Can we lower costs in Biotech R&D?

Can we lower costs in Biotech R&D?

Monday, March 26, 2012

According to a recent Life Science Venture Blog posting by Bruce Booth, average exits for venture backed biotech firms has been around $150-$175M. Less than 10% of the exits are over $400M and only a handful have been above $1B. The takeaway is that biotechs are more likely to have a small exit than large which puts constraints on the amount of capital they can raise. By the time of a $150M exit, most biotechs will have raised about $50M to get them to a Proof of Concept trial in humans. This is not a lot of money in the development world so biotech development has to be as capital efficient as possible.

A number of venture firms are taking the virtual approach themselves as a way to contain costs. Instead of funding a company that has to hire full time staff, they are acquiring assets and using an “entrepreneur-in-residence” to run the development program. They then outsource all of the activities including scientific oversight and project management.

Another trend is the movement in the largest pharmaceutical companies to downsize their R&D groups and turn the research over to a CRO. There are two different cultures when you compare large Pharma to contract research. Large Pharma has a low risk culture that favors killing a product over taking a chance with it; this makes research very expensive. The CRO culture is focused on making money and keeping cost under control; this can make research more cost effective. I have had some experience in this area after having been the VP of Laboratory Operations for one the biggest CROs in the US. I can recall the dedication we had to keeping our costs in line and making our services competitively priced. Large Pharma does not have that concern so it becomes more cost effective for them to outsource the research. This in turn has prompted some of the large Pharma companies to establish alliances with specific contractors. This arrangement benefits both sides. The large Pharma gets very competitive pricing and the CRO gets guaranteed business.

One more trend in big pharma is to sell off their R&D group or at least downsize them in favor of finding new drugs at biotech firms. The cost of developing drugs in big pharma keeps escalating without a corresponding increase in new drug approvals. A study conducted by DiMasi and Grabowski (Manage. Decis. Econ. 28: 469–479 (2007)) concluded that mean out of pocket cost for a compound developed by big pharma from preclinical through Phase 2 was $130M. Since most biotech firms are getting about $50M to reach this point, it seems clear that biotech companies can be much more cost efficient than their big brethren.

Lowering costs can be achieved by new business models and concepts. The emergence of virtual models and the infrastructure to support them have opened the path to many new ways to getting research conducted with a minimum of expenditure.

There is a more in-depth discussion in a White Paper entitled "Virtual R&D Teams Enable Real Cost Savings" at the Resource Center/White Papers.

Can we lower costs in Biotech R&D?