Vladislav Gurin :: BioTech & Pharma consulting

The leadership role of the United States in the biotech and life-science industry has previously been explained by the real option approach to investments.
For high-risk and extensive R&D projects such as those leading to innovative original drugs, the investment approach is staged. These projects were characterized as sequential compound options. Concurrent investment into subsequent stages depends on the level of uncertainty that determines the critical cost to invest. At least two sources of heterogeneity between the U.S. and Europe, so goes the argument of this research, have helped the U.S. to identify and execute real options in the emerging biotech industry while preventing the EU from doing so.

1. Regulatory uncertainty, as one key uncertainty in the drug development and approval process, has been higher in Europe than in the U.S., and has elevated the critical threshold to invest in for innovative R&D projects. For one, European drug approval agencies were less structured and slower in the approval rate than the U.S. FDA.
2. Further, consumer concerns about the merits of modern biotechnology were much stronger in Europe.

In addition, as the drug development process tends to be a continious one, the rate of investment for the time to build & strengthen option is crucial for the option owner to fully execute all sequential steps of the compounded real options. In the U.S., at least within the early stages of the emerging biotech industry, there was much more capital, and specifically risk capital, available to support these real option owners.

In the XXI century, we are much more enthusiastic about outlooks of nanotechnologies for our life and environment. Nanotechnology, when fused with biotechnology, creates nanobiotechnology and nanobiomedical technology; the products of which hardly resemble the parent biotechnology products. These new scientific disciplines, by overall opinion, can even change the face of our civilization in this century. The important point is that dealing with nanotechnologies, we faced new phenomenon: the transition of compounds to nanostate dramatically changes their characteristics such as electrical, magnetic, optical, mechanical, biological and etc. This really great phenomenon permits creation of novel functional materials with unique custom-made properties.
Development of completely new technologies and innovative nanomaterials and nanosystems with exceptional desirable functional properties lead to a new generation of products that will improve the quality of life and environment in the years to come. There are numerous new generation nanomaterial products of high quality including biocompatible biomaterials, antimicrobial biodevices, surgical tools, implants, decorative and optical devices, and, finally, nanocarriers and nanosystems.
One of the most important applications of the so-called nanomedicine/nanotherapy appeared to be the targeting of medicines or additives to the desired organs and tissues using special nanoparticles and nanocapsules of various nature to cure human diseases. Because of their unique features, nanosystems enhance the medicines’ performance by improving their solubility and bioavailability, increasing their in vivo stability, creation of high local concentrations of bioactives in target cells and cellular compartments in order to gain therapeutic efficiency.
Nanocarrier systems used for medicine targeting are mainly consisting of lipid molecules, surfactants, and certain polymers, such as dendrimers, which are specially designed to be drug carriers. Hybrid organic/inorganic materials have also become popular now. Carbon-based nanostructures (nanotubes, etc.) are used for implant construction and as nanosystems for drug targeting.

Given the large decline in expected sales that usually occur where generics enter the market, brand companies begin planning a strategic response to this entry in advance of the patent expiration of a commercially important product. These responses are typically referred to as Life-Cycle Management (LCM) strategies. The options used by brand firms:
1) the introduction of a new therapeutic class for the same indication;
2) the introduction of a new formulation (e.g., a new delivery system or a combination product) that has improved therapeutic benefits in terms of patient tolerance, compliance, safety or efficacy;
3) the introduction of an Over-The-Counter product.
Each of these strategies has been employed on a selective basis with some success by brand firms.
The most effective life-cycle management strategy seems to be the introduction of a new class of therapies. Competition evolves in pharmaceuticals by the introduction of new classes of entities with superior therapeutic properties to prior generations of products. Firms that have a commercially important product subject to patent expiration will frequently be conducting R&D on new therapeutic approaches for the same indication. However, there are no guarantees in this regard because the candidates for the next advance in therapeutics often span a large spectrum. Furthermore, the R&D process is subject to many technical, regulatory, and competitive uncertainties with long time durations.
Another life-cycle management option for the brand firm is the introduction of a product line extension such as a new delivery system. Under the Hatch-Waxman Act (1984), a new formulation involving additional clinical trials is eligible for a 3-year exclusivity period. Moreover, a new delivery mechanism or formulation may be covered by a new patent. One of the most successful cases in this regard was the introduction by Pfizer of Procardia XL, a once-a-day formulation of a leading calcium channel blocker for hypertension. The extended release Procardia improved the tolerability and the side-effects profile associated with the active ingredient.
As a consequence, Procardia XL appeared to be a much larger commercial success than the earlier formulation of Procardia. This life-cycle management strategy has been employed in several other situations with somewhat mixed success. The weekly formulation of Prozac, for example, has enjoyed only very limited success. The degree of therapeutic improvement is a key factor in the success of this life-cycle management strategy.
A third basic option available in the case of some therapeutic categories is to develop an over-the-counter version of a product subject to patent expiration.
The strategy has been employed for example for anti-inflammatory pain relievers such as Motrin and Naprosyn, anti-ulcer therapies such as the H2-blockers Tagamet and Zantac, proton pump inhibitors such as Prilosec, and in several other therapeutic categories. However, a shift to OTC status requires approval by the FDA that the drug is safe for self-medication (Juhl 2000; McCarran 1991; Schweitzer 1997). A company will normally need to submit new clinical trial evidence to that effect. If approved by the FDA, the company receives a 3-year exclusivity period for its OTC drug in recognition for the new clinical trial work.
A key driver of success in the OTC market is the ability to capitalize on the brand loyalty enjoyed by the prescription product. The number of category shifts to OTC status approved by the FDA has grown over time.
At the same time, there are many therapeutic categories where this is not as viable strategy because they would not meet the FDA’s requirement on safety for self-medication (e.g., mental health and cancer drugs). The FDA has also declined several product requests for shifts to OTC status, such as anticholesterol drug agents.

It is estimated that only 1 out of 10 drug molecules that are selected for development and undergoes various preclinical and clinical development activities ultimately reaches the market. Because of such an attrition rate, drug companies are often forced to conservere sources during initial development and bring a product to the market that may not have optimal pharmaceutical and clinical attributes. This approach also leads to faster availability of new therapies to patients. After the initial launch, further development activities leading to superior products, known as the product LCM, continue. The LCM may lead to new dosage forms and delivery systems, new dosing regimen, delivery routes, patient convenience, intellectual property, and so on. An LCM program is considered successful only if it leads to better therapy and patient acceptance. There are numerous examples of successful LCM through the development of prolonged-release formulations. Development of nifedipine (Procardia® XL, Pfizer), diltiazem (Cardizem CD®, Aventis), and bupropion HCl (Wellbutrin SR® and XL®, GSK) prolonged-release products that not only provided more convenient and better therapy to the patients by reducing dosing frequency but at the same time greatly increased sales of the products are well-known examples. Even old compounds like morphine and oxycodone were turned into important products by the development of more convenient prolonged-release formulations (MS Contin® and Oxycontin®, respectively; Purdue Pharma).
Many of the future LCM opportunities may come through bioavailability enhancement. Solid dispersion, microemulsion, soft gelatin capsule formation, solubilization, lipid-based DDSs (drug-delivery system), nanoparticle or nanocomposite formation, etc., are some of the common bioavailability approaches that can be utilized for LCM. Development of Lanoxicaps® by Burroughs-Wellcome in 1970s by encapsulating digoxin solutions in soft gelatin capsules is a classic example of LCM by bioavailability enhancement and better pharmacokinetic properties. The development of a microemulsion preconcentrate formulation by Novartis (Neoral®), where the variability in plasma and the effect of food were reduced greatly, is another well-known example.
Life-cycle management through the development of fixed combination products, where two or more drugs are developed or copackaged into a single entity, is gaining increased popularity. The fixed combination products often provide synergistic effects, better therapy, patient compliance, patient convenience, increased manufacturing efficiency, and reduced manufacturing cost. However, a clear risk/benefit advantage is essential for the successful LCM by combination products; mere patient convenience may not be sufficient.
Common justifications for the development of fixed combination products include improvement of activity such as synergistic or additive effect, improved tolerance by reduced dose of individual ingredients, broadening of activity  spectrum, improvement of pharmacokinetic properties, and simplification of therapy for the patient.
The development of oral dosage forms that disintegrate or dissolve in the mouth is providing LCM opportunities for pediatric, geriatric, or bedridden patients who have difficulty in swallowing. They are also being used by active adult patients who may not have ready access to water for swallowing tablets or capsules.

In an apparent attempt to determine whether the American taxpayer is getting fair benefits from research sponsored by the federal government, the Joint Economic Committee of the U.S. Senate has been considering this question. Historically, basic research has been funded by the NIH and various philanthropic foundations to discover new concepts and mechanisms of bodily function, in addition to training scientists.
The role of industry has been to apply the basic research findings to specific treatments or prevention of disease. This is the appropriate manner in which to proceed. The industry cannot afford to conduct sufficient basic research on new complicated biological processes in addition to discovering new drugs or vaccines. The government does not have the money, time, or required number of experts to discover and develop new drugs.
The process that plays out in real life involves the focus of pharmaceutical industry scientists on desirable biological targets that can be identified in disease states, and to set up the program to discover specific treatments that will show efficacy in human disease.
The compounds that are developed successfully become drugs on which the company holds patents. In this manner, the huge cost of discovering and developing a new drug (estimated at $800 million plus over a period of some 10 years) as noted above can be recouped by the founding company since no competitors can sell the product as long as the patent is in force. Without such a system in place, drug companies simply could not afford to bring new prescription drugs to the market.
In the course of reviewing the matter, the Joint Economic Committee examined a list of 21 major drugs, which was put together apparently as an example of drug products that might justify royalty to the government. One of these agents, captopril (trade name Capoten), was discovered and developed by E.R. Squibb & Sons in the 1970s. At that time, one of Squibb’s academic consultants, Professor Sir John Vane of the Royal College of Surgeons in London brought the idea of opening a new pathway to treat the so-called essential hypertension by inhibiting an enzyme known as the Angiotensin Converting Enzyme (ACE). This biochemical system was certainly known at that time but, in Squibb’s experience in the field of hypertension treatment, was not generally thought to play a major role in the common form of the disease, then known as “essential hypertension.” The company decided to gamble on finding a treatment that was not used at the time and that would be proprietary to the company. Professor Vane (Nobel laureate in medicine in 1982) had discovered a peptide in snake venom that was a potent inhibitor of ACE. Squibb decided to pursue the approach he espoused, resulting in the development of a unique drug for the treatment of this very prevalent and serious disease.
In the first phase of their research, Squibb tested a short-chain peptide isolated from the venom of the viper Bothrops jararaca, with which Vane was working in the laboratory, in human volunteers and showed that it did, indeed, inhibit the conversion of angiotensin I to angiotensin II after intravenous injection. The peptide was also shown to reduce patients’ blood pressure when injected. Since the vast majority of peptides cannot be absorbed from the GI (gastrointestinal) tract, Squibb scientists set out to prepare a nonpeptide compound that could be used orally and manufactured at acceptable cost. The design of a true peptidomimetic that became orally active had not been accomplished at that time. Squibb then carried out a full-blown clinical program on a worldwide basis, which led to FDA approval of Squibb’s drug Capoten (captopril), an ACE inhibitor. Mark also marketed an ACE inhibitor in the same period. This work opened a new area of research that has resulted in a class of new drugs that share this mechanism of action for use as antihypertensive drugs.
In the minds of pharmaceutical researchers and, hopefully, the public at large, the above example illustrates the unique role of pharmaceutical companies in making good use of basic research to discover new treatments for serious and severe diseases. The colossal costs to discover and develop a new drug could not be borne unless the companies knew that, if their gamble worked (which is not the case in the majority of situations), they would be assured of a good financial return (ROI) for their shareholders. This system has served the country well in many fields of endeavor, in and out of the drug arena, and should be retained as such.

Amgen, Biogen Idec and Genentech represent three pioneering biopharmaceutical companies that remain and grow in business.
Founded in the 1980s as AMGen (Applied Molecular Genetics), Amgen now employs over 9000 people worldwide, making it one of the largest dedicated biotechnology companies in existence. Its headquarters are situated in Thousand Oaks, California, although it has research, manufacturing, distribution and sales facilities worldwide. Company activities focus upon developing novel (mainly protein) therapeutics for application in oncology, inflammation, bone disease, neurology, metabolism and nephrology. By mid-2002, six of its recombinant products had been approved for general medical use (the erythropoietin-based products, ‘Aranesp’ and ‘Epogen’, the colony stimulating factor-based products, ‘Neupogen’ and ‘Neulasta’ as well as the interleukin-1 receptor antagonist, ‘Kineret’ and the anti-rheumatoid arthritis fusion protein, Enbrel). Total product sales for 2001 reached US$ 3.5 billion and the company reinvested 25% of this in R&D. In July 2002, Amgen acquired Immunex Corporation, another dedicated biopharmaceutical company founded in Seattle in the early 1980s.
Biogen was founded in Geneva, Switzerland in 1978 by a group of leading molecular biologists. Currently, its international headquarters are located in Paris and it employs in excess of 2000 people worldwide. The company developed and directly markets the interferon-based product, ‘Avonex’, but also generates revenues from sales of other Biogen-discovered products which are licensed to various other pharmaceutical companies. These include Schering-Plough’s ‘Intron A’ as well as a number of hepatitis B-based vaccines sold by GlaxoSmithKline (GSK) and Merck. By 2001, worldwide sales of Biogen-discovered products had reached US$ 3 billion. Biogen reinvests ca. 33% of its revenues back into R&D and has ongoing collaborations with several other pharmaceutical and biotechnology companies.
Genentech was founded in 1976 by scientist Herbert Boyer and the venture capitalist, Robert Swanson. Headquartered in San Francisco, it employs almost 5000 staff worldwide and has 10 protein-based products on the market. These include human growth hormones (‘Nutropin’), the antibody-based products ‘Herceptin’ and ‘Rituxan’ and the thrombolytic agents ‘Activase’ and ‘TNKase’. The company also has 20 or so products in clinical trials. In 2001, it generated some US$ 2.2 billion in revenues, 24% of which it reinvested in R&D.

Organizations engaged in the delivery of services or production of healthcare  goods incur special moral obligations. These moral obligations are sharpened in the event of a dire emergency. Yet non-governmental entities, whether technically ‘for profit’ or not, have a more tenuous relationship to the public good than government agencies. What is the relationship between their social obligations and their legitimate business interests? Under extreme conditions such as those that may be associated with a bioterror attack, privately held resources like pharmaceuticals or the time and skills of physicians that are normally strictly controlled by corporate interests could be needed for the public good.
A standard approach to the obligations of business entities is stakeholder theory, which states that corporate moral obligations are determined by the direct interests of shareholders. Yet a strict construal of stakeholder theory sanctions highly profitable products like child pornography that exploit the vulnerable and corrupt social life. Surely the narrow construction is unacceptable. Further, in the case of health care-related services and products, and especially in emergent circumstances, the stakeholders must be construed more broadly as including health care consumers. This broadened view of corporate stakeholders is incompatible with the notion that profit is the sole end of a business, but compatible with the view that profit is, and under ordinary conditions must be, an appropriate goal of business activity.
When extraordinary conditions prevail, then, private interests may be required to serve pressing social needs. Drug manufacturers, for example, should plan for special pricing strategies in the event of a widespread public health threat, a prudent step in any case as they risk losing control over a product if government chooses to assert its prerogatives for the greater good and withdraw patent protection. Similarly, although proprietary interests concerning sensitive product information should be protected, secrecy practices may extend beyond necessity and impinge on the public’s need to know. Industry-wide secrecy standards could eliminate concerns about competitive advantage while preserving the free flow of socially valuable information.
Corporations engaged in the production and distribution of substances that could be turned to terrorist advantage also have an obligation to put adequate security measures in place and to provide educational programs for their employees. Cooperation with local, regional, and, depending on the nature of the business, even national authorities may be required, especially if the company’s facilities could be directly exploited and toxic substances released.

Hundreds of federal, state, and local regulatory agencies define the legal regulatory environment for pharmaceuticals, agricultural and medical biotech. For example, in the pharmaceutical industry, the key agencies that define the business parameters include the Food and Drug Administration (FDA) and the U.S. Patent and Trademark Office (USPTO), as listed in table below:

The FDA, which is part of the U.S. Department of Health and Human Services (HHS), is responsible for promoting and protecting the public health by helping safe and effective products reach the market in a timely way, and by monitoring products for continued safety after they are in use.Its reach extends from food, drugs, and medical devices to biologics, animal feed and drugs, cosmetics, and radiation-emitting products. In the realm of pharmaceuticals, the FDA regulates the drug development process to ensure patient safety. FDA oversight includes preclinical safety assessment, preapproval safety assessment in humans, safety assessment during regulatory review, and post marketing safety surveillance.The goal of preclinical safety assessment is to identify drugs that are effective against a targeted disease in animals without causing significant toxicity. Preapproval safety assessment in humans involves a lengthy clinical trial process culminating in the preparation of a New Drug Application (NDA) seeking FDA approval for manufacturing, distributing, and marketing a drug in the U.S. During the approval process, pharma companies must supply the FDA with any additional safety information that it obtains. Post marketing safety surveillance, also known as Phase IV trials, may be required by the FDA or conducted voluntarily by the pharma company, depending on the frequency and severity of reactions noted in the clinical trials. Post marketing surveillance is highly regulated by the FDA. For example, pharma companies must inform the FDA of reports of serious, unexpected adverse drug reactions anywhere in the world within 15 days.Pharma firms that fail to follow the drug development process as outlined by the FDA aren’t allowed to market their products in the United States. Furthermore, even if drugs are thoroughly evaluated for efficacy and side effects, the FDA has the power to remove drugs from the U.S. market if significant side effects are reported in patients taking the drugs.Some of the major legislative initiatives implemented by the FDA that profoundly affect the pharmaceutical industry include the Orphan Drug Act, the Prescription Drug Marketing Act, the FDA Modernization Act, and the Health Insurance Portability and Accountability Act. The Orphan Drug Act is designed to encourage the development of drugs to serve markets of fewer than 200,000 patients. It provides a seven-year period of market exclusivity and a 50 percent tax credit for clinical research expenses involved in developing the drug. The Prescription Drug Marketing Act was enacted in 1988 to limit the diversion of prescription drugs into a secondary gray market. Another major piece of legislation affecting the pharmaceutical industry is the FDA Modernization Act of 1997, which streamlined many of the processes used by the FDA, and reduced and simplified many regulatory obligations of pharmaceutical manufacturers.The Health Insurance Portability and Accountability Act (HIPAA) was enacted by the Department of Health and Human Services (HHS) in part to ensure the privacy of patients who take part in clinical trials. HIPAA requires pharmaceutical companies to follow stringent security practices to prevent patient data from being accessed by those without access privileges.In addition to the Food and Drug Administration, the U.S. Patent and Trademark Office (USPTO) is a major constituent of the legal-regulatory infrastructure of the pharmaceutical industry. The USPTO establishes the limits of the temporary monopoly granted pharmaceutical companies by virtue of drug patents and other intellectual property protection.

A measure of the educational infrastructure in biotech is the annual investment in tools that support the biological and computer sciences. According to the National Science Board, about 9% of the annual budget for the biosciences is spent on tools like genomic sequencers, electron microscopes, and biological databases. In comparison, about 27% of the educational investment in computer sciences is devoted to infrastructure, predominantly on networks, software, data repositories, and data communications systems.

Given the increasing need for academic biological centers to create, maintain, and update vast genomic databases, the National Science Foundation (NSF) has earmarked the biosciences as one area in which the infrastructure investments have not kept up with expanding needs and opportunities. This is reflected in a preliminary estimate of NSF future infrastructure needs, based on reports from the NSF directorates and the Office of Polar Programs (OPP).

In addition to the key legal-regulatory agencies associated with the pharmaceutical and secondary biotech markets, numerous government acts and government agencies affect virtually every worker, employee, and business in the United States. For example, the Occupational Safety and Health Administration (OSHA), which is under the U.S. Department of Labor, is tasked with saving lives, preventing injuries, and protecting the health of U.S. workers, whether they are involved in agriculture or manufacturing pharmaceuticals. Other examples of sweeping legislation that have a direct impact on defining the biotech industry are the numerous federal cooperative research and development and technology transfer acts, including those listed below.

FIGURE. Federal Cooperative R&D and Technology Transfer Acts that directly impact the biotech industry.

Taken together, these acts encourage interactions between academia, the business community, and the government, and allow businesses to retain or gain the patent rights to technologies developed with government funding. For example, The Bayh-Dole University and Small Business Patent Act allows government contractors and grantees to retain title to inventions to encourage interactions between academia and the business. The Federal Technology Transfer Act established the Cooperative Research and Development Agreements (CRADAs) as a means of funding corporate research and development with U.S. government taxpayer money.