Developing drugs is a capital-intensive activity, and never more so than when a biotech company wants to move from preclinical development to more expensive clinical trials. Early on, there are often angel investments and/or academic or government grants, but the most common source when moving into Phase I and II trials is fundraising rounds through syndicates of venture capital funds. It's a lot to handle for biotech companies, which typically are small startups comprised of scientific founders and researchers.
One of the key intermediary steps is working with contract research organizations (CRO), which are involved in preclinical testing, assay development, animal testing, clinical trial design, drug manufacturing, data analysis and regulatory submissions. What is not as common, but is increasing, is a CRO assisting biotech firms with introductions to venture capital firms and other funding sources.
When should emerging biotechs consider funding?
Most nascent biotech companies are focused on science, developing their early research to the point where they are able to begin human clinical trials, whilst also piquing the interest of investors and potential partners. But the pathways for clinical development are generally well known, and it's even possible to predict expenses along the way.
"Biotechs should always be thinking about the next stage," said John Macdonald, vice president, venture and financial alliances for contract research organization ICON. "For example, if they are in the preclinical stage, the company should be thinking about how they fund the first clinical trial. They should be thinking at least one, and possibly two, steps ahead. And the sooner they have a plan as to how far they want to take the drug before they look for a sale or a partnership, the sooner they should consider the steps to take, and the capital required, to get to that stage."
In short, biotechs should consider funding options as early as possible.
How can a CRO partnership help emerging biotechs secure funding?
A CRO can offer numerous services to biopharma and medical device companies, from drug discovery all the way through to commercialization, pharmacovigilance and post-approval activities. Gaining access to funds is not typically viewed as one of those services, but some CROs are now including it as a service, both formally and informally.
Data packaging and presentation
Over the last few years, the relationship between the biotech, pharma company and CRO has evolved.
"Traditionally, a CRO would receive a clinical trial protocol to execute and then just go forth and execute it without asking a lot of questions," said Brandon Early, vice president, project management with ICON. "As we became more seasoned on how to run those studies, we were able to offer more therapeutic and operational expertise in the conduct of these trials. And that has biotech and pharma engaging with us earlier and earlier in the process."
In terms of accessing funding, CROs have expertise in packaging and promoting data to investors. "This can be in the context of putting together an investor deck or presenting data in a way that makes it easier to digest, something that investors can wrap their heads around," said Sol Babani, senior vice president and general partner at ICON.
ICON, for example, has a dedicated group that helps biotechs fine-tune their pitches for the investment community.
Introductions and relationship-building
With the evolving maturity of some of their partnerships, CROs are increasingly able to provide introductions between biotech clients and investors via their own networks.
"There are relationships that we have on both the biotech and the pharma side that allow us to make introductions, where appropriate," Babani said. "But we've also been working over the last year and a half on establishing more formal relationships and mechanisms for making those introductions."
He described two elements. One is a partnering database that ICON has co-developed with a well-known life sciences investment bank. Still in the early stages, they are starting to recruit biotech companies to post their assets to the database. The stage after that is to bring in pharma business-development groups and potential other investor types that might be interested in those assets.
The second element is what Babani described as an "incredible flow of opportunity between our two organizations."
The investment bank often meets biotech companies that have exciting science or interested investors. But those organizations don't necessarily have the expertise in operationalizing their study. On the other hand, ICON constantly meets with biotech sponsors who need a CRO but are struggling to find funding.
"So we've established a channel for helping biotech companies connect and help them to at least have a conversation with a well-established investment bank in the life sciences space," Babani said.
Limits and conflicts of interest
Having relationships with a wide network of VC funds and other sources of capital can certainly help a CRO's biotech customers to access funding to support their ongoing development pipeline. This network might well include some VC funds in which the CRO has itself invested. While this has been a route followed by some of the larger CROs, care must be taken to avoid any conflicts of interest. It would be difficult for a CRO, for example, to invest directly in a biotech company, as the CRO would be viewed as a potential competitor of its other customers working in a similar therapeutic area.
However, a CRO can invest in a venture capital fund that subsequently invests in a biotech company because it keeps the CRO at least one step removed from the investment. Collaborations like this help the CRO to engage with the VC's portfolio of biotechs at a much earlier stage when they can contribute more value to the development partnership.
As well as supporting the VC's portfolio of biotech companies, the CRO can introduce biotech companies to investors who are looking to expand their portfolio.
"It doesn't commit them to anything, but it may put us in a more favorable position in the eyes of the biotech, if we can help them to secure funding," Macdonald said. "That's something tangible that we can bring to the partnership that benefits all parties. Furthermore, we know what the investors or pharma partners are looking for, and in several cases, the biotech company has gained credibility in the eyes of potential backers by having a partnership with an established drug development CRO."
A consultative relationship
The relationship between a biotech company and a CRO has evolved from a strictly contractual one to a more consultative relationship. All too often, biotech companies think they will need millions of dollars to work with a global CRO, while in reality, many CROs would prefer to work earlier in a consultative framework.
"It's a great way of establishing a relationship very early on without the full commitment of running a large global clinical trial, which they might not be ready to do or even have the financial ability to do," Early said. "At that point, as part of a business-development process, we can provide a significant amount of strategic information to the client."
This can include how to best focus preclinical and clinical studies, how to present data to investors and regulators, and introductions to investors and pharma partners.
"We can map out what their clinical-development costs are through whatever stage they're targeting. And a lot of that wouldn't cost anything because it's just part of our normal business-development process," Early said.
To learn more about how ICON can help you throughout your entire drug development, visit https://www.iconplc.com/contact/enquiry-form today.