Friday, October 19, 2007

Risk-reduced cost management practices in biotechnology companies

Looking at the most successful large biotech companies like Amgen, Biogen or Genentech, and their FIPCO (Fully integrated bio/pharmaceutical company) model, which has the ability to discover, develop, manufacture and market their own drug; it is evident that the risk-reduced cost management practices plays a significant role in retaining the majority of profits for the company. The newly start-up biotech companies strive for survival in today’s competitive environment. It is a general impression that, as we discover more about the genome, we are closer to finding the causes and treatments for the life-threatening diseases. On the contrary, since we do not know that yet; probably more time-span will be required to arrive at a time and cost-effective treatment for a disease. Rising R&D costs and falling numbers of marketing approvals has been the subject of growing attention. To improve the overall probability of success, there is a growing positive perception within the biotechnology industry to follow the best cost management practices. In general, the most successful entrepreneurs recognize this, and tend to build agile teams that can quickly respond to early market information in order to identify a real business model and minimize risk. Here, we discuss one-by-one the top ten practices either followed by such FIPCOs or could be used as a guideline by the newly start-up biotech companies.

During the meantime, please feel free to share your experiences with reference to risk-reduced cost-effective management practices in biotech companies.

1. Fail early, fail cheaply

Considering from the investment point even for a fairly large biotechnology company, the drug development is a costly affair with a long-term dedication. Finding the data points early in the process leads to speed-up the development of keys therapeutic compounds in the pipeline. Of course, every biotech discovery company would like to bring a novel drug to the market as early as possible, but finding that ‘Critical experiment’ that decides the failure of the tests for a particular drug in the early stage of development could save a lot on investment for any early-stage discovery company. Many promising test compounds fail in development due to unforeseen side-effects or unfavorable pharmacokinetic profiles. Profiling key compounds in the early experimental stage can help avoid these late-term failures. Reduction in the attrition rate of compounds could be tackled by key experiments like ADME-TOX (Absorption, Deposition, Metabolism, and Excretion – Toxicity) screening with the benefit of enhanced success in clinical trials. The data from these studies can select compounds for further development and validate results from other test systems such as animal tissue culture models or animal based systems.

The best model is rapid trial and error. Similar to agile development, a company must rapidly prototype, test, fail, change, repeat or go next in the target identification, validation, lead identification and optimization stages. The early detection of problem aids in faster decision making process, quick quality results and expert analysis to provide detailed feedback and ultimately cost-effectiveness. Early stage companies should raise enough money to allow them to iterate - as long as their initial hypothesis is still valid and they are making demonstrable progress towards lowering risk. Although the aggregate number of failures may seem higher (due to the increased number of companies being launched) the ratio of early stage failures to successes is probably still the same. What has changed is that you can now fail faster and cheaper than ever before. Companies used to waste millions of dollars of venture capitalist’s money – and entrepreneurs used to waste years of their lives – working on a failed hypothesis. Now, the cycle is much shorter.

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