Pass the baton

It’s a long time and a lot of money to progress from the initial stages of discovery to getting a drug on the market. Not only that, the attrition rate means lots of products fail – expensively – on the way.

Medical needs remain unmet despite the wealth of possibility offered by new targets and deeper understanding of biological pathways. In short, the demand for new drugs is there, but the mechanisms for translating basic research into marketed products are frail and unreliable.

Even the most skilled, experienced and best-resourced pharma companies can find themselves having to drop products after nurturing them all the way through to Phase III of clinical development.

Little wonder then, that biotech start-ups cannot stay the course, or that venture capitalists have lost their appetites for early-stage investing. With scant prospects of companies that have only cash-hungry development-stage products floating on a public market, it is very hard to find an exit, and no venture funds can afford to be tied in for the 10 – 12 years of a typical drug development project.

The answer, according to biotech industry veteran and investor Stephen Evans-Freke, is to stop viewing drug development as a marathon and start to think of it as a relay. Rather than running an energy-sapping and enervating distance at a stop-start pace, each runner can pick up the baton with a fresh pair of (financial) legs, equipped with exactly the right skills for that stage of the race.

Investors not attracted to venture funding

“There’s a very widespread view that traditional vehicles for investing in biotech are not attractive in the current environment,” Evans-Freke told ScienceBusiness. He should know. Next month will see the final closing at around $700 million of Celtic Therapeutics Holdings LP, a fund Evans-Freke set out to raise in 2007. In the process he has spoken to investors worldwide and finds that although they are interested in putting money into pharmaceuticals, they are not attracted to venture funding. “The timelines to exit are impossibly long and the cost is impossibly high,” Evans-Freke says.

The come-on from Celtic is that it will invest for only part of the journey. The fund will buy into products that have reached Phase II clinical development, apply its pharmaceutical industry skills over three to four years to develop them on to Phase III and through approval, and then sell on.

While this lower-risk approach may be appealing to Celtic’s investors, it won’t work if no one is prepared to make venture investments in the biotech start-ups that toil to push compounds from discovery to lead optimisation, preclinical research, and through to early stage trials.

Evans-Freke agrees. “One motivation with Celtic is we believe a new model is needed desperately that makes sense for venture investors in biotech.” There is certainly more activity on the part of pharma companies in licensing and acquiring biotech products. But Evans-Freke believes pharma is “not being very effective” in stepping up to take on products in mid-stage development. “A typical Phase II data [package] in biotech is nothing like good enough to convince sceptics in big pharma,” he says.

Plotting a path to the finish

“The Celtic model is to bridge this four year gap [getting products] to the point where pharma companies can get their heads round the commercial value proposition,” says Evans-Freke. This has been done convincingly with the earlier Celtic Pharmaceutical Holdings fund, which Evans-Freke notes is now sitting on two potential blockbuster products that will be auctioned in 2011/12 and three other products with smaller markets. “That’s five products out of nine that will make it to market, so it’s good going.”

Due diligence is underway to select the 12 – 15 products in which the latest fund will invest over 2011 and into early 2012. Celtic will then set out to raise another fund.

“The point is you need to provide a path to get to the finishing line. So think of drug development in terms of being a relay race. Only then will you get more money into the venture end of biotech,” Evans-Freke concluded.