BioWorld Perspectives Contributing Writer

Editor's note: Donald P. Taylor is the senior director, marketing and corporate development, at Cellumen Inc.

The biotech sector nearly reached profitability in 2007, according to Burrill & Co.'s annual report on the industry, Life Sciences: a 20/20 Vision to 2020. Revenue jumped 8.5 percent to nearly $90 billion, while R&D expenses rose modestly at 6 percent. These figures, however, are mostly determined by a small number of large, public biotech companies, leaving the majority of smaller biotechs still flirting with profitability.

Tremendous monetary expenses and substantial time investment are required to bring a successful drug to market. This, coupled with the growing impatience of investors to realize returns in a tighter timeframe, is driving many smaller biotechnology companies to license out drug pipelines to big pharma or larger biotech companies. In fact, 2007 saw a record high of $22 billion in partnership revenue to the biotech industry, which brought much-needed funds into the otherwise cash-strapped smaller biotechs. A striking example is Synta Pharmaceuticals Corp., a Lexington, Mass.-based biotech company with 139 employees, which licensed out a cancer indication drug (STA4783) to GlaxoSmithKline plc at an estimated potential value of $950 million. (See BioWorld Today, October 11, 2007.)

An Alternative in the Quest for Profitability

Even with partnerships as viable options for financing, why are so many smaller biotechnology companies struggling to achieve profitability? Part of the answer may be that product alliance trends are not moving in favor of discovery-stage deals, where a significant portion of smaller biotech pipelines exist. In fact, from 2004 through 2007, there was a negative 200 percent compound annual growth rate (CAGR) in discovery-stage deals versus an 11 percent CAGR during that same time for marketed drugs.

Biotech drug licensees have become more risk averse, and also have been negotiating higher-value deals for drugs that have matured into the market phase. Therefore, for a typical small biotech company to be successful, it must continue to increase spending and race to bring a drug to maturity as quickly as possible in order to license out the rights through a larger partner equipped with clinical trial capability and an established sales and marketing force. Though that's typically the status quo in today's high-risk industry, there is another approach for small biotechs to consider.

The alternative is to make biotechs' product portfolios more attractive to potential licensees. One improvement area that often is overlooked is to demonstrate not just the efficacy of the drug in the discovery phase, but safety as well. A typical biotech company can enhance the value of its clinical pipeline at the start of the hit-to-lead phase by more than $4 million if it applies the appropriate early safety assessment solutions.

Solutions for Early Assessment

Early safety assessment to define toxic liability in the drug discovery process is not new. Until recently, however, most of those technologies were not predictive enough for compound prioritization decisions to be made. Now there are evolving predictive solutions that not only will accurately rank-order compounds by their safety risk, but will provide mechanistic insights into their toxicological profiles.

One such evolving solution is ToxInsight, a cell imaging platform developed by Thermo Fisher Scientific Inc., which incorporates pre-packaged Assay Cartridges informatics settings, and simple protocols for running in vitro toxicity screens.

Life Technologies Corp. (formerly Invitrogen Corp.) also has developed a solution called the Predictor hERG Fluorescence Polarization Assay Kit to perform hERG channel biochemical binding studies for cardio toxicity assessment without the need for a radioligand.

Another solution is CellCiphr (developed by Cellumen Inc.), an in vitro cell-based platform based on Cellular Systems Biology (CSB) that highly multiplexes functional biomarkers within species- and target-organ-specific cell backgrounds with advanced informatics and classification methods. CellCiphr has demonstrated significant incremental predictivity and subsequent financial value over other more conventional technologies that pervade early safety assessment.

Two Approaches to Early Safety Assessment

One of two financial value propositions can be realized by implementing early safety assessment, depending on how the biotech company responds to identifying toxic compounds.

• Cost Savings: Compounds identified as moderately to highly toxic are de-prioritized and fewer compounds are carried through the drug discovery and development process.
• Pipeline Value Enhancement: Replacement of the number of compounds identified as being moderately to highly toxic with an equal number of compounds that have not been identified as toxic.

There is a key difference between the two approaches. In the first model, the customer is working on fewer, lower toxic compounds. In the second, the customer is working on the same number of compounds, but with lower toxic liabilities, thereby maximizing capacity.

Since smaller biotechnology companies have significantly fewer compounds in each phase than larger biotechs or pharmaceutical companies, the second approach may prove to be the most beneficial. Table 1 depicts how a smaller biotech company might enhance its margins by more than $4 million by applying early safety assessment solutions at the start of the hit-to-lead phase.

Table 1. CellCiphr Value Enhancement for Early Safety Assessment

Today, some early safety assessment solutions have sufficient predictive power to endow confident reprioritization of compounds that are flagged as having moderate to high-risk toxic liability. By having safety risk identification of the mechanism of toxicity earlier in the drug discovery process, small biotech companies have the option of either prioritizing substitutable compounds through the discovery process, or intervening with medicinal chemistry as a means to mitigate the toxicities. The degree to which predictive value can translate into a substantial margin enhancement for the typical biotech company will be significant in helping to keep the industry moving toward safer, more effective patient-targeted drugs.

In order to assist with reading the above table, the following definitions are provided:

1. Compounds Entering Each Phase – The number of compounds entering each drug discovery phase within the biotech company.
2. Success Rate to Reach Market – The percent probability that any one compound in the given phase will become a marketable drug.
3. Total Toxic Compounds in Each Phase – The estimated number of toxic compounds in each phase based on a toxicity failure rate of 22 percent. The resulting number is this toxicity failure rate times the number of compounds entering each phase.
4. Toxic Compounds Identified by CellCiphr – The number of toxic compounds identified as toxic as a percentage of the "Total Toxic Compounds in Each Phase." This represents a toxicity characterization threshold whereby no compounds that are in fact safe, are incorrectly classified as toxic. The percentage is derived by empirical results based on a 2007 Cambridge Healthtech Association study using the CellCiphr technology.
5. Present Value of Margin Dollars per Successful Drug – These are today's dollars that represent cumulative margins on a successful drug with a 10-year lifespan.
6. Discount Rate – The rate used to calculate the present value of a dollar from future dollars.
7. Discovery Cost per Compound – The cost a typical biotech company would incur to run a compound through the current phase only.
8. Present Value of Future Avoidable Costs – Under current toxicity profiling methods, some toxic compounds will enter subsequent phases and have substantial sums of money spent on them, but ultimately will prove to be toxic. These toxicities can be identified by CellCiphr at the start of each phase and subsequent costs applied to those toxic compounds can be avoided.
• This is calculated by making a present value calculation of subsequent Avoidable Cost per Phase figures using a 12 percent cost of capital. These figures are then present-valued back to the start of the Lead Opt phase for consistency.
• Companies ultimately can avoid spending money on the current phase and avoid passing things along that will eventually prove to be toxic, saving money on future phases as well.
9. CellCiphr Value Enhancement – The total margin dollars generated by a typical biotech company if CellCiphr is applied at the start of the given phase, in present phase dollar figures.