve pasted it below.

NBT map dec.gif

Brady Huggett

Assessing VC funding in biotech

Ever since Prospect Ventures "handed back $150M ":https://www.fis.dowjones.com/WebBlogs.aspx?aid=DJFVW00020111006e7a60005l&ProductIDFromApplication=&r=wsjblog&s=djfvwof of committed money to its limited partners, there has been plenty written on the lack of venture capital funding for the life sciences.

However, a deeper dive provides a better picture. Bruce Booth has done the diving, and he wrote a blog post about it.

His findings are similar to what we found when digging up research for a news analysis, scheduled for publication in the December issue of Nature Biotechnology. That piece looks at new funding models for today’s startups, and I’ll get it removed from behind our firewall and post a link on the blog next week, after embargo lifts. Until then, you can read Bruce Booth’s piece here.

Brady Huggett

CEITEC grows in Brno

ceitec_viz_02.jpg

The Central European Institute of Technology (CEITEC) is establishing an R&D infrastructure project that eventually will cost $300 million in Brno within the next three years. The money for the European centre of scientific excellence comes from the Operational Programme Research and Development for innovation of the European Structural funds. The institute, which will interconnect life sciences and technical fields, will be used by up to 600 scientists and by over 1,200 students, and also by Czech and foreign companies. It will also help the existing basic and applied research in the entire Czech Republic to achieve top levels.

This multi-field CEITEC is the first scientific centre in the Czech Republic to integrate research and development in the fields of life sciences, advanced materials and technologies on such a large scale. The research is divided into seven programmes: nanotechnology and microtechnology, advanced materials, structural biology, genomics and proteomics of plant systems, molecular medicine, brain and mind research and molecular veterinary medicine.

The following entities are participating in setting up this centre: Masaryk University, Brno University of Technology, Mendel University in Brno, University of Veterinary and Pharmaceutical Sciences in Brno, Institute of Physics of Materials of the Academy of Sciences of the Czech Republic and Veterinary Research Institute.

The Rector of Masaryk University, Petr Fiala, says that “CEITEC is being built around successful research teams from the participating institutes,” and is “creating unique conditions for their further development and bringing a significant increase in their research possibilities.”

The new R&D infrastructure will be 25,000 m2 and located on the University Campus of Masaryk University in Brno-Bohunice and in the Brno University of Technology Campus, “Pod Palackého vrchem.” Research will focus, for instance, on the production of a subdermal chip, which will measure a patient’s life functions and inform the doctor about them from a distance. Also, the production of biosensors, which will be able to discover an earlier stage of an illness, or modify surfaces for a faster adhesion of disturbed nerve fibres, or produce “SMART materials” built into planes, which will be capable of reporting defects.

Investment into the future for the whole region

The new instruments and facilities will be also used by scientists and companies from all of the Czech Republic and abroad. Pharmaceutical and engineering companies are already making enquiries in research, education of experts and the renting of facilities. The uniqueness of the centre, apart from the integration into the international research network, is based on the system of management stemming from the experience of significant world research institutions. The internal language will be English, and Tomáš Hruda, the executive director of CEITEC, says, “We are already occupying research teams and key managerial positions by recognized foreign experts. We have already started cooperation with the most significant global institutes.” He adds that there has been interest from world experts to work in CEITEC, and successful Czech scientists now will have a place to come back to from abroad.

ceitec-image.jpg

Martin Partl

The “Electric-Biology” duo

electric.jpg

Two old pals, once classmates at Minami-Oei Primary School in Osaka city of Japan, never would have dreamt that they will jointly work to develop a commercially successful disinfectant six decades later. One of them, Sunao Kubota, became a physician and professor of General Surgery in St. Marianna University School of Medicine, and the second, Nobuyuki Yamaji, became an electro physicist with Kyoto University.

Yamaji was working on the implications of electric shock or lightning on plants and mammalian tissues, and Kubota was busy with his surgical work, trying to find a solution for his skin-allergy to alcohol. It was a casual meet-up in their native town a decade ago when they got to know each other’s work, with Yamaji describing to Kubota how plants and mammalian tissues secrete a unique layer of fluid after getting hit by lightning or electric current. Yamaji wasn’t sure of the significance of that layer of fluid, but as an electro physicist, he was thinking that the tissues might produce the secretions to neutralize the effects of the electric current. However, Kubota went back to his office and started analyzing of the ingredients of the secretion.

Eureka! One morning Yamaji got a call from Kubota saying that the significance of the secretion might be to prevent the entry of pathogens through the dehiscence made by the exit or entry of the electricity. For the next 10 years, Yamaji and Kubota worked to isolate the ingredients of the secretion, one of which was a form of citric acid, an ingredient of several food additives.

As their novel molecule could kill pathogens, Kubota didn’t have to depend on alcohol-based hand disinfectants when entering the ICU, and beyond that they have now made a multipurpose, alcohol-free product that can not only cleanse the hands, but also disinfect clinics, isolation units, operating rooms, etc. When they found out that their product could effectively destroy the influenza viruses (including the avian flu strain H5NI), they convinced the Japan Railways to spray their product inside the coaches of the trains during flu seasons. Today, a Japanese multinational company is selling their product with a brand name “Clinister” all over the world.

Kubota, a retired professor of general surgery, and Yamaji, a retired scientist, have become partners in a new business, which possesses the IP rights of their inventions. They have outsourced the manufacturing of their product to a pharma partner, and the exporting is done by a trading company. They have joined with companies in Asia for packing their products, and now are looking forward to a worldwide blast.

As I was reading the story on synthetic biology of Ham Smith and Clyde Hutchinson, I was reminded of Kubota and Yamaji.

I decided to give the title “Electric Biology” to this post about two septuagenarians who found a solution in biology from an original research on electric shock and lightning.

Though their association is from childhood, what has opened this new product to the world was their open-ness to discuss with each other their professional issues, even though they work in separate specialties.

Out-of-the box ideas and solutions are possible only when you share your problems with people out of your specialty; when you do so, solutions will pour in.

Samuel JK Abraham

North-South Dealing

compass2.jpg

Entrepreneurial life sciences companies have set their sights on overseas markets and have formed international partnerships to gain access to distribution channels and insight on product specifications, registration, and user preferences. I estimate that this “global health” market place is between $250-300 billion in annual sales, using a 2009 pharmaceutical sales forecast that put 14% of the total of $820 billion resulting from the emerging economies of China, Brazil, India, South Korea, Mexico, Turkey, and Russia (2009 Forecast), and so about 17% ($147 billion) occurred in the rest of world including those countries with few resources in health care. Applying the same ratio to a world diagnostics market of $44 billion, I add another $14 billion, giving a approximate non-US/EU/Japan global health pharma/diagnostics products market of $276 billion.

For these entrepreneurial companies, the number of partnerships between companies in the US, Canada, and Europe (aka “the global north”) and in the developing world (aka “the south”) is substantial. In 2009, researchers at the McLaughlin-Rotman Centre for Global Health of Canada reported on a survey of 500 biotech companies based in north and found "more than half had active collaborations ":http://www.nature.com/nbt/journal/v27/n3/full/nbt0309-229.html with companies in the developing world. To get an idea of the type of collaborations, the same authors interviewed Canadian biotech companies (of which 25% had non-US/Europe, international collaborations) and found collaborations primarily for, in descending order: product development (R&D and clinical trials), contract research or manufacturing, and product distribution. The authors also noted that the collaborations were bi-directional, with knowledge and capital flowing both ways, and were self-initiated; government and international group involvement was absent or limited.

So how may more north-south company collaborations be facilitated? Currently, the major international biotech trade group is the Biotechnology Industry Organization (BIO) which has only a few members from the global south, due to several possible reasons, but probably not the cost of membership which is a few thousand dollars for small companies. For the past several years, BIO’s annual meeting has attracted international attendees, about one-third of the 15,000, hosted 30 national exhibitors, and organized a track on Global Innovations and Markets. The best opportunity for deal-making or at least introductions is the conference’s Business Forum, through which person-to-person business development meetings are scheduled with other BIO attendees. But, of course, this confab is only once a year.

Obviously, in the Facebook age, there is the potential for international connectivity and subsequent deal-making afforded by now almost-ubiquitous internet access. A web-based “International Biobusiness Association” sounds like a good idea, but I haven’t found one. In the vaccine space, there is the Developing World Vaccine Manufacturers Network (DWVMN), which is such a trade group and may be a model. Given my involvement in business mentoring and coaching, "I think there is a place ":http://cdippel.wordpress.com/ for an online matching service for companies seeking access to expertise and connections that may lead to collaborations and have commented and proposed several models in my global health business blog. The challenge, of course, that that deal-making is a physical contact sport, so using electrons to build the required inter-personal relations is just the start. For entrepreneurs who are looking for business in Africa, there is the networking site with a meet-up function, Venture Capital for Africa. Here in Boston we have a great website for promoting elbow-rubbing and information-sharing called Greenhorn Connect. I wonder if the founders of either are interested in franchising internationally?

Chris Dippel

Blue Sky funding

blue.jpg

I read "an article in The Scientist ":http://the-scientist.com/2011/10/17/nih-grants-funding-drops/ on funding with a little cynical laugh the other day. It described how “The success rate of the government agency’s grant applications has hit an all-time low” – of 17.4% of all applications. That’s just under one in five: consider, then, that a recent call by South Africa’s National Research Foundation for 40 prestigious Research Chairs in local universities was over-subscribed by at least 10 to 1 – and that was with pre-screening by the institutions. Another call for “blue sky” projects for rated researchers – open to all 2,300-odd such people – was for a total of R15 million a year, and was expected to cater for about 30 projects. Even if only half of all eligible folk apply, that means only 2.5% – 1 in 40 – will receive anything. A further wry smile could be elicited by the fact that the R0.5 million a year (~US$70,000) they will get is significantly less than the US$100 000 that junior NIH grant recipients can expect, and after all that competition too!

In truth, funding for pure science in South Africa is simply bad. My colleague Blessed Okole, who works for a government-funded funding agency in South Africa who is a Trade Secrets contributor, may argue with me – but then, his agency (the Technology Innovation Agency, TIA) funds applied research – and mainly towards the business end of the pipeline, at that.

The NRF should be funding pure science, but their money seems to be tied up in a mixture of ring-fenced initiatives that leaves very little room for any “blue sky” initiatives. In spite of the fact that they had an initiative labeled “Blue Skies”, which raised a large amount of controversy due to the very strange conditions associated with it, which a response by the NRF President in South Africa’s premier science journal did nothing to quell. As it was, in 2010 the breakdown of the NRF’s funding was as follows:

Broad Investment Areas (% of budget)

  • Established Researchers (18%)
  • Human Capital Development and Unrated researchers (23%)
  • Strategic knowledge Fields (23%)
  • Strategic Platforms (Including at the National Research Facilities) (11%)
  • International initiatives (11%)
  • Applied & Industrial Research & Innovation (14%)
  • Community Engagement Research (0.2%)

TOTAL (100%)

Thus, less than one-fifth of their disbursement budget of around R300 million (~US$40 million) goes to established researchers – the 2300 people rated A to C – and then very little of that goes to “free” or curiosity-driven projects.

The fact that we get any funding at all, in the context of being scientists in a developing nation in Africa, is probably something to praise. However, however…the government, through the national Department of Science & Technology recently lavished R1 billion on a pilot project called the Karoo Array Telescope, which is aimed at proving to the world that South Africa can host the Square Kilometre Array. They also spent at least US$1.8 billion in failing to develop the now-defunct Pebble Bed Modular Reactor project, and the now infamous “Arms Deal” will have cost over US$10 billion by the time it has finished.

So it is not because we have no money, that there is not very much money for science – it’s just that the government doesn’t seem very interested. So it goes…we just play the lottery – pardon, the NRF funding game – with the rest of the country, and meanwhile we try to get money in from outside the country just as hard as we can. Who knows, maybe TIA can deliver – and maybe porcines will be airborne soon. We live in hope!

Ed Rybicki