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Bringing business risk into sharp focus
Bill Gruber & Emily Walsh
Comprehensive due diligence on research constraints, regulatory and reimbursement barriers, as well as patient and physician preferences is important to increase the chances of success for a life science business.
s many of us know, either from urban legend or through experience, 9 out of 10 startup companies fail. Although we tend to blame pressures outside the industry, such as the recent economic crisis, for such failures, in truth, unfavorable business conditions may just accelerate the failure of companies destined to falter anyway. One avoidable reason for failure is that entrepreneurs do not do their homework on the external forces that affect the adoption of breakthrough science in their R&D programs. Instead, they lock onto an idea or technology and become mesmerized by its uniqueness rather than its utility—a trap that snares many. One factor that distinguishes successful entrepreneurs from others is an ability to look not at the technology or therapy they hope to bring to patients but at the business they are creating in the process. History shows that most startups do not become fully integrated companies; instead, they require partnerships or an acquisition to fully realize their potential. Though there are differences in developing a drug and device (Box 1), you need to start with the end in mind, meaning that you need to take a prospective partner’s view by imagining the types of questions they will ask as they determine whether to partner with or purchase your idea, company or technology. Think beyond technology Historically, many academics have considered industry, at best, as a necessary evil. And it is common for us to hear our friends in academia wistfully say that science and discovery should
Bill Gruber is CEO at Solace Therapeutics, Framingham, Massachusetts, USA. Emily Walsh is principal consultant, Halloran Consulting Group, Waltham, Massachusetts, USA. e-mail: email@example.com
be done somehow outside the influence of business principles. We completely agree that this is a fair position to hold in a world in which business principles are completely misaligned with potential health impact. However, the US healthcare system, while arguably deeply flawed, is converging through various market and governmental forces on models in which therapy, need and reimbursement are increasingly aligned. Also, this principled refusal of business considerations, although satisfying on some level, may ultimately prove counterproductive to the goal of delivering new therapies to patients. So for the entrepreneur, it is imperative to imagine the needs of not only the ideal patient (the one with the biomarker or clinical presentation that perfectly fits what the technology can do) but also that patient’s family, insurance company and doctor. But do not stop there: also consider that doctor’s office and support staff, whether they have the training to deliver the therapy or the facilities to do so. Then take those considerations and multiply them by the 1,000 or 100,000 or 10 million patients you hope to reach, and include in those patient populations the vagaries of humans interacting with the healthcare system (compliance issues, ability to understand their disease and/or treatment, comorbid conditions, and so on). Do not let these big questions paralyze you or dissuade you from moving forward. In truth, you will not need to have all the answers anyway. However, at the very least you must understand and appreciate all the open questions. Even if it is true that ‘somebody else can figure that out’, this sort of attitude will certainly raise red flags to any partner or acquirer. They’ll walk away from your innovation perhaps without fully understanding it, and certainly they’ll assume there are more gaps in your plan beyond the one they have just discovered. Doubtless this exercise is not for the weak of heart. There will be many gaps and risks that
© 2012 Nature America, Inc. All rights reserved.
you will find as you consider the full path to a patient, but with your deeper understanding you will be taking the first step toward ensuring that your therapy reaches patients one day. Research uncertainty Perhaps the greatest risk you will face as an inventor and entrepreneur building a business is uncertainty about when to stop exploratory research. Stop too soon and perhaps you miss a key capability that would change the development path. Stop too late and you will have blown through all your cash and have nothing left to bring your therapy to the clinic, and your intellectual property will be on its deathbed. At its core, the debate regarding research and the influence of business is that research should not be constrained by time. This is a fallacy. Research should be time bound to force prioritization of ideas and to provide a sense of urgency for proving a hypothesis and moving on. The key to making this happen is to break the research down into smaller pieces rather than trying to tackle an enormous multivariate project with open-ended objectives. This does not preclude a researcher reacting to new data and changing paths appropriately by any means. In fact, as a researcher discovers new variables that have an impact on the primary objective, they should address them in turn. This may call for a re-scoping of the project or a reassessment of priorities the team needs to be working on. An even better approach is to understand all the possible data outcomes before an experiment begins and plan a path (including estimating resources, funds and expertise required) for each likely contingency. Although you may not be able to a priori predict every outcome, you can imagine the best and worst likely cases. Often this planning exercise will improve the design of the study at hand and allow you to shorten timelines, decrease iterations and limit the cash required early on for a new technology, thus reducing the greatest risk overall.
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greater costs and complexity. In part. Referral patterns are also crucial. if you are looking to build a device-based business. Imagine a disease that is often primarily referred to and treated by a surgical specialty. For drug therapies. with expedited regulatory paths to market. patients with peripheral atherosclerotic disease can be treated with balloon angioplasty and stenting by the vascular surgeon. Understanding the regulatory requirements and monitoring the changing requirements going forward is critical to managing your regulatory plan and reducing risk. Recently. but there are unique questions to be asked during the design phase for both to understand and maximize their value. Execution Execution risk exists at every point along the development path for drugs and devices. competing with a specialty’s current business can also create challenges for a seamless entry into the market. In one such case. from training the physicians who conduct the administration to turf battles between various specialties to concomitant treatments for a particular patient population. nature biotechnology volume 30 number 1 JAnuArY 2012 . The interventional radiologist does not typically have an office and expects to get referrals from the other two specialties or primary care doctors. these challenges are increasingly complicated in the aging population. So if you plan to design a product and sell it to the radiologist. how and when certain treatments are administered could be based on obvious medical and/ or biological necessity or on more nuanced practice-based considerations. Every aspect of delivering the therapy can have an impact. will have more complex and lengthy pathways should a competitor’s breakthrough technology make it to market first. these follow-on orphan drugs are facing slower adoption from doctors. Competing specialties present yet a third type of challenge. as the vascular surgeon and cardiologist see patients in their office and usually have longer-standing relationships with their patients. this is because the reasons why. your drug’s profile might require additional and costly clinical studies in the relevant population to prove its safety before marketing. in part due to pressures they feel in their role as approvers of new technology and in part because we have a deeper understanding of the risks of new technology. the greatest timeline and cost impact occurs during the clinical development phases. and more uncertainty.or underdosing of concomitantly prescribed medications. however. Of course. the patient and the staff? • How do you dispose of the product once you are done using it? • How do you dispose of the packaging the product came in? • How easy is it to set up and take down? • is it so complex to use that it will require a sales person to be there for every case? • How big is the console? Will it fit on a table or in the exam room? • Can the console be operated by someone who is color blind? • Will hospitals try to re-sterilize a disposable device? • should the device be reusable? if instead you are looking to create a venture surrounding an experimental new drug. All rights reserved. Developing a new prophylactic drug in such an indication might seriously undermine the surgical revenues of their practice. This requires balancing not only side effects that might exacerbate comorbid disease but also drug-clearance mechanisms that might result in over. and thus prescription increases might be slow unless an informed populace of patients is requesting the drug. who are less willing to cease a known efficacious and safe therapy for a possible better treatment with unknown side effects in the case of a particular patient. there are other questions to explore: • How will it be administered (orally. how will patients perceive the value of the treatment weighed against any inconvenience of continued treatment? • What are the downsides to missing a dose? To overdose? To stopping the drug altogether without consulting a doctor? • How detectable are the side effects without intrusive monitoring? Will intrusive monitoring be tolerated by the patient given the consequences? • are the side effects reversible? do they affect cognition? • How will the genetic background of your patient affect the drug’s efficacy? its tolerability? • Who diagnoses patients with the disease? • How early in the disease progression must the treatment be given? do patients on average receive a definitive diagnosis at that stage? Regulatory risk Between recent changes in both guidelines and practice at the US Food and Drug Administration (FDA). This might dramatically change your plan for how best to get the drug to patients. Inc. interventional cardiologist and the interventional radiologist. a caregiver. a therapeutic with an impressive efficacy profile was met with substantial additional safety hurdles because it was the second product to market—the medical need was no longer unmet. Imagine the following scenario: your breakthrough technology that will inevitably 31 npg © 2012 Nature America. Regulatory risks can challenge the development of both devices and drugs. intravenously. Each of these specialties has different imaging equipment and skills based on where they were trained and who trained them. The FDA is now often requiring new testing and documentation never required before.building a business Box 1 Starting questions for drugs and devices For the purposes of planning for acquisition or partnership. As a result. you should think about the following: • How long will the device need to work? • How long will the patient endure the procedure if they are awake? • How noisy is the device if they are awake? • How big is the handle of the device? • are your users men or women? • How heavy is the handle? • What safety features are needed for the doctor. devices and drugs are closer than most people think. The impact on the entrepreneur from this is longer timelines. the regulatory risk with every project has gone up considerably. Challenges in patient practice It is also important to understand how your product’s target disease or condition is treated today. For example. and so on)? • Who will administer it (a doctor. For drugs. the patient)? • Will the drug be required on an acute or chronic basis? • if chronic. you may miss a huge portion of the market. it commonly occurs that diseases that were once underserved orphans. In addition to these regulatory requirements. as the vascular surgeon and cardiologist may not like your approach. there have been a couple of high-profile examples of this scenario.
a solution looking for a problem is a waste of time. Moreover. they are also desperate to understand whether the trial is technically achievable. How is the treatment going to be paid for? Are there existing payment codes or not? Will the insurance companies or Medicare pay for your hot new solution? Understanding this is imperative in today’s economy. You should also speak with the nurses and staff who would interact with the device or drug you are developing. visit our Trade Secrets blog. the entrepreneur must realize that the benefits of the treatment must be very compelling to win the economic justification over a current. What you should realize is that there are experts all over the place with fantastic experience and knowledge on the exact topic or problem you are trying to solve. The needs of the average doctor are usually quite different than those of the world-renowned thought leader. then you are destined for failure. Although that is certainly part of the equation. This may seem silly and demeaning. Rather. What do you do next? In some cases. isn’t it? Other risks Spend the time up front to do the homework before you start designing your therapy. How can you plan a trip if you do not know where you are going? The industry experts can help you define the problem. npg http://blogs. then you could be on a very long and very costly path to approval. cheaper technology. build a company and change the world with your product. In the end. A market of one person will not allow you to raise money. Although they think they also know the solution. such a path might be absolutely acceptable for second and third programs after the technology is validated. Even if the drug is not covered today it could be covered in the future. Make sure to listen to what they are telling you rather than to what you want to hear. For more content on bioentrepreneurism. but you need to realize that you are unlikely to have the specific expertise or experience to expeditiously solve every problem. Many people fail to realize that although the doctors may love your technology. the best approach might be to wait 12 months for the next indication to be ready for prime time and hope that no competitors beat you to market on that one. So start with the end application in mind and build something that solves that unmet need. You should interview as many potential users as possible. The more questions you can ask about the various people who will interact with your product. you should be cautious. If you have a simple path with a great technology that will be disease modifying. Founders often have a blind spot. the better. Once you feel confident about the need and the economics. it is important to seek out the smartest people on the planet to help you.building a business revolutionize medicine is passing every animal model test with flying colors. Your first project that treats a specific disease indication is 12 months ahead of all others. Talk with potential users early and often. Do your homework You should talk to industry experts before you ever start a company. Better yet. finding people who can solve these problems is your job. That said. if the nurses hate it because it takes a long time to prepare or administer. however. Inc. © 2012 Nature America. This will not only simplify the development of your innovative technology but also serve you well when embarking on an acquisition or partnership process. Look outside! You will be surprised with what you find. energy and valuable resources that could be used to solve a real issue that has no solution. or the packaging takes a pro wrestler to open. But proving your technology in the clinic (rather than in animals) is the true goal after all. Do not let your ego get in the way of success. and make sure you aren’t just speaking with the key opinion leaders that do thousands of these treatments a year. Another issue regarding technology or drug adoption is payment. they are willing to consult for just the amount of time you need them and many times will work for equity or a reasonable hourly rate. Many entrepreneurs assume that the scrutiny that investors apply to indication selection has to do with wanting to maximize market opportunity. All rights reserved. or if it is too complex for them to learn. If they think your idea is harebrained there is a chance you could be missing something. for a broadly applicable technology. imagine that patients are diagnosed by everyone from the emergency ward to a primary physician to a range of specialty doctors.com/trade_secrets/ 32 volume 30 number 1 JAnuArY 2012 nature biotechnology . and that results in a ‘not invented here’ mentality that puts artificial constraints on the company and increases the risk of failure. The disease in question is a rare but deadly seasonal indication with no standard geographic localization and no predictive test to identify susceptible patients. but you will need to screen 100 patients for every 1 patient you enroll.nature.
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