BBI

MINNEAPOLIS – As the FDA focuses on establishing more rigid safety and regulatory guidelines, it takes more investment capital and a longer time frame for investors to see returns, panelists said during a financing workshop at the BIO Mid-America Venture Forum here in September. Jim Greenwood, president and CEO of the sponsoring Biotechnology Industry Organization (BIO; Washington), said, “For the last three years, we’ve seen the exciting growth of life sciences in this part of the country.” He noted that the organization’s huge annual convention would be held in Chicago next year.

The conference was co-sponsored by BIO and Medical Alley/MNBIO (St. Louis Park, Minnesota), along with eight other state associations from throughout the Midwest.

Most of the more than 400 attendees filled one of the ballrooms at the Minneapolis Hilton Hotel to listen to Minnesota Gov. Tim Pawlenty, who expounded on the growing biotech sector in the Midwest, an area already known for its stature in the medical device field. Pawlenty, who has supported the growth of the life science industry in his state, said it is “a strategic and economic opportunity,” and he equated the continuing discovery efforts in biosciences as “going to the moon for our generation.”

But it is a discovery that does not come cheaply, and, over the past few years, it has become increasingly difficult for early-stage companies to secure much-need financing.

Bill Kauffman, of Oppenheimer Wolff & Donnelly (Minneapolis), who moderated a workshop on financing, said it is taking significantly more money to reach an exit these days. He said the average amount of VC money needed for med-tech companies prior to being able to make an exit via an initial public offering grew from $16 million in 1996 to $37 million in 2000 and to a whopping $69 million in 2004. And more money is going to fewer companies, he added.

Part of this is due to the more demanding regulatory requirements coming from the FDA, which is asking for larger clinical trials and longer follow-up periods, said Dale Spencer, who founded ev3 (Plymouth, Minnesota), and has more than 30 years experience in the medical device business. He said the best bet is for firms to spend more time designing and executing clinical trials “instead of fighting” the agency’s requests for additional data.

But tougher regulatory requirements translate into bigger risks for investors and heightened competition among young companies, particularly those that sport the most innovation. Aron Knickerbocker, senior director of business development at biotech giant Genentech (South San Francisco, California), said, “What we’re seeing is that there’s not a lot of venture money going into true venture. We hope that changes because it’s really dangerous for the industry.”

During an “emerging markets” session, Ross Jaffe, partner with Versant Ventures (Menlo Park, California), said of investing in companies involved in developing drug/device combination therapies: “Investments in this area are dealing with culture clash.”

He added: “You’re doing a combination product, but what you don’t want to do is combination risk.” Jaffe said the biggest issue is the time frame, since it usually takes longer for the development of drugs than for devices. “It’s hard to compress that time frame [for drug development],” he said, “and unfortunately, time is money.”

Mark Kramer, director of the Office of Combination Products at the FDA, said,

“Device companies might jump on the bandwagon to add drugs, but they need to make sure they have the appropriate expertise,” referring to the science needed to characterize drugs and get them ready for trial. “Devices tend to be more confirmatory in their trials than drugs.” With combo products, “there are going to be more variables going into it and approval may not be as [fast] as device companies are used to.”

In a strategic partnerships workshop, Bruce Barclay, president and CEO of SurModics (Eden Prairie, Minnesota), a company that, over the last 18 month, has focused on bringing in new technology, cited a recent acquisition by his firm, noting: “We set up a small group to focus on integration,” he said. “I’d say we did a good job immediately involving them in the company.”

When acquiring, said Spencer, “you want to leave operating companies in place acquire business and leave them alone. I’ve seen transactions not go as well when the operation works into the larger company too soon,” due to loss of key personnel, particularly technical people.

As for collaborations, Mark Ungs, vice president of new development and emerging technologies for Boston Scientific’s (Natick, Massachusetts) Cardiovascular Division, said trust is one of the biggest issues in collaborations. “Honesty is the root of the deal,” he said, adding that if there’s any sign of dishonesty, “I’ll just write it off. I won’t take the chance.”

Noting that Boston Sci is focused on “grabbing onto technology that helps blood flow,” Ungs said, “When the company started, we were very internally focused,” but “when stents came on board, it became more competitive, and we shifted focus to buying companies.”

He said the company also looks at identifying technologies that are in early stage and creating start-up companies. “Our endgame is that we’re going to own it and bring it to our investors.”

When it comes to collaborations, it’s a matter of being in it together now, said Denise McGinn, vice president of licensing and new business development of Centocor (Malvern, Pennsylvania), a unit of Johnson & Johnson (New Brunswick, New Jersey).

DES ‘homers’ led off combo game

The convergence of the medical device and drug industries is inevitable, especially given the early success of drug-coated stents and inhaled insulin, but it could be years before the approval of combination products becomes everyday news, panelists said during a workshop at the conference.

Since the Midwest is known more for its established med-tech and device industry, a workshop dealing with the reality of biotech drugs being packaged with devices seemed more than natural. But, one panelist warned not to put too much hope in the immediate future. Peyton Anderson, CEO of Affinergy (Research Triangle Park, North Carolina), formed 18 months ago to develop site-specific biodelivery technologies, said combination products “in the short term are way over-hyped, and in the long term are way undervalued.”

Though drug-eluting stents, such as those developed through a collaboration between Angiotech Pharmaceuticals (Vancouver, British Columbia) and Boston Scientific (Natick, Massachusetts), might have started the game, “we’re in maybe the second inning,” he said. “We had two lead-off homers” with the stents, “but we’ve got a lot of [innings] left.”

Anderson estimated that “we are about 20 to 30 years away,” from drug/device combination products becoming widely used and widely accepted.

Lothar Krinke, senior director of business development at Medtronic Neurological (Minneapolis), moderator, of the panel, put the combo products into context by noting: “It’s not just drug-eluting stents, it’s actually a much broader field.”

All panelists agreed that the biggest hurdle standing in the way is regulatory requirements. Only in 2002 did the FDA establish definitions for combination products and the final version of those regulations have just come out recently, said Annemarie Moseley, chairman of Repair Technologies (San Francisco), a start-up firm focused on endogenous repair of tissue injury.

“The reality of this field is that it’s just now beginning to affect us,” she said.

Combination products can refer to drugs and devices that are developed together, or developed separately and packaged together, or developed and packaged separately but approved for jointly treating certain indications. Oftentimes, the greatest source of confusion is which part of the FDA has the last word on product approval, and that’s where the Office of Combination Products (OCP) comes in.

Moseley said the OCP reviews products and determines whether the product is essentially a device or a delivery technology that introduces drugs into a patient’s system by evaluating the primary mode of action. For example, she said, drug-eluting stents are devices that hold vessels open so the drug can take care of the secondary need. But an inhaled insulin product’s mode of action is based on the drug’s action upon the body.

At the start of the regulatory process, companies will have the OCP review their products to determine whether the drug or device side of the FDA will take the lead on the approval process. That “makes the process more complex up front,” Moseley said, but it prevents one side from “delaying things at the point of approval.”

Bill van Antwerp, vice president and chief scientific officer of Medtronic MiniMed (Northridge, California), said convergence is the combination of “device, drugs and intelligence,” adding: “The regulatory aspect of that is going to be tricky. The FDA does not like device companies practicing medicine.”

He said he has had some experience with the regulatory process for combination products, and not all of it has been pleasant.

van Antwerp said the OCP “seems to really get it,” but the problem is that there is some duplication of work, such as when companies are asked to duplicate clinical trials on existing products. He said that MiniMed purchased a marketed drug from Eli Lilly & Co. (Indianapolis) to use with its insulin pump technology, and the “drug guys at the FDA made us repeat the impurity profile,” which ended up costing the company an additional $2 million, “even though its an approved molecule — we just changed the shape.”

Conversely, he said, companies might have clearance for a device, such as a pump, but be required to “prove again that the pump works.” van Antwerp quipped: “I don’t think they’ve gotten to that level of craziness, yet.”

He said the “positive spin [on combo products] is that the patients win.”

Noting that his unit of the med-tech giant is “planning to do clinical trials this year that are outside the Medtronic work,” van Antwerp said that is because of partnerships with smaller companies.

“I really feel that combination products are the way of the world,” he said.

But there clearly are challenges, not all of which are regulatory-related. The development of drug/device combinations also requires the collaboration between biotech and medical device companies that aren’t used to working together, and those working arrangements can spark some culture shock.

“It’s a ‘Mars and Venus’ thing,” Anderson said, adding that from his company’s perspective, collaborations with device companies usually require members of his staff “to go around and educate the engineers about biology.”

To that, van Antwerp replied that “our engineers also have to work with biologists,” and joked that “the loneliest guy in the world is the drug guy at a device company.”

Companies also have to consider the time frames, since drugs typically require considerably longer development and trial periods before they’re ready for approval. So, “when you partner, make sure you have it up front that it’s going to take a lot longer than you think,” van Antwerp said.

Moseley said she sees the last several years as “a wake-up call” for medical device companies that are finding they will have to learn about drug approval processes and Good Manufacturing Practices before they can consider combination products.

A lot of progress has been made over the last few years, she said, and “I think we’ll see a lot more awareness to new products and new innovations.”