Enhancement Companies Create Jobs, Breathe Fresh Air Into Biotech Project

Fresh Air Into Biotech With high-priced products and numerous regulatory roadblocks, biotech firms are having a hard time finding public and venture-capital funding, industry analysts report. To sustain themselves through years of development, trials, and marketing, these companies are adopting novel capital-preserving tactics. One such strategy is "enhancement"-inventing and marketing drug-delivery methods and other technologies that "give new life" to established drugs, as well as to generic (off-patent) products. This approach is proving to be a source of jobs for basic as well as applied researchers. VALUE-ADDED: AvMax's strategy is to improve the bioavailability of existing drugs, says company founder Leslie Benet. Biotech analyst G. Steven Burrill, CEO of San Francisco-based merchant banking firm Burrill and Craves, reports that a small but growing number of biotech firms are turning to enhancement. Such firms generally license their technologies to pharmaceutical companies for a percentage of profits on the enhanced product; drug companies pay most of the costs of marketing and manufacturing. Burrill and Kenneth B. Lee, Jr., of Ernst and Young LLP, a San Francisco-based strategic and financial consulting firm for the biotech industry, described this model along with other capital-preserving strategies in their recent report, Biotech 96: Pursuing Sustainability, published by Ernst and Young. "Rather than trying to discover and develop the next great new technology or drug, the enhancement company looks for a vehicle to enhance existing products," Burrill notes. In a classic enhancement scenario, he explains, the company takes a tried-and-true drug in pill form that must be taken several times a day and changes its formulation so that it can be administered continuously, for example, by a patch. "These companies have a more sustainable business because their product [in this case, the delivery technology] rides on the back of an acceptable product [the drug]." Of the 1,200 or so existing biotech firms, of which perhaps a dozen are drug-delivery companies, only "a handful" fit the enhancement model, Lee estimates. Most enhancement companies are based in California; they include ALZA Corp. in Palo Alto; Aradigm Corp. in Hayward; AvMax Inc. in Tiburon; and DepoTech Corp. in San Diego. The typical enhancement firm focuses its research and development effort on a few key technologies, such as aerosol- or polymer-based systems for drug delivery. Many such companies were founded by researchers who spent years studying related aspects of pharmacology, applied biology, or biomedical engineering; most continue to hire scientists with similarly specialized expertise. But there's also room in these companies-especially the larger ones-for researchers trained in basic sciences such as protein biochemistry or immunology who can apply their expertise to a wide range of ever-changing problems. TEAMWORK: ALZA matches up applied and basic researchers on project teams, remarks vice president Ron Haak. "We try to pick people who are experts in basic science [as opposed to applied sciences like pharmacology and toxicology] and team them up with pharmacological researchers," reports Ron Haak, ALZA's vice president of technical development. The company hires scientists at all degree levels. Although the number of companies adopting the enhancement model is on the rise, the notion of focusing on improving-rather than discovering-drugs is hardly new. Founded in 1968, ALZA blazed the path for younger companies by focusing on drug-delivery technologies before the advent of the biotechnology industry. Today, ALZA is the largest enhancement company, with approximately 1,600 employees. ALZA receives royalties from its pharmaceutical partners on sales of their jointly developed products. These include an extended-release version of Procardia (nifedipine), a drug used for angina and hypertension, which was developed with New York-based Pfizer Inc., and a transdermal anti-nausea drug, scopolamine, developed with Summit, N.J.-based Ciba-Geigy Corp. START IN MIDSTREAM: By using established drugs, five years can be shaved off product development time, says Kenneth Lee. Because ALZA leaves most of the costs of marketing and drug manufacturing to its pharmaceutical partners, it has relatively few expenses compared with traditional drug companies, says Ernst and Young's Lee. However, in 1993, the company formed Therapeutic Discovery Corp., also based in Palo Alto, to develop off-patent and licensed drugs intended for products that ALZA itself will market. ALZA focuses on four core technologies, two of which are currently on the market. The firm's transdermal membrane patches deploy a wide variety of available drugs, including nicotine, estrogen, testosterone, and nitroglycerin. Similarly, ALZA's laser-drilled pills-designed to dispense oral drugs precisely and continuously-are used in over-the-counter products for weight control and cold or allergy symptoms, as well as in prescription medications for hypertension and diabetes, among others. The other two ALZA technologies are under development. The company is working on electrotransport systems, patch-like devices that use a small electrical current to ferry drugs through the skin. It also is working on miniature implants for sustained, local drug delivery. BETTER DELIVERY: Investing in biosciences will "improve our delivery systems," says ALZA's Peter Daddona. "We're investing in the biological sciences because that expertise will help improve our delivery systems," explains Peter Daddona, ALZA's vice president of biological sciences. For example, he says, to learn how to design better transdermal delivery systems, company researchers are tracing the paths drug molecules follow as they travel from the skin's surface into the circulatory system. Similarly, ALZA scientists studying gastrointestinal physiology hope to discover ways to optimize oral drug delivery. The firm recently added a gene-delivery group, consisting of six molecular biologists, four of whom are Ph.D.'s, according to Daddona. This is just one of several research groups in the company, which employs more than 100 life scientists. They include cell biologists, immunologists, pharmacologists, toxicologists, and molecular biologists. These scientists work in interdisciplinary teams along with chemists and engineers, for a total of more than 500 researchers. Many biotech companies are employing multidisciplinary teams to conduct research, a practice known as matrix management, according to Daddona. "Instead of traditional line management, where products get handed from one group of specialists to another, we bring different disciplines to the table to solve research and development problems as they occur," he says. "We believe it facilitates the development process." However, he adds that working as part of a team "takes some getting used to after academic training, where you're mainly rewarded for individual contributions." Aside from their common Bay Area location and similar business strategies, ALZA and AvMax are a study in contrasts. Less than two years old, AvMax has only eight employees, six of whom are scientists. And while ALZA develops devices such as membranes and laser-drilled pills to enhance drug delivery, AvMax focuses on metabolic means to improve the oral bioavailability of established drugs, including immunosuppressants, psychotherapeutics, and cardiovascular drugs. Scientists long believed that many drugs either fail to be reliably absorbed by the gut, or are destroyed by the liver before entering the blood stream. But the major cause of poor or variable bioavailability is a single gut enzyme, according to Leslie Z. Benet, AvMax's founder. Benet, who is also chairman of the department of biopharmaceutical sciences at the University of California, San Francisco, led a research team that showed that the enzyme cytochrome P450 3A (CYP3A) destroys by oxidation many poorly bioavailable drugs inside gut cells. "Anything that's absorbed in the gut has to go through that enzyme," Benet observes. Another protein, P-glycoprotein, complements CYP3A by pumping the absorbed drug molecules back into the intestinal lumen. This allows the drug to come into contact with CYP3A again and again as the drug is reabsorbed. P-glycoprotein is best known not as a transporter in the gut, but for its role in multiple drug resistance by tumor cells. Based on these discoveries, Benet founded AvMax to search for inhibitors of CYP3A and P-glycoprotein. The company expects to combine these inhibitors with a wide variety of pharmaceuticals, to make them safer, more effective, and possibly cheaper than their current formulations. At the moment, AvMax's research staff consists largely of experts in these key proteins, and in drug metabolism, Benet reports. "Eventually, we plan to hire synthetic and combinatorial chemists, as well as experts in computer-assisted drug design to pursue lead inhibitors," he says. Like ALZA, most enhancement companies are pursuing devices, rather than molecules, to improve drug delivery. Those devices can be as small as the microspheres in DepoTech's foam-based delivery technology. Drug molecules encapsulated in the microsphere's tiny chambers are released slowly and steadily after the foam is injected into tissues including muscle or skin. Enhancement devices can also be as large as the hand-held inhalers developed by Aradigm and Inhale Therapeutic Systems, also of Palo Alto. These devices are intended to deliver into the lungs-in the form of aerosols or fine powders-drugs that are currently injected intravenously or subcutaneously. ADAPTABILITY: For biotech scientists, "toomuch specialization doesn't help," advises Aradigm vice president Igor Gonda. Other device-based enhancement companies include Cygnus Inc. of Redwood City, Calif., and Elan Corp. plc of Athlone, Ireland. In companies like these, research efforts focus on adapting and refining proprietary technologies for new applications. Aradigm, for example, hires biochemists and pharmacologists with expertise in formulating proteins, peptides, and nucleic acids, notes Igor Gonda, the company's vice president of research and development. Aradigm's scientific staff-36 of 42 employees-also includes physicists and engineers who specialize in aerosol science. "Although we hire people who do what we need at the moment, they also need to be able to adapt rapidly if the situation changes," Gonda remarks. Most life scientists at Aradigm work in integrated teams with chemists, engineers, and physicists, as they do at ALZA. "People who perform best in multidisciplinary research are the sort who have more than one string to their bow," Gonda observes. "Too much specialization doesn't help." By starting the development process with established pharmaceuticals, enhancement companies shave years off the typical development time for a new drug, according to Lee. "It takes roughly 15 years to make money on a product in the drug business, starting from scratch," he estimates. "In the enhancement business, that [process] can be reduced to five years." But the road to product approval-let alone to profit-is hardly smooth for enhancement companies. Benet, for example, says he is discussing the approval of novel formulations with the Food and Drug Administration, even though the inhibitors AvMax is researching have been designated "generally recognized as safe" by that agency. "Once you show these compounds have some effect, like increasing bioavailability, they're no longer considered inert ingredients," Benet explains. "I don't anticipate that the FDA will insist on scrutinizing these formulations as if they were new drugs," he says. "The hurdles will be lower, but there will be hurdles nonetheless." "Because our technologies are new, they present new regulatory challenges," remarks ALZA's Haak. "We need to educate regulatory agencies worldwide to our science so that they can evaluate our products." In most cases, his firm has gone through as lengthy a process as would a pharmaceutical company seeking FDA approval for a new drug, he reports. Toxicity studies may be less extensive for drug-delivery products, as opposed to drugs, Haak says, "but clinical trials for safety and efficacy are just the same." PIGGYBACK: An enhancement company "rides on the back" of an already approved product, notes Steven Burrill While ALZA's three successful decades appear to validate the enhancement strategy, many of its younger counterparts are likely to evolve into different sorts of businesses, according to Burrill and Lee. "I think that enhancement and delivery companies may eventually want to own their own compounds," Lee forecasts. In fact, one such company, Ireland-based Elan, has already made such a move with its recent acquisition of Athena Neurosciences Inc. of South San Francisco, Calif. Like ALZA, Elan has focused mainly on delivering other companies' drugs; in acquiring Athena, a niche biopharmaceutical company focusing on neuroscience, Elan gains drugs in development as well as increased exposure to U.S. markets. Burrill and Lee also expect the very nature of enhancement, now firmly rooted in drug delivery, to change. They predict that new opportunities for enhancement will arise as researchers reveal new details about the roles of specific genes and gene products in causing disease. If that happens, Burrill and Lee believe, genetic information could be used to improve existing DNA-based therapies. Today's "bioinformatics" companies, which sell services such as database access and genetic analysis to other companies, could become tomorrow's enhancement firms, Lee says. "In the future, after genetic therapies begin to go off-market [as their patents expire], these companies may be able to enhance them based on the contents of their databases," he explains. "They may be able do drug enhancement with little more than a computer." Alison Mack is a freelance writer based in Wilmington Delaware

Enhancement Companies Create Jobs, Breathe Fresh Air Into Biotech Project

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