From The Editor | March 10, 2016

Is The Virtual Biotech Model In Jeopardy?


By Louis Garguilo, Chief Editor, Outsourced Pharma

Is The Virtual Biotech Model In Jeopardy?

Conversations with executives at established biotechs reveal an unfolding reality, which conversely, is taking place in broad daylight.

What the entire drug-development industry recognizes is this: Biopharma “created” an outsourcing industry to support its efforts; now, that which was created can exert its own profound influence. For example, the rise and success of CROs and CMOs have enabled new business models of drug discovery and development that fully rely on their services. Among these models are virtual biotechs and other vigorously streamlined drug-development start-ups.

However – and this is where our parallel reality arises – these new models may be in jeopardy.

The Risk Of Quality Oversight

The conversations mentioned above begin with the subject of enhanced guidance and regulation – particularly from the EMA in Europe and FDA in the U.S. – for tighter supplier oversight by drug-program owners. “There’s an expectation from the regulators that though you’ve come to agreement with your CMOs, you can’t solely rely on them to release product. It’s your requirement to oversee the entire relationship.”

The conversations then continue this way: “It’s a paradigm shift to where sponsors and CMOs need to completely partner up. There needs to be a higher level of communication throughout the entire development process. I’m continually curious about the virtual models within this enhanced CMO oversight. Some of them, with two, three, or maybe eight people in the entire organization, don’t have the resources to oversee the CMO and fulfill their responsibility. I’ve wondered how much longer that’s going to last.” readers are well aware that national and international regulatory bodies are doubling down on biopharma to ensure the quality of drug development and manufacturing at their contract facilities. And there’s no need here to get into specifics on parts of FDASIA or the more recent FDA Request for Quality Metrics Guidance for Industry, the EMA’s guidelines on quality, or such things as the roles of QPs (qualified persons) in European pharmaceutical directives.

On a more macro scale, a significant factor adding to this intensified focus on quality is our having now entered a long-anticipated age of biologics. This brings with it a wave of complicated large-molecule development requiring more stringent quality controls on material and processes, product releases, and drug-delivery platforms. More complicated drugs, but shrinking organizations to guide them through development, might not be the best combination for success.

And while the drug-development industry can provide solid financial returns to companies and investors if drugs are successful (or at least progressed through later-phase study), no one today can overlook aggressive downward pressures on the pricing of commercial drugs. Contrary to common conviction that this is an argument for the virtual model, the downward pressure on prices, added to these growing quality concerns and regulations, will force virtuals to then take on more, and more experienced, personnel, and conduct increased oversight throughout their activities. The virtual model, in effect, is forced to scale up in this new environment, which of course is a contradiction in terms and strategic approach.

However, this would actually bring us back to the original biotech models of decades ago. Biogen, Amgen, Genentech … these and other titans of bio, though each unique, relied much more on internal resources from the start. Yes, they stayed lean, but also hired the best and brightest talent, perhaps most particularly in the areas of quality assurance, quality control, project management, and later regulatory-facing positions.

It’s these veterans of the biotech industry that have been the first to note this stricter regulatory environment for the overseeing of external partners, and the bare-bones approach to drug development, are not a good match. They’re concerned we’ve reached a point where the size of a drug-development organization is becoming inversely proportional to the quality risk it brings to the market.

Discounting The Modern-Era CMO?

And yet … notwithstanding all of the above … it seems odd to be pointing out problems that could lead to a diminishing of this era of proliferating drug-development entities and models. I for one have enthusiastically extolled this new frontier, and the central role outsourcing has played in it. I’ve even called this our industry’s disruptive innovation, akin to the positive and global revolutions within information technology over the years.

Specifically, a powerful mitigating factor has remained constant in the back of my mind as we’ve gone through the above arguments.

There are many service providers today that have accumulated decades-long experience. Many are heavily staffed with former bio and pharma scientists, managers and executives. Many have already forged direct and positive relationships with regulators around the world. There are many CMOs who have to the extent possible resisted transactional relationships, instead pushing for the deeper partnerships with sponsors that the quality regulators are now demanding. These service organizations can in fact ensure the highest standards of quality and drug safety, first via self-oversight, but as importantly through processes in place to work effectively with even the most pared-down sponsors.

I’d thought we were coasting uninterrupted to a global outsourcing industry fully able to support a wide variety of virtual business models and strategies, as well as serve divergent and innovative models being employed at Big Pharma. But the above concerns regarding drug quality and patient safety are real, at both providers and sponsors. It has been intensely instructive to listen to the growing voices suggesting we may have gone too far, and need tipping back to a more traditional, somewhat more robust “biotech” model to work with external providers.  

Let’s finish by extending the quote from our source above: “Everything I know from our experience, and what is currently being vigorously reinforced by health authorities, is it’s the sponsor’s fundamental requirement to oversee the quality and full relationship at the CMO. If I were a betting man, I’d wager at some point we’ll see the health authorities push back on the virtual model a bit, and expect these companies to have more oversight of external partners.”