July 4, 2011 | last updated March 25, 2012 11:52 am

Moving Life Sciences Cos. Beyond Incubation

It can be a long and bumpy road to the market for early-stage life sciences companies. And that's for those that actually make it.

From the time of scientific discovery, it can take a company 10 to 15 years get a product approved and on the market, said Scott Chizzo, a Waltham-based biotech consultant who works with both emerging and established companies across Massachusetts. And failure rates are high.

Companies that successfully shepherd their discoveries to the marketplace need to have certain skill sets and abilities, Chizzo said, from adapting through internal cultural shifts as the company progresses to raising enough money for clinical trials and intellectual property protections.

"You're always kind of changing the wheels on the bus as you're going down the highway," Chizzo said.

Young biotech companies these days are having a tougher time than their predecessors, according to a June 14 report from Ernst & Young, which found that startups are getting an ever-smaller piece of investment pie.

"It's always been tough and it's always going to be tough, in my opinion," said James McNamara, who heads the University of Massachusetts Medical School Office of Technology Management, which is based in Shrewsbury. "Money is tight. Investors would rather fund more advanced and well-established companies."

But a young company with a marketable discovery can still find funding, he said.

First Comes The Discovery

First and foremost, a life sciences company needs a scientific discovery — a molecule or protein that has the potential to provide better outcomes for a particular disease. Many times, that discovery involves medical research institutions, said McNamara, whose office is in charge of licensing discoveries that happen at the medical school to companies looking to develop them for the market.

But there are many questions that arise after a discovery is made that are sometimes difficult to answer, McNamara said. Might the discovery be commercially viable? Are there competing drugs in development or on the market? And also important: Will the drug work and how safe will it be?

A university can't pursue expensive patents and protections for all of its in-house discoveries, so it must make informed bets with incomplete information, McNamara said.

The university then seeks to license its portfolio of technologies to biotech companies in exchange for fees. The agreement states that the companies will pay royalties if they use the discovery to get a drug or therapy to market.

With its technology in hand, whether it was discovered in-house or at a university, a biotech company often needs to tweak it further and do additional research, according to McNamara.

Financial Concerns

Biotech companies need money and lots of it. The National Institutes of Health funds much of the medical research at U.S. universities, but once the discovery is made, a company will need private investors or it will need to go public.

One of the main expenses, said Chizzo, is preparing for and then going through Food and Drug Administration testing and trials.

That process can take years and costs millions of dollars, he said. Companies must pitch to venture capitalists, venture capitalists and even bigger pharmaceutical companies to get bankrolled.

And it's not getting any easier, according to Ernst & Young.

Nearly 83 percent of funding in 2010 went to the top 20 percent of companies in the United States, up from 78.5 percent in 2009. Meanwhile, the bottom 20 percent of companies raised only 0.4 percent of the funds in 2010, down two-tenths of a percent. The report also said that cost-conscious investors were doling out funding in smaller increments and with more strings attached, and cited the global financial crisis as a cause.

Initial public offerings are happening longer into a company's life cycle, the report found. The median age at IPO has jumped from five years to nine years in the past decade.

A company can discover a treatment and work diligently to bring it into clinical trials, but it is in those trials where the true test lies, according to Chizzo.

"The critical make-or-break where the company is going to succeed or fail is whether that drug is successful in the clinic," Chizzo said. "That's the big gamble."

And the stakes are higher now than in the past, he said. The Federal Drug Administration is less willing to approve "me-too" drugs that are similar to others on the market.

"The bar really has been raised over the past five to 10 years," he said. "Trial designs need to be carefully considered."

That viewpoint is backed up by the recent Ernst & Young report, which notes that the process of discovering and developing drugs has "become increasingly lengthy, expensive and risky."

Drug approvals are near historic lows and pressure on health care systems to rein in costs has led to uncertainty over what drug developers will be able to charge for their drugs.

A recent example of this uncertainty could be seen last week when the Boston Globe reported that members of the Massachusetts Biotechnology Council recently traveled to Washington, D.C., to lobby against the formation of a government panel meant to reduce Medicare costs. The panel is a key piece of the federal health care overhaul passed last year. The biotech council sees the panel as a threat to profits and therefore the Massachusetts life sciences economy.

Changing Identities

Getting FDA approvals is a significant milestone, but companies also need to deal with two major cultural shifts within themselves as they progress to market, said Chizzo.

Whether it is a group of university professors who form a spinoff or a company that has developed licensed technology, the first shift comes once the discovery is tweaked and the team must prepare for drug trials. The mindset changes and the company must add new capabilities on top of its research foundation.

"All of the sudden, more money goes into the clinical side," he said.

The next shift comes after the trials, as the company layers on its commercial infrastructure, which Chizzo said usually represents the most significant change.

"These events are very transforming," he said. "What's fascinating is these events need to happen several times through the life cycle."

It is vital for a company to keep its research base intact during this process, Chizzo said, because it is through those research channels that the company will try to get its next drug to the market.


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