R&R#7: Partners in the Drug Development Landscape
Biotech and pharma startups would fail to thrive minus several important types of contractors, organizations and partners
Running a startup which is developing drugs destined eventually for FDA approval is a unique situation requiring a bespoke business model, and certain things make it hard to relate to aspects of founders’ journeys in other sectors. In my experience founding and running Lento Bio, I have come to appreciate the modern decentralized biotech development landscape and the roles of the different parties involved.
Three things predominantly stand out to me which work together to limit the practicality of organic growth and increase the importance of external players. They are:
1. Revenue being a non-factor as well as the consequential reliance on external funding
2. Short periods of need for development-stage specific workflows
3. Incredibly high upfront costs for relevant equipment pertaining to these workflows
Let’s look at these more closely:
Firstly, there is a guarantee that you will not make revenue off of your main product for a long time, usually a decade or more from the beginning of its development. In fact, you will likely sell your company or at least license your product to a big pharmaceutical company before its NDA/BLA is approved and it hits the market. This means that investment is based off theoretical values derived from development milestones (and from other companies at those milestones serving as benchmarks) rather than revenue. Thus, since valuation and consequently capital raise size is dependent in large part upon developmental stage, it is somewhat difficult to scale capital assets significantly while your premier asset is still preclinical, especially if it is in R&D phase (from initial discovery to the end of lead optimization). In the first half of 2021 and earlier it was easier to do so, with a relatively large % of companies even doing an IPO prior to Phase 1. But now, as the macroeconomic slump hits biotech startups hard, it is much harder to raise this type of funding.
Secondly, you are on a linear phase of development where things rarely need to be repeated more than a few times. After your R&D phase, whatever system you used to do mouse studies may become obsolete (for that asset). After your GLP studies, the same becomes true with the models you used there. You may use LCMS or crystallography or SPR, any of a number of techniques requiring expensive equipment, just briefly to determine a specific thing. And the same is true to an extent for people – the people who are excellent at scientific strategy during R&D may be different than those who specialize in IND-enabling study intricacies, and they as well differ substantially from the clinical folk.
The third is that the actual capital cost of everything you use is just BIGGER than in other industries. In software, failing 20 times in a day in the right way is a great success as the overhead from those failures is no more than the cost of electricity and labor used. In hardware, iteratively printing/casting/cutting etc. of new parts is certainly more costly, how much so depending on what you are making. But in biotech, the cost of some of the capital equipment mentioned previously may be significantly over $100k. Building a mouse facility is an expensive and time-consuming undertaking, and building compound and formulation manufacturing equipment at the scale to make sufficient quantities of your asset for clinical trials will likely run you millions.
What conclusion do these all lead to? The fact that it is neither possible nor desirable to build either material or personnel assets in-house. This used to mean that early drug development would either begin in dedicated R&D wings of large pharmaceutical companies or possibly go directly from translational academic labs to said companies. They had the capital and experience, but they also had less of the timing and monetary constraints which force startups into being lean, and less incentive to take serious scientific risks.
However, this has changed. Today is the wild west of biotech startups. Thousands of small, ambitious companies have been formed pushing new MOAs, including hundreds in the longevity biotech space. For example, my company Lento Bio raised $680k in our pre-seed round. Since, we have come close to concluding lead optimization on our lead presbyopia asset with room to spare, and all from starting at idea-stage. Yes, I am very happy that this has been possible for us, but I am also so very happy that we are not nearly the only ones in biotech able to start off lean like this. But WHY? What has changed?
The change lies in the growth of contract-based business models which serve the specific drug development needs of many companies at once, as well as increasing degrees of connection between business and academia. What are the specific types of organizations I’m referring to? What smattering of mercenaries enable your rag tag army to conquer Rome?
1. Contract Research Organizations (CROs) are divided into preclinical (do the work up to clinical trials) and clinical (organize and run your clinical trials for you), though many companies have both a preclinical and clinical arm.
a. Preclinical CROs conduct your difficult preclinical research for you (often animal studies and/or bioanalytics), offering a broad spectrum of GLP and/or non-GLP services. They have a very straightforward concept - you send them a rough study design, and they design the specifics and do the work for you. This means you don’t need to make your own mouse facility, buy your own $300k microscope or 2 rooms worth of cell culture hoods, or hire the PhD level chemist capable of doing the LC/MS studies you will need to repeat exactly 3 times. In fact, you can get by with no lab at all if it’s the model which works best for your needs. In my experience with Lento Bio, it’s even better as my founding partner Ichor is also a CRO. Thus I can work hand-in-hand with them (even doing some of the experiments myself) or hands-off, depending on the project requirements, though this is a relatively rare scenario.
b. Clinical CROs run the complex logistics of clinical trials efficiently, manage complex compliance requirements and collect and analyze the data. They are more abundant and visible than preclinical CROs as their projects (i.e. clinical trials) are much larger in scale and cost millions of dollars in total to run. IQVIA is perhaps the most well-known.
2. Accelerators in biotech are spaces with lab space and common facilities and services. Core facilities offer access to the expensive capital equipment that you don’t want to buy, and often administrative assistance may also be provided for some things such as purchasing, compliance, etc. They differ from CROs in that you are physically based in them doing work, but they also allow shared resources and permit company turnover as those operating out of them either fizzle out or grow to the next stage. Ichor has served as an accelerator for Lento as well, as internal research operations happen out of their Potsdam space.
3. Consultants in biotech are generally people who provide unique knowledge acutely needed for your current task/developmental stage. I was a consultant prior to founding Lento Bio, and I must say I didn’t appreciate how crucial they are in many contexts. Consultant of course can mean anything from a big consulting firm focused on biotech like Clearview or L.E.K. to individuals versed in the new stages you are entering, ready to offer their sage-like wisdom for a price. The most important thing to underline is that the reason you need a consultant in biotech is generally NOT the same as why a company hires McKinsey, etc. Rather than implying that your company is stagnating or on a downward trajectory and in need of re-routing, hiring a consultant is likely done to prepare for and adapt to the changes of a new developmental stage. It is for strategic and operational personnel what hiring a CRO is for scientific personnel and equipment. The same can be said about advisors, though the model is just slightly different (they will most likely get a small amount of equity rather than direct payment, and you will probably meet with them less overall).
4. Contract, Development and Manufacturing Organizations (CDMOs) are companies that produce your drug and formulation. CDMOs are straightforward – they make your drug, including the compound itself and the formulation (though often not at the same place) at the scale and purity needed. This is something which would be particularly frustrating and expensive for a company to do itself, both based on timing in the drug development process and general difficulty. The cost of the gram scale manufacturing facilities required for post R&D development would be enormous. Moreover, you need to begin scaling up like this exactly after R&D phase when you are likely raising more money on your recently completed preclinical efficacy data. In fact, it’s still one of the largest preclinical costs when utilizing CDMOs, so I’m very glad that they exist.
5. The many other people you need to hire who are not specific to the industry such as accountants, lawyers, etc deserve a brief mention. Though boy do I get sick of people emailing me about improving my Salesforce…
6. Academic Collaborations: Academic collaborations have a lot of similarities with CROs, as well as differences including pros and cons. They are similar in that they include the option to utilize research expertise and equipment which you don’t want to get in-house, though there are positive differences such as the ability to sponsor and work with students (who consequently get better educated in the way science works in industry) and assistance in writing papers and potentially grants (and thus a more direct path towards direct contribution to the science of your field). They are also less straightforward to setup as they are essentially always very bespoke. Overall I think academic collaborations are great. For example, Lento is leveraging our collaboration with FSU to drive lead optimization in a focused way that simply could not be possible working with traditional medicinal chemistry focused CROs/CDMOs.
I hope you found this post a useful resource, whether as a founder or someone wanting to contribute by getting into one of these other areas. Also, do you have experience working for/with the types of organizations and programs listed above? If so, leave your thoughts in the comments!