Virtual and Small Biotech Roundtable

What makes small/virtual biotech companies attractive partners?

TF: Small/virtual companies are good partners for Swiftwater Group because their operating strategies mesh well with our services. These tightly managed companies rely heavily on outsourcing and the best companies understand the value of working with a single company that can provide integrated services. In doing so, they avoid three main traps that larger companies fall into when managing disparate vendors. These pitfalls include 1) important activities fall through the cracks because no one reliably integrates multi-disciplinary development issues, leading to development delays, 2) relying on short-term contracts leads to short-term thinking (projects are managed from deliverable to deliverable), leading to cost increases and delays, and 3) large-company silos encourage departments to meet their goals, not the company’s goals, which compromise quality as well as time.

From a personal perspective, we get the most job satisfaction from working with small/virtual partners because we work directly with the innovators and become more vested in their programs. Like us, they are multi-taskers who enjoy new challenges and are willing to explore more efficient and newer ways to achieve development milestones. People running these companies and overseeing the development programs are passionate about scientific innovation and working with them is immensely rewarding.

EH: Our experience with small and virtual biotech companies has been extremely positive. To be honest, one of our initial concerns was their financial stability, but we’ve only run into these issues on rare occasion. That said, it’s clear that they are looking to maximize their spending and that’s often one of the reasons they find LabConnect so attractive. Many times, they have all their eggs in one or two baskets and we understand the many dimensions of how important that egg is. We can sum up their attractiveness in one word: passion. Their entrepreneurial spirit is inspiring. In these companies, we often work with more senior-level individuals than we work with at large pharma, and we find they make swifter decisions and communicate more clearly.

How do small and virtual biotech firms act as pipeline feeders for major pharmaceutical companies?

TF: From our experience, which is mostly from helping our virtual clients communicate the progress of their programs in investor and partnering meetings, it is apparent that Big Pharma’s strategy is to use small biotech to enhance their development pipelines for several reasons. Innovation within Big Pharma is slower and more costly, by utilizing biotech they can focus on their development and marketing strengths. The smaller, virtual companies are much more efficient, cost-effective, and versatile at getting to Proof of Concept (typically end of Phase 2), while Big Pharma has the financial wherewithal, economies of scale, and contracting prowess for taking the projects from Phase 3 to approval, and of course, marketing.

This strategy makes sense for the industry, as it allows the big companies more opportunity in building their portfolios. Investing in an early technology or a specific therapeutic area forces big companies to stay with that strategy for extended periods. Today, market-driving forces such as technological advances and the increasing power of payors can quickly shift the value of pipelines for major pharmaceutical companies. While these may not serve a large market, there is a growing demand for products addressing indications for unmet medical needs that act as potential pipeline feeders. Flexibility is not just an advantage but a requirement. Small companies offer this flexibility, and together with the right partner, can drive the industry.

What are some of the most notable challenges of working with or working for a small or virtual pharma or biotech?

TF: The only true challenge we face when working with these companies it that we are sometimes brought in later than we should be, and the optimal development strategy is not in place because of lack of experience in interpreting regulations and guidance. Small companies are often under the mistaken belief that they have to do significant nonclinical work before filing an IND, a critical inflection point for these types of companies. If brought in early enough, we can help them identify the necessary data, and then work with regulatory agencies to determine how to achieve development milestones more quickly. This saves significant time, and for these companies, time is money. Similarly, virtual companies have very little experience in all aspects of development and unfortunately commit to sub-optimal vendors (nonclinical, manufacturing, and clinical) for their outsourcing needs. This requires us to retroactively correct for these mistakes which can affect the validity of their data and value of the product. Finally, these companies often feel compelled to pursue all possible indications versus slating a development program that best fits with available capital, R&D budgets and personnel. By working with these companies earlier on, we are able to highlight the benefits of a development plan and begin to develop the initial target product profile (TPP), which helps develop a clear message for the product to communicate to investors and regulatory agencies. These tools can also be used as a strategic approach to reaching milestones, giving the product the best chance for success.

 While funding is certainly a challenge for these companies, their limited financial resources are often opportunities for us to think outside the box. As a small, almost-virtual company ourselves, we’ve been in their shoes and enjoy the challenge of achieving as much as possible with limited funding. While it can be frustrating for financing to delay reaching the next milestone, we’ve learned to build in our own flexibility so we can plan for the ebbs and flows of drug development.

EH: I would say the biggest challenge is probably related to budget. We are typically asked to provide more services with less of a budget. For example, due to budget constraints, a project manager may request help with visit forecasting. Fortunately, we’ve built some sophisticated algorithms that allow us to assist with this. These are based on extrapolating out screened and enrolled subjects, as well as forecasted enrollment rates. While we view this as an opportunity to differentiate our level of client service, it can be costly to accommodate if not closely managed.

How do you see the demand shifting for small/ virtual biotech firms over the next 5-10 years?

TF: The biotechnology industry has been pretty unstable over the last 25 years, with periods of huge rallies and worrying droughts. However, a lot has been learned and the industry has matured so that a stable strategy is being employed which has evened out the risk in the market. Instead of small companies aiming to become a Big Pharma by taking their products to approval, more small firms are striving to license their products at Proof of Concept or be acquired. This allows for less risk and earlier payout to their investors, but still provides for significant ROIs. On the receiving end, Big Pharma is also spreading their risk by investing in technologies that are in a later stage of development and in which they have more confidence. In fact, this strategy applies not only to biotechnology, but also to traditional small molecules in key scientifically demanding therapeutic areas like oncology, as well as with non-traditional products like those with limited changes from a previous approved product (505(b)(2)), biosimilars, and generics. Therefore, we see demand for startups increasing, especially as more blockbusters come off patent, pushing Big Pharma to seek new innovative technologies to fill their pipeline and replace declining revenue.

Discuss the preference to partner with the larger biotech and pharmaceutical industries over direct financial markets.

TF: Because of the new strategic paradigm mentioned above, the new “buyer” of small, innovative companies is not the financial markets, but Big Pharma (and Big Biotech). These days, there are simply too few successful IPOs because so many small companies have failed in a big way, creating lasting memories for investors. Many companies tried to become integrated pharma companies (R&D, sales and marketing). These companies were not successful on their own merits due to loss of capital backing stemming from delays in meeting pivotal endpoints, development delays due to study design errors, and a variety of other common development issues. Lacking revenue from other products to fund R&D, they relied on private and public markets for funding. If delays were long, investors cut their losses despite potential promise. Economic downturns tightened capital markets and left many companies undercapitalized to meet their development goals. Big Pharma companies need to fill development pipelines and are looking for later stage products to replace those losing patent protections. They have capital and need to re-invest this capital to help meet goals for revenue growth and shareholder’s value. Thus, there is a mutually beneficial scenario for Big Pharma and small biotech and R&D companies.

What makes a partnership between you and small/ virtual pharma and biotech companies successful?

EH: We designed LabConnect to efficiently and effectively accommodate the types of studies we often see from small and virtual biotech companies. That is to say, we can accommodate analytically and geographically complex studies in a very fast, flexible and friendly manner. We’ve learned that trust is critical and, while it must be earned, it goes a long way toward a long-term partnership. As a smaller company ourselves, we also share a similar culture and work ethic, which makes working together more fulfilling.

Discuss your organization’s process of choosing appropriate partners.

TF: Due to our expertise, we focus on virtual companies that are in the early stages of development, when they need to create a comprehensive, integrated plan. The best partners for us are the ones who communicate freely and are willing to share their visions for the product and the company – in short, when they are transparent. In the long run, we are not successful unless they are successful, and that gives us vested interest in their success. We choose companies that allow us to be proactive instead of reactive.   

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