Washington Editor

Although biotech is still somewhat of a young industry, and for the most part, not yet profitable, it has the technological resources and capabilities now to tackle the challenges of neglected diseases, said Christopher Earl, CEO of BIO Ventures for Global Health.

"One of the key tenets of our industry is that we are trying to address unmet medical needs, we are trying to solve important medical problems," he said.

While biotechs lead the world in developing medications for orphan diseases - rare, often genetic diseases that affect small populations - few firms have focused their R&D on products for neglected disease, which are infectious or parasitic and typically affect large populations in poor developing nations.

The World Health Organization has estimated that at least a billion people worldwide are affected by at least one or more neglected disease, such as dengue fever, leishmaniasis, Chagas disease or human African trypanosomiasis, often called sleeping sickness.

Numerous funding initiatives, such as the Bill and Melinda Gates Foundation, are providing opportunities for firms to engage in R&D for products to treat neglected diseases, Earl contended.

He noted that President Bush last week announced a new $350 million five-year U.S. initiative to provide treatments to patients in developing nations targeting seven neglected diseases.

In addition, Earl said, Congress created an incentive as part of the new FDA reform package that awards a transferable priority-review voucher to any firm that obtains approval of a treatment for a neglected disease.

A normal medication review time can take 10 to 18 months, but the process generally takes six months for drugs with priority-review status.

Under the voucher program, signed into law Sept. 27, firms that gain approval of a new drug or biologic that targets a neglected disease can be awarded a priority-review voucher for use for another product.

The vouchers, which are transferable and can be sold, entitle the bearer to a priority review of a product, and firms must pay a user fee to the FDA to use the voucher.

Duke University researchers have estimated that a voucher could be worth $300 million or more to a company, especially if the voucher is used for a product that ultimately achieves blockbuster status.

Another market incentive to persuade the biotech and pharmaceutical industries to engage in R&D for drugs, vaccines and anti-infectives for neglected diseases is a new financing mechanism known as an advance market commitment (AMC) in which donors commit to create a market up front, said Ramanan Laxminarayan, a senior fellow at the Washington-based economics and social sciences research group Resources for the Future.

Under AMCs, donors such as government entities or foundations, commit to guaranteed, preferential prices for a specific number of products sold to developing nations for a certain number of years. After the AMC funding is phased out, manufacturers are expected to continue to provide their products at substantially lower prices to the developing countries to ensure long-term access to the medicines.

"That's probably the best thing that governments can be doing, offering to buy the best and newest products where they are appropriate in developing countries," Laxminarayan said. "That's a better way than governments telling pharma companies exactly what they should be doing or trying to give them tax breaks or back-door incentives."

Laxminarayan noted that the first AMC created involved a group of five nations - the UK, Italy, Canada, Norway and Russia - which last year, along with the Gates Foundation, pledged $1.5 billion to firms that develop pneumococcal vaccines to prevent respiratory infections in children.

Not on Wall Street's Radar

But, said analyst Christopher Raymond of Robert W. Baird & Co. Inc., the marketplace as a whole for neglected disease drugs will not always be as clear-cut as with AMCs.

It may be tough to motivate a for-profit industry like biotech, which relies heavily on investors, to engage in R&D for neglected diseases when it is not always apparent who the payers for the products will be, he said.

The biotech and pharmaceutical industries, Raymond explained, were designed under a capitalist market system to develop medicines that are paid for through a traditional route, such as cash, private insurance payers or government entities like Medicare.

Plus, he added, drugs and vaccines for neglected diseases, even those developed by large firms, are not on Wall Street's radar as a value driver in the profit equation.

The fact is, said Brian Korb, vice president of the New York-based investor relations and strategic advisory firm the Trout Group LLC, investors prefer firms that are developing medicines for diseases affecting patients in wealthy countries supported by private insurance.

The financial risk for a biotech firm to develop a neglected disease product in the eyes of an investor may not be worth the perceived reward, he said.

"The potential reward down the road is not necessarily that high or may be even unclear, given that you are unsure what governments will be willing to pay for these kinds of drugs," Korb said.

Government payers, who are more than likely the largest market for neglected disease products, are always going to negotiate for the lowest possible prices, he maintained.

Biotech companies that pursue R&D for neglected diseases, Korb advised, should include those programs as one of many traditional commercial opportunities to ensure the firm has a balanced portfolio.

A Dual-Purpose Opportunity

Michael Lytton, general partner at the Boston-based venture capital firm Oxford Bioscience Partners, argued that there are investment opportunities for biotechs in the neglected disease space if pursuit of those products also facilitates R&D for medicines to treat diseases in wealthier nations.

For instance, he said, the U.S. government could fund a vaccine or therapeutic that was based on a technology platform that ultimately yields products for neglected diseases and diseases that affect populations in the developed world.

Those opportunities work best, Lytton said, at firms that have a broad technology platform where the nonequity, governmental or nonprofit funding "provides a terrific vehicle" to support a firm's proof of principle for its technology.

One biotech firm in which Oxford is an investor that is doing just that is Cranbury, N.J.-based VaxInnate Corp., which has received funding as part of a $9.5 million grant to the University of Texas Medical Branch (UTMB) at Galveston from the Gates Foundation to develop a pandemic influenza vaccine for use in the developing world.

The Gates-funded program complements VaxInnate's other influenza vaccine activities, said CEO Alan Shaw.

VaxInnate and UTMB are close to wrapping up a Phase I clinical trial testing the firm's universal influenza vaccine designed to target a protein called M2 ectodomain, which is inherent regardless of the virus strain, Shaw noted.

"The idea being that this is an antigen that's so broadly conserved that regardless of which strain of influenza you get infected with, you are going to get protected because it doesn't change," he explained.

The vaccine is being developed to be administered to people in developing nations "who don't have a chance to get a regular vaccine like we do here in the United States on an annual basis, and they'd be protected for several years," Shaw said, adding that those patients would need to receive booster shots at later dates.

Since VaxInnate's M2e universal influenza vaccine is made using recombinant DNA technology and produced in bacteria, it is cheaper to make and can be manufactured quicker and in larger quantities than egg-based vaccines, he said.

"We are in a privileged position because the influenza vaccine we are developing has a primary application in the developing world and also has utility in the developed world," Shaw said.

Is it a Corporate Responsibility?

Neglected diseases in the developing world is one of the largest problems faced by the global community, said James A. Geraghty, senior vice president at Cambridge, Mass.-based Genzyme Corp., but one that "we all have an interest in trying to find a way to address."

Biotech firms can contribute to global health issues like neglected diseases in many ways, he said, adding that "There will be no single solution." Some companies may be attracted by market opportunities, while others are enabled by philanthropic financing that is available, Geraghty noted.

And some firms may actually be the sources of those philanthropic endeavors. Genzyme in April 2006 announced humanitarian collaborations with the nonprofit Drugs for Neglected Diseases Initiative to develop compounds to treat African trypanosomiasis and with the Broad Institute at the Massachusetts Institute of Technology to discover therapeutic candidates for malaria.

The firm recently extended the program to include a partnership with the Oswaldo Cruz Foundation, or Fiocruz, to tackle Chagas disease in Brazil.

Genzyme created its Humanitarian Assistance for Neglected Diseases (HAND) initiative "out of a sense of corporate responsibility," Geraghty said. But, he added, the HAND program also was established as part of the firm's "strategic responsibility."

"We depend on policies supported by governments and the public around the world for our long-term financial sustainability," he said. "If we want to retain the goodwill of policymakers in the developing world as well as the developed world, they need to believe that we are using our assets for important public health purposes."

Humanitarian programs also have a beneficial impact on a company's employee morale and retention, Geraghty said.

"Good people are attracted to companies that they believe take up these responsibilities in important ways," he said. "They stay with the companies longer and they are more productive because they are proud that companies are behaving in responsible ways."

As far as Wall Street and venture capitalists go, Geraghty said, "thoughtful, sophisticated investors, particularly long-term investors, do understand the importance of these kinds of commitments."

The value of the pharmaceutical industry has declined in recent years, he said, because it has "not continued to address truly important unmet medical needs and has lost sight of those in favor of shorter-term strategies that were more in a sense incremental and more focused on and driven by short-term profits than by meeting fundamental long-term public health problems."

Investors who want firms to maintain their value for the long term, Geraghty contended, "should not only support but actually should demand that we find a way to dedicate some of our resources to these important long-term problems. I think those sophisticated investors do recognize that and do support these programs."