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Biotech Taps High Tech for Ideas from Start-Up to Finish

By Trista Morrison
BioWorld Insight Editor

Biotech firms have long borrowed ideas from the high tech world. The venture-backed start-up business model on which the entire biotech industry is based came from high tech, and it has served both industries well despite their very different timelines and cost structures. Even so, current capital constraints have put "unprecedented strain" on biotech business models, according to Ernst & Young's Lead Analyst Gautam Jaggi, requiring a rethink of everything from company founding to drug development to healthcare delivery.

And once again, the high tech industry is providing some answers.

"Across the entire biotech spectrum we're seeing unprecedented challenges," Jaggi told BioWorld Insight. "The existing models are not sustainable; there is a tremendous need to come up with new solutions."

At the same time, high tech experts are being lured to the biotech industry by these challenges, recognizing that there are massive opportunities for those who can figure out the answers. And in the background, the technology needed to solve some of these problems is evolving, from apps to sensor-embedded devices to electronic health records.

The convergence of these factors is increasingly driving what Jaggi calls "nontraditional entrants" into the biotech ecosystem.

From Start to Finish

One aspect of biotech that has seen an explosion of creativity over the last year is company founding.

Most biotechs still take the traditional venture-backed start-up route, but some venture firms are finding innovative ways to partner with pharma on company creation, such as Versant Ventures did with Celgene Corp. to launch Quanticel Pharmaceuticals Inc. and Third Rock Ventures LLC did with Sanofi SA to launch Warp Drive Bio. Meanwhile, pharma firms are experimenting with other ways to support start-ups, such as Johnson & Johnson's backing of Polaris Venture Partners' @dogpatchlabs project and Merck & Co. Inc.'s new nonprofit translational institute. (See BioWorld Insight, Jan. 23, 2012.)

@dogpatchlabs is a largely tech incubator through which entrepreneurs can apply for physical space and network with other start-ups. The J&J funding will help the program expand its life sciences community.

The recent Jumpstart Our Business Startups (JOBS) Act – which reduces regulations on small companies and opens capital formation avenues including crowd funding – also owes its existence in no small part to the tech industry. Tech entrepreneurs, who grew up in a world where everything is in the public domain, took issue with antiquated laws restricting advertising of private offerings. And the massive growth of private firms like Facebook and Twitter led to the rise of secondary markets and helped Congress understand how issuing equity in private companies through crowd funding might work. (See BioWorld Insight, Nov. 14, 2011.)

But while there's no shortage of tech-inspired creativity on biotech's front end, it is on the back end that high tech inspirations are driving some of the biggest changes to the drug industry. Ernst & Young's annual biotech and pharma reports are full of examples of how tech is evolving healthcare delivery, from smart phone apps that monitor glucose levels in diabetics, to pills that communicate wirelessly with physicians after ingestion, to online games designed to promote healthy behaviors.

Meet in the Middle

It is the area between start-up and commercialization – the vastly expensive and desperately in need of an overhaul pharmaceutical research and development continuum – where high tech advances seem to have had the least impact thus far.

There are some exceptions. On the discovery side, a team of software and semiconductor entrepreneurs founded Cellworks Group Inc. with the goal of taking the algorithms they successfully used to model one billion transistors on a chip and applying them to proteomics. Similarly, entrepreneurs with expertise in artificial intelligence founded BioVista Inc. to create a drug profiling platform that would be able to identify new uses for existing compounds.

On the development side, Transparency Life Sciences LLC is seeking to use web-based approaches like crowdsourcing to improve clinical trial design – a tactic that has been proven successful in the computer programming industry by TopCoder Inc. Some big pharma firms like J&J have also sought to replicate the high tech industry's success with crowd sourcing through challenges that award good ideas with funding.

But on the whole, R&D "might be tougher nut to crack," E&Y's Jaggi said, when it comes to using high tech solutions to solve business model problems. Drug development is so heavily regulated that companies have less ability to make radical changes to the way they do things, he said.

That may not be the case forever, though. The Senate is working on a bill called the FDA Safety and Innovation Act that includes language aimed at investigating whether or not high tech competitions could one day replace the patent-based system that governs drugs. The bill calls for the National Academies to study how development of new drugs could be rewarded with financial prizes, what those financial prizes would have to be to maintain innovation, how prizes for upstream research would be handled, open source dividend prizes, etc. The bill is still just a markup, but it shows the government is interested in a fundamental rethink on its end as well.

Jaggi said he is encouraged that the government is thinking in terms of behavioral economics. Figuring out creative ways to incentivize people – whether that means incentivizing patients to make healthy choices or incentivizing drug companies to find new treatments – is "huge in terms of the implications for the healthcare system," he said.