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A New Dimension

Virtual drug development is on the up, providing an alternative route for drug discovery, but success will require new relationships with CROs and sites.

The virtual R&D concept, which features a lean management team and outsources as much of the drug development process as possible, is unfolding rapidly as funding becomes less readily available for biotech startups and large pharmaceutical companies look to reverse their decline in productivity by developing drugs outside of the traditional path.

There are clear benefits to be found in the virtual model, including lower overheads and faster clinical progress than traditional drug development. Chorus, an operationally independent division of Eli Lilly that uses a virtual drug development model, can develop a molecule from discovery through to proof of concept (POC) in three years for $7.3 million, which is about half the cost and one year sooner than the industry standard.

With the rising cost of drug development and a continued shortage of new products entering the marketplace, the virtual pharma model is expected to become more prevalent going forward, particularly as pharma companies are showing greater interest in buying assets from virtual companies. “This is going to be a major source for the big pharma companies in filling their R&D pipelines,” said Peter Sausen, PhD, Vice President of Safety Assessment, North America, for Covance.

Widespread adoption of the virtual pharma model represents a big opportunity for CROs, as drug sponsors increasingly handle less of their own work. Both large and small CROs have added services for this growing segment and have begun to adopt new ways of working with small companies that often lack knowledge about drug development processes and want CROs to self-manage to a greater extent.

“There really is a whole industry tailoring itself for the virtual company model,” said Dennis Goldberg, President and CEO of Massachusettsbased LipimetiX, a virtual company developing a novel therapy for treating high cholesterol.

Growing Model for Small Groups

The virtual model has become increasingly attractive to biotech startups as access to capital dries up, IPOs become virtually nonexistent and development costs continue to rise. Instead of building a fully integrated company, many scientists with a discovery that might lead to a new drug try to keep costs down by establishing a core team responsible for strategic management, regulatory strategy and financial control. This group then manages the outsourcing of all operational work, including pre-clinical and clinical drug development. This model can reduce fixed costs to around 25 per cent, compared to the standard pharmaceutical company fixed-cost base of around 75 per cent.

“You have to hire the right people. These people need to be experienced not just at working in a lab, but at working across the entire spectrum of drug development on multi-disciplinary teams. They need to know what is important and when it’s important,” said Stephen Porter, Chairman, President and CEO of VDDI Pharmaceuticals, a virtual company developing products for cardiovascular disease.

Many virtual companies are formed as a low-cost way to develop molecules and technologies coming out of academic institutions. Goldberg and two partners have founded two portfolio companies – Benu Biopharma and LipimetiX – to develop technologies discovered in universities.

“When we pick them up out of the universities, we already have an active pharmaceutical ingredient and we have substantial animal data that they have done in the academic group to show that it works. We know the indication and how we are going to move it forward; that is about as far as an academic group can go,” said Goldberg. “If there is additional research to be done, that is done at the academic institution so that we don’t have to set up labs to replicate information that they have. The institutions and inventors have equity stake in the company, so it is very much in their interest to work with us to get this technology on the market.”

Virtual pharma companies don’t typically plan to market their products. Most follow a model similar to Goldberg’s companies: develop the product through medical proof of concept or Phase 2, demonstrate clear human efficacy and safety and then seek to divest or partner the product to a pharmaceutical company or other third party. Goldberg said his companies can take a drug through multi-dose studies that will provide both safety and efficacy data for $6 million.

Outsourcing practices among small virtual pharma companies vary. Many of them have strong scientists but no internal knowledge about drug development. These companies typically ask their CRO partners to take over the whole development programme. Others work on a more transactional basis, using CROs to fill in areas in which they lack expertise.

“It could range from site selection all the way through clinical development, monitoring, data management and reporting,” said Covance’s Sausen, “or it could be just data management or site monitoring. It’s highly dependent on what they need and they just take it from an à la carte perspective.”

Responsibility for site selection also varies among these small virtual companies, depending on the internal expertise and whether the scientists already have relationships with investigators in their particular therapeutic area. But nearly all ask a CRO to monitor and manage investigative sites for them. “We do the qualification visits, conduct the investigator meetings and training, as well as the financial management of the sites,” said Miganush Stepanians, President and CEO of Prometrika, a small, Massachusetts-based CRO at which about a third of sponsor clients are virtual. “With virtual companies, that part of the service is very operational and needs to be done day-to-day and tracked properly. Usually these virtual companies opt not to conduct those aspects themselves.”

Private Equity Firms Formed

Former pharmaceutical company executives and investors have formed virtual drug development groups to buy promising therapies, build value in the products through costeffective development and then sell or out-license those products to pharmaceutical companies for latestage development and marketing. Many potentially attractive compounds have reached the market in recent years as the result of mega-mergers and downsizing; pharmaceutical companies have shut down programmes and have spun-out technologies and molecules that investors and scientists are keen to put back into play. By employing a small group of in-house experts and outsourcing all but the most strategic activities, these virtual companies can build significant investor value by completing one or more stages of drug development.

A pioneer in this arena is private equity firm Celtic Pharma and its successor, Celtic Therapeutics. Both funds employ fundamentally the same business model: the private equity firm typically invests in companies or buys products mid-way through their development cycle. The firm’s development company then becomes responsible for overseeing the strategy and managing the CROs, labs, consultants and other service providers in conducting the studies and developing the products. When these products are ready for Phase 3, the company can auction them to established pharmaceutical companies for further development and marketing.

The firms employ highly experienced professionals to oversee the development strategy and manage the outsourcing of all product development components. Celtic Therapeutics has 12 full-time employees in its development organisation and relies on outside providers, CROs and consultants for both product development and strategic advice.

“We are really trying to push the envelope in terms of full development outsourcing. It is not just about clinical trials,” said Solomon Babani, Vice President of Alliance Management at Celtic Therapeutics Development, who supports both of Celtic’s private equity funds as the Head of Outsourcing and Vendor Management.

While some virtual companies fear they will be ignored by global CROs, Babani said he has measures in place to prevent that from happening to Celtic Therapeutics. “But the primary thing we’ve established is that we have a couple of senior level people within PPD, a global CRO the company works with, that are responsible for looking after Celtic, not just from the executive sponsorship perspective, but from an operational point of view as well,” said Babani. “I have an alliance management counterpart at PPD that closely watches the operations across all of the programmes they are supporting us on.”

In all of its relationships, Celtic Therapeutics wants to utilise the expertise its CRO partners can offer. “In order to have a good relationship, if you want the CRO to function as an extension of your development team, it actually needs to participate as part of your development team,” Babani said. “I think the best example is that when we send an RFP to a CRO, all we send is a protocol synopsis, because we want them to co-develop the protocol with us. We know that if we competitively bid based on a protocol synopsis, we are going to get a wide variety of different types of bids. But we do that by design because we want to see how the CRO thinks and we want it to take its experience and expertise in a particular therapeutic area and apply it to our programme.”

Big Pharma Explores Virtual Model

Large pharmaceutical companies, looking for ways to transform their R&D process and improve productivity, also are exploring how to incorporate virtual pharma’s stripped-down model in order to cut their research budgets. Many companies are considering taking parts of their portfolio, and in some cases their entire portfolio, and managing development in a virtual manner.

The most evolved model is Chorus, a semi-autonomous division of Eli Lilly, which was launched as an R&D pilot in 2002 with the aim of improving productivity in early-phase drug development. Chorus takes candidate molecules outside of the main Eli Lilly development path and moves them from discovery through clinical proof of concept as quickly and inexpensively as possible.

The basic tenets Chorus follows include designing and conducting development plans to address key questions as early as possible and using a virtual development model to generate proof-of-concept data more efficiently. In addition, Chorus limits parallel processing to the scope of work necessary to achieve POC; in this model, traditional pre-POC developing activities such as extensive formulation work or long-term toxicology testing are delayed until data are developed to support the mechanism of action and the specific candidate.

This approach allows Lilly to pursue a greater number of leads at a fraction of the time and cost, while advancing only the strongest candidates for costly late-stage development. Over the past decade, Chorus has taken more than 40 assets into development, and today has 20 molecules in development or active consideration.

“We think it costs about $23 million from candidate selection to POC to run clinical studies in a traditional pharma model. Using our lean-to-POC virtual development model, we can do it on average at about half the cost and maybe about a year faster,” said Joel Scherer, Managing Director of Chorus.

The 46 drug development and operational experts that make up Chorus have an average of 16 to 18 years of industry experience and are responsible for the company’s core functions. The internal staff determine the clinical development strategy and work specifications; for example, the inhouse staff decides which clinical trials will be conducted or how to approach the contract manufacturing of a molecule. The staff then implements the work through a fully outsourced network of CROs, consultants and other third party providers.

For its clinical development, Chorus tends to work with small and mid-sized providers. These smaller CROs can often offer specialised expertise for a project, and Chorus has found they often have the fl exibility and focus that the virtual model requires.

“We don’t have preferred provider relationships,” said Scherer. “We work with a lot of vendors and collaborators repetitively because we find we work well together. They understand and are well-aligned with our business model. Not surprisingly, in implementation we are cost- and cycletime- focused, so we look for partners who can deliver on those dimensions. And we want to work with people who are excited about being part of projects.”

Until 18 months ago, all of the molecules developed at Chorus came from Eli Lilly’s internal discovery process. More recently, as part of an initiative called FIPNet (Fully Integrated Pharmaceutical Network), Chorus has begun to work on molecules from other sources and other sponsors.

“We are now working in partnership with external sources of risk capital in the venture capital community,” said Scherer. “This model is evolving quickly. Lilly has essentially leveraged Chorus, coupled with external sources of innovation and risk capital, to create its unique approach to open source innovation.”

New Models Emerging

Tomasz Sablinski, MD, a former clinician with more than 15 years of experience in drug development at both a global CRO and a major pharmaceutical company, has devised a more radical virtual pharma model that applies crowdsourcing and open innovation to drug development. In addition to his role as Head of Clinical Development at Celtic Therapeutics, he recently founded Transparency Life Sciences (TLS), a virtual biopharmaceutical company that will invite patients, providers and scientists to join in the design and execution of clinical trials.

Initially, TLS will acquire and redirect the development of so-called distressed assets, typically projects for which safety and effi cacy were demonstrated but the sponsors deprioritised further development for fi nancial or other reasons. After increasing their value through midstage development, TLS would look to divest or partner its products to third parties. At the moment, TLS doesn’t plan to commercialise its products.

The compounds would be developed through an open source approach, which Sablinski said allows “anyone anywhere” to contribute to the planning and design of TLS compound development strategies and tactics in real time; Sablinski compares this crowdsourcing approach to the method used by online encyclopaedia Wikipedia, which relies on individuals to create content. TLS will pilot the approach by requesting stakeholder input on clinical trial protocols.

“Instead of hiring five key opinion leaders, we are putting it on the web,” he said. “We are targeting patients who suffer from the disease, drug development experts, regulators, statisticians and epidemiologists to help us design a protocol that is meaningful to stakeholders.”

An important part of the model is transparency, which Sablinski believes should extend to every step of the business process including: evaluating and selecting compounds for acquisition; developing the clinical plan and study protocols; recruiting and executing studies; processing, analysing and interpreting data; regulatory and reimbursement discussions; and ultimately making decisions related to potential asset sales.

Patient data can be collected with various eClinical technologies and distributed to a network of scientists and collaborators in real time for analysis. The model includes engaging visiting nurses or small healthcare services that care for patients in their homes to collect digital data. “Telemedicine won’t work for every indication and every therapeutic area. But our benchmark is that we want, in any given trial, to collect 80 per cent of data points via remote technologies without the need for a patient to move anywhere,” Sablinski said.

TLS, which has a portfolio of 20 products, has raised a small round of seed funding and has begun to build an internet presence to allow open-source drug developers to create and work on projects.

Sablinski believes this virtual model, which operates without buildings and engages individuals or small organisations only for necessary activities, can allow TLS to develop less expensive medicine much faster and with high-quality data. For example, Sablinski said a CRO budget for a large Phase 2 trial of a popular immune disease drug could run between $7 million and $10 million, but TLS could run the same trial for $800,000 to $1.5 million. “It’s simple and can be done without tremendous overhead costs, which are killing this industry today,” he said.

Impact on CROs and Sites

As the virtual model becomes more prevalent, CROs have begun to add services to address the particular needs of these smaller companies. Investigative sites also need to evaluate how to work with virtual sponsors more effectively.

The virtual model works best for drug indications that have hard endpoints with small numbers of patients, such as orphan indications or rare conditions. Investigative sites that treat these particular conditions will find themselves in higher demand. Yet sites that tend to rely on work from large CROs may face an even tougher operating environment in the future, since many virtual sponsors prefer to outsource clinical work to small CROs, while others choose sites directly to run their clinical trials.

As for the CROs, Covance, for example, has built up its chemistry and formulations components to become more of a drug development company. “It’s clearly an area that we, as a company, recognise as a very significant growth area and we are building toward being ready for that,” said Sausen. “That said, trying to figure out when to build and what to build is the biggest challenge for us as a CRO. These virtual pharma companies come to us and they want to go now. They are strong scientists on the cutting edge of technology, so we need to be ready with people and technology. That is something that is a little different than the old transactional model that we had before. In this kind of model, you have to be ready with the people, with the expertise and with the technologies to be able to implement changes very rapidly for these companies.”

With the virtual model, Michael Arlotto, PhD, Global Vice President of Corporate Development, Emerging Biotech at Quintiles, said CROs need to spend more time and pay more attention to the scope of work, defining responsibilities, performance metrics and active governance. “It’s less transactional and more interactive,” he said. “CROs also have to have experienced leadership teams and know how to be drug developers. CROs have to have the right staff that can actually make a drug decision,” he said.

But most importantly, since virtual companies have such lean management structures, they need CROs to become true partners by accepting more responsibility and offering strategic advice when necessary. Although CRO senior executives support a partnership approach and want to take full responsibility for a trial, some virtual companies find a gap between that strategy and actual execution at the middle-management level.

“The trick for the CROs that really want to excel in this space is to recognise that the delivery model is somewhat different than what Big Pharma has typically asked for,” said Celtic’s Babani. “Big Pharma very often doesn’t want the CRO to do any thinking whatsoever. They say, ‘We will write the protocol, we’ll tell you how to do it, you just go out and be our arms and legs. Don’t put too much thought into this.’ Virtual pharma asks for a very different interface and a different level of participation from the CRO, not just from a strategic input point of view, but from an operational point of view also. We are not going to micromanage a CRO because we expect it to be self-managing to a greater extent."

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Karyn Korieth has been covering the clinical trials industry for CenterWatch since 2003. Her 30-year journalism career includes work in local news, the healthcare industry and national magazines. Karyn holds an MSc from the Columbia University Graduate School of Journalism.
Karyn Korieth
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