Starting a Biotech the European Way
Author: Stephen J. Williams, Ph.D.
A wonderful post by Tony Marcel in Nature Biotechnology highlights some of the structural differences in the way biotech startups are formed in Europe contrasted with bio-entrepreneurship as conducted in the United States. Tony Marcel is currently the CEO of FGene S.A. and gives a personal experience of the European biotech startup scene and highlights the differences, as he sees it, in the unique business development models occurring in Europe versus the US. This post will highlight features from the article.
- US model of biotech is not easily transferable to how Europe does business
- US model involves developing a specific technology platform then selling that tool, service or platform to pharma for R&D $ and royalties
- European perspective is to build networks instead of platforms which can deliver capabilities or one product to pharma
- The article discusses three weaknesses identified in the biotech world with respect to Europe and the US
Three ” weaknesses” identified which may affect decision to start a biotech in Europe include:
- European academic scientists have trepidation making deals with big pharma
- European scientists are not as eager as US counterparts to start a biotech
- biotechs still are not as good as pharma in drug development so even their pipeline of “hits” are failing in clinical trials
The article aims to use these weaknesses to define a European way involving
- defining management players and market niche early on
- reducing the barriers to entry (i.e. legal)
- establishing the relationships to increase viability
The full article can be found at the following link:
http://www.nature.com/bioent/2003/030101/full/nbt0299supp_9.html
An emerging European model for bioentrepreneurship
Tony Marcel
Tony Marcel is CEO of FGene S.A., 91, Avenue Kléber, 75116 Paris, France
e-mail: tonymftmcgene@compuserve.com.
The US model for biotechnology is not easily exportable to Europe, but an alternative European business model may be adaptable everywhere.
There is a widespread opinion that biotechnology companies worldwide need to follow business models initiated in the US. These models, generally speaking, are based on development of a specific technology platform. The prevailing wisdom suggests this technology can be sold as a tool or service to pharmaceutical companies or can be used to develop a lead compound that can then be sold to big pharma for R&D dollars and single-digit downstream royalties.
But my experience as a former academic medical researcher who has helped discover, develop, and market drugs for Hoechst, Laboratoires Roussel, Roussel-Uclaf, Rhône-Poulenc Sante, and Amgen has taught me that there is an appealing alternative to this model that may be more practical from the European perspective. Rather than building technologies, one can build networks that have the capability of delivering to big pharma the one product they cannot refuse: validated lead compounds for unmet medical needs.
Identifying a market niche
My background has taught me that an effective way to find solutions is to look at weaknesses perceived by the status quo, and then to develop a strategy to turn them into strengths. Biotechnology’s biggest weakness was its lack of products, in traditional pharmaceutical terms. Relatively few lead compounds have made their way through clinical trials and onto the market. So to separate your company from the crowd, my first conclusion is that it needs to be product-based. It should develop lead compounds that can be sold to big pharma, or take those compounds through clinical trials and to the market.
How do you accomplish this in Europe? I identified three weaknesses from a traditional biotechnology or pharmaceutical perspective that I felt could be developed into strengths. The first was that European scientists are much more risk averse than their American counterparts when it comes to setting up their own business. The legal, financial, and cultural infrastructure to take such a step is far more developed in the US than elsewhere.
The second was that European academic scientists tended to be mistrustful of big pharma’s intentions in licensing discussions. Taking the fruits of their research and developing it into a business is an uncharted area for most, and their unfamiliarity with this process made them cautious.
Finally, biotechnology startups everywhere, not just in Europe, are usually not very efficient in conducting pharmaceutical development. In general, they are discovery-focused companies that lack both the expertise and the contacts in these areas to efficiently manage this process.
These three weaknesses provide the basis for my product-based business plan. The fact that European scientists are not as ready to start companies as in the US makes Europe a source of world-class research not already tied up commercially. In addition, my experience in the pharmaceutical world has demonstrated that a commitment to building a relationship based on trust with scientists and their university licensing departments tremendously enhances the quality of these exchanges and, over time, provides remarkable access to a pipeline of innovative lead compounds.
Finally, the pharmaceutical industry’s move to outsource much of the development and clinical trials process has created a remarkable infrastructure for moving lead compounds through development. One only needed to know when this was appropriate and to have the money to commit to that project to realize a major portion of the development process.
The business model that results from uniting these strengths is a company dedicated not to a specific technology platform, but rather to the development of innovative compounds discovered and patented by academia. The company’s niche is to license in molecules at an early stage and demonstrate proof of principle, and take them through regulatory preclinicals, as well as phase I/II clinicals. At that point, the company licenses its products to big pharma. Profit is generated by the substantial risk-to-reward ratio between the cost of licensing in molecules and the outlicensing price to big pharma.
Management
Contrary to the way many US biotechnology companies are run, the management structure of such a company is not a one-person show. This strategy relies heavily on a supervisory board made up of representatives from European ministries and major European banks. It is also dependent on a scientific advisory board (SAB) with members from key European states. Unlike the boards of some biotechnology companies, the individuals selected are not merely figureheads. They must be committed to an operational role in which they are regularly consulted about the company’s plans.
The key to making this work is to maintain permanent links with academia, the source of new molecules, through publications, meetings, and also through SAB members. One also needs to develop comparable relationships in the pharmaceutical industry in order to keep abreast of licensing-in needs. Using this dual approach, a company will be able to identify discoveries relevant to a major pharmaceutical market before they are published. The company can then select candidates for licensing based on demonstrations of their potentially useful activity, the proof of pilot synthesis and purification capability, and sufficient intellectual property protection.
Given the academic scientist’s aversion to starting a business, where will this network of managers come from? In Europe, the merger and acquisition fever that has hit both the pharmaceutical and banking industries has created a large pool of experienced professionals, acquainted with science, marketing, and business. Some of these individuals will be at a point in their lives where setting up companies is an exciting alternative career.
The challenge for this new generation of European bioentrepreneurs will be to develop their ability to create a new level of cross-talk between inventors and developers. Their core responsibility will be much in keeping with their training: Build and nurture a portfolio of molecules at various stages of development.
Barriers to entry
If this model is so straightforward, why do pharmaceutical companies not eliminate the biotechnology middleman and reap the rewards directly? One of the three premises of this model is that a small biotech company is more able to concentrate on an academic alliance than a large pharmaceutical company. Biotechnology’s close identification with academia through the training of both its management and staff gives it a cultural advantage in assuming this role.
Historically, the model in which big pharma establishes a direct relationship with academia has never proven successful. For example, SmithKline and French invested much of its Tagamet earnings into developing academic alliances to fill its pipelines. Nonetheless, investing a substantial amount of money in these relationships over a significant period of time did not prevent this group from having to merge with Beecham. Nearly every working pharmaceutical executive today has a similar war story.
The reason it has failed for the past 20 years, and is likely to continue to fail for the next 20, is that it concentrates efforts in the hands of the most powerful pharmaceutical companies and key research institutions. The resulting bureaucracy is so overwhelming it not only alienates the scientific innovators, but creates a stifling atmosphere in which decisions simply cannot be made.
But old habits die hard, and this model has long been a tradition in Europe—particularly in France. Therefore, it is likely, if for no other reason than to reap the potential financial returns of such a model, that pharmaceutical companies will continue to make this model work.
However, the important role that biotechnology can play in this process is being recognized by some individuals now in positions of responsibility in pharmaceutical companies, academic institutions, and government offices. These individuals are doing their best to support biotechnology’s role in the development of innovative new medicines.
Viability
If you have read this far, you are probably persuaded by the arguments, but may wonder, “If it is such a great business model, why hasn’t anyone done it before?” Well, they have. In 1995, FGene was founded in France as a company devoted to the development of biopharmaceutical products. The company was initiated by the willingness of the Paris-based Institut Pasteur, a major European academic institution, to license molecules to it. This relationship allowed the beginning of the process I have just described.
The resolve of the French government, key players in academia, the investment community, and the pharmaceutical industry to enhance the growth of biotechnology in France is an opportunity we have seized. We have tried to duplicate in Europe the remarkable links developed between biotechnology startups and academia in the US, and hope to create a viable business serving the needs of the world’s largest pharmaceutical companies that are literally in our backyard.
In three years of existence, FGene already boasts five products in its active development portfolio: a recombinant protein for the treatment of traumatic spinal section; a peptide for the prevention and therapy of cardiovascular and cerebrovascular ischemia, such as coronary diseases; a selective IL2 receptor agonist for the treatment of cancer; a peptide active on kidney and bone for the treatment of bone and mineral balance disorders, such as osteoporosis; and a peptide for improving male pattern sexual arousal.
We are encouraged that we have made this much progress in such a short time. While this model is still not proven in terms of financial success, it provides a much stronger foundation for growing a biotechnology company than most biotechnology business plans currently in use because costs are directly related to the development of marketable products.
Conclusions
For budding European bioentrepreneurs, this model recommends itself for three reasons: First, it uses unexploited resources that are difficult to access through traditional biotechnology or pharmaceutical models. Second, it is based on pharmaceutical customers’ high-priority needs. And third, it provides a company with a burn rate that is in direct proportion to the realization of a marketable product.
This model has first taken hold in France because of a unique set of circumstances, but its applicability seems uthe commitment of a network of individuals to build a new kind of biotechnology company.
My vision is that companies formed will reinvigorate the European pharmaceutical industry. In the end, everyone wins. Academic science has a new route to receive fair payment for their innovations, biotechnology companies show a rapid timeline to profitability, making investors happy, and pharmaceutical companies fill their pipelines with truly innovative medicines. But the real winner in the end will be the consumer—the rapid translation of genomic products will lead to medicines that improve healthcare at an affordable price, in a much shorter time frame than previously possible.
source: http://www.nature.com/bioent/2003/030101/full/nbt0299supp_9.html
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