The Virtualization of Drug Development

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The Virtualization of Drug Development

Virtual Drug Development has been around since the 1990s with little fanfare. In this model, only the key personnel to manage the core operations of a project are retained, while all other functions are outsourced. Roche was an early adopter of virtual drug development, forming a subsidiary called Protodigm in 1996 consisting of only nine members, and responsible for taking three drugs through clinical trials. Though successful- money was saved and projects were completed faster- Roche ultimately decided against the plan, spinning the unit off into a separate entity, Fulcrum Pharma Developments. Biotechs also experimented with the idea, but the easy access to capital at that time encouraged the formation of bigger, more integrated companies rather than stripped down, virtual ones.In this past decade, attitudes have changed substantially. Among large pharmaceutical companies, patent cliffs and lack of growth have forced

companies to reevaluate their new drug development models; one which has received renewed attention is virtual drug development. Eli Lilly took a bold step when it formed its experimental Chorus division in 2002, an independent unit comprised of just 22 people. It was responsible for the development of compounds Lilly had previously deprioritized, from preclinical to proof of concept (POC). POC is the point where there is sufficient evidence in humans to believe a compound is active. Arriving at this conclusion usually requires the completion of a Phase II clinical trial. The group designed the trials and experimental plans, but all the work was outsourced to CROs.Over the course of five years, nine out of nineteen of these compounds reached POC stage. Chorus now has 24 employees with the capacity to handle 10 compounds at any one time.Chorus appears to have accomplished its initial goals. According to the company, it was able to achieve

POC 1.5 years faster than the industry standard, and at as little as 10% of the cost. Of the nine compounds that reached POC, two were selected by Lilly for further development. With a small crew, two compounds that had been sitting in the drawers have now been given a second chance to prove themselves, with minimal upfront costs.At Chorus, the strategy was to push as many compounds through as fast as possible with the belief that most are destined to fail. Management spent as little as possible on processes not directly related to reaching its goal of POC. Long term toxicology studies, manufacturing processes, formulations- anything extraneous was put off until the goal is reached. After POC, the compound is returned to Lilly to complete its development. If Lilly decides to go forward with a compound, it’s researchers complete the work that Chorus had skipped over.The virtual model may be well suited for biotech start-ups. Biotechs

already outsource significant amounts of work to CROs on a regular basis. Few have the size and ability to perform all the necessary preclinical studies, CMC work, and clinical trials. CROs and consultants have allowed biotechs to perform this work without the expense of building up all the internal capabilities. With the increasing numbers and sophistication of CROs, almost all the functions a typical biotech performed can be outsourced. The key to making a virtual biotech succeed is a superior leadership team able to select the right CROs and manage those relationships to build enough trust so they can perform their work with minimal supervision.Biotech startups have begun to embrace the formation of virtual companies now that access to capital has become difficult and IPOs have dried up. With the end of easy money, many VCs prefer to fund companies with low fixed costs and short time to exit. A virtual biotech fits the bill perfectly. With

limited personnel and no need for laboratory space, virtual biotechs have very low fixed costs. Because practically all services are contracted out, nearly all costs are variable. On average, 25% of costs are fixed, 75% are variable- the opposite of a standard biotech. The small structure and low fixed costs allow a high degree of flexibility- companies are able to respond rapidly as opportunities arise and situations change. A fully outsourced model also allows a small group of individuals to work on a larger number of projects simultaneously.Virtual biotechs typically bring in compounds at the preclinical stage, progressing them to POC. Reaching POC is a major value creating point in the life of a compound. At this stage, companies have the option of selling themselves, partnering with a larger company, or licensing their compound. If this point can be reached quickly and with little capital, the company’s backers stand a better chance of

recouping their investment in a reasonable time. This compares to the large sums and long timelines required for a traditional biotech to develop its compounds to a stage where

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