Pharmaceutical companies are increasingly looking to academic institutions and smaller biotech companies as a source of innovations; university faculty members are becoming increasingly entrepreneurial; and industry-academia relations are improving.
These were the three leading signs that the milieu in which drugs are discovered and developed continues to evolve, biotech industry insiders said this week at the New York Biotechnology Association’s annual meeting.
However, longer drug-development times and dwindling funding sources are still forcing universities and biotech firms to seek creative mechanisms and resources — such as alumni-driven philanthropy, research foundation funding, internal seed funds, and life sciences incubators — to move innovations to a point where larger pharmas would be willing to take over their development, the speakers said.
Summarizing almost two days of presentations at NYBA by mostly members of New York and neighboring states’ biotech communities, Peter Robinson, vice president and COO of the University of Rochester Medical Center and Strong Health, and Bruce Sargent, vice president of discovery research and development at Albany Molecular Research, discussed the state of the life science innovation pipeline during a session entitled “The Future of Life Sciences.”
One of the first questions presented by discussion moderator, Thomas Meyers, a partner in the intellectual property practice group of law firm Cooley Godward Kronish, was whether the time it takes to develop drugs has increased in recent years and whether this has changed the way investments in such technologies are made.
“The timelines are definitely getting longer, but does that really affect investment?” Sargent said. “The important thing to note is what is happening at the front end” of the drug-development process.
“Most of us in the innovation [space] realize that pharma is going to continue to be hungry for our innovations, so the challenge will be more to identify and develop those innovations,” Sargent added. “Absolutely pharma will turn more and more to biotechs, especially those with a large academic component.”
Robinson agreed, noting that “we are seeing the phenomenon taking place of pharma looking more toward targeted sponsored research agreements both with biotech companies and academic labs. I think we’ll see both sponsored research and spinout activity increase.”
However, Robinson added that “once funding sources run out, the techs are often still not ripe enough for commercialization.” As a result, he said, universities are more frequently trying to identify technologies to develop that might be closer to market with less investment.
According to Sargent, academic spinout biotechs can help fill that gap by taking technologies to a stage where pharma would be likely to take them over.
For instance, Toni Hoover, senior vice president of research and development at Pfizer and head of the firm’s Groton, Conn., labs, said during the conference that of the three dozen or so new drug applications filed with the US Food and Drug Administration in 2006 and 2007, about a dozen came from small biotech companies and specialty pharmaceutical companies, while the remainder were filed by large pharma and biotech firms. Among these filings, half were externally sourced from acquisitions and alliances.
Mind the Funding Gap
Robinson and Sargent also discussed some of the roadblocks facing academic institutions and small biotechs trying to develop life sciences technologies further down the pipeline, and some of the creative solutions that these entities are starting to employ to address these issues.
Both presenters bemoaned dwindling research dollars from federal funding agencies such as the National Institutes of Health — a common life-science gripe. But early-stage venture capital and federal gap funding, such as the Small Business Innovation Research grant program, are also flatlining, they said.
“What we used to see as just charities we now see as ‘venture philanthropists.’”
Data presented in NYBA’s annual state of the industry report, released to coincide with the meeting, seem to at least partially support these assertions, at least in New York. For instance, according to the report, the number of Phase I SBIR awards made to New York State bioscience companies dropped each year from 75 in 2002 to 53 in 2005. The total value of awards remained relatively unchanged during that period, however.
In addition, the report rehashed data from this year’s PricewaterhouseCoopers/National Venture Capital Association annual Money Tree report showing that total dollar investment by venture capitalists in biotechs based in the New York metro area steadily declined each year from $109 million in 2003 to $20.6 million in 2007. However, in upstate New York, venture capital investment varied dramatically each year over the same period – mostly due to the much smaller number of individual investments – but generally averaged in the vicinity of $8 million.
Compounding the problem at some academic research institutions that have affiliated medical or health centers — such as Robinson’s University of Rochester — is the fact that revenue streams connected to lower or suppressed reimbursements from Medicare, Medicaid, and even private health insurance companies are dwindling. Often, money from these reimbursements is funneled back into health sciences research at such institutions, he added.
To address some of these problems, Robinson said that more and more universities are turning to alumni for either philanthropy or investments to fuel life science-research and -commercialization opportunities.
“Successful people often want to give back in the way that they became successful, which is why we are more frequently turning to alumni and philanthropy,” Robinson said. “Campaigns will start including targeted endowments,” he added, noting that it might take a decade or so to gather enough resources from this approach to effectively fill the funding gap.
Another increasingly popular mechanism that UR is also employing is an internal pre-seed or seed fund for innovations with commercial potential. UR is part of Excell Partners, an upstate NY regional economic development partnership aimed at funding high-tech startups in the region.
Robinson, who is chairman of the board for Excell, said that the organization’s aim is to be an evergreen fund by providing funding in the form of convertible debt that it might eventually realize and pour back into the fund. “We try to combine the [Excell] funding with other sources to get approximately $750,000 in initial investment,” Robinson said.
Another increasingly available source of funding is from life sciences research charities such as the Michael J. Fox Foundation, CDHI, and the Cystic Fibrosis Foundation, Sargent said.
“What we used to see as just charities we now see as ‘venture philanthropists,’” Sargent said. “Their goal is to treat a specific disease population, but often times the therapies that are developed find other uses that can bring in money.
“They’re almost starting to look like miniature pharmaceutical companies,” he added.
Lastly, Robinson and Sargent talked about the importance of incubators to further drug discovery and other life sciences commercialization.
“The incubator environment is more important than ever, primarily because of the kinds of people and expertise it brings to bear,” Robinson said. “It’s not necessarily about finding the right real estate, but creating the appropriate environment that is the real value.”
Sargent agreed, noting that incubators are “in a prime position – having some of the business aspects in place to get the science moving along is very important to young companies.”
Overall, Robinson and Sargent also agreed that the ‘future of life sciences’ was indeed healthy, but that the way things are done is changing. For instance, Robinson said that he is “optimistic” in the state of industry-academia collaborations, and that the two sectors are slowly but surely learning to work together more efficiently.
Likewise, he said, university faculty members have already become much more entrepreneurial in recent years, helping to identify innovations that might be ripe for commercialization. “The challenge that we face is separating out those that know how to run a company from those that may be better off just doing research. A lot of professors think that they know how to run a company, but they don’t,” he said.
Summing up, Sargent said that “traditional venture capital is still going to play an important role to jump to the next stage. The future of life sciences is as strong as ever, it’s just different. This is not a bad thing. We’re just using different mechanisms to get to the ultimate goal.”