Mimicking The Hollywood Mindset To Develop Drugs In An Era Driven By Capital Markets

By Siddharth Parulkar, CEO and founder, PAR Clinical

Drug development is inherently risky and expensive. Innovators and researchers face the daunting task of raising sufficient capital and managing complex projects. The journey from basic scientific discovery to a fully approved drug can span 10 to 20 years and require investments exceeding $2 billion. Moreover, only a tiny percentage of drug R&D projects ever result in approved drugs; a recent study in “Nature Biotechnology” calculated a success rate for drug development from initial indication to approval by the FDA of only 10%.¹ The success rate was only about 7% in widely researched therapeutic categories such as oncology.

Traditional organizational structures often struggle to adapt to the dynamic nature of drug development, leading to inefficiencies and high overhead costs. Scaling up a company in a timely way is critical. Some organizations scale up too early or too late thus leading to misalignment with their organizational goals and investor expectations. Scaling up too early also adds to the risk potential, especially for single asset organizations where it would not only lead to a serious burden in terms of high overhead costs, but a huge human resources burden should the entity not meet a proof of concept for their assets in development leading to resourcing lay-offs. Scaling up too late would mean that the right resources may not be available for making timely decisions, also leading to misalignment with their organizational goals and investor expectations.

Thus, the industry needs a model that would be fit for purpose and project-focused.

The Dual Impact Of Capital Markets On Drug Development

In 2023, the U.S. led the biotech funding landscape, attracting $56.79 billion, which accounted for 35% of global investment. China and Europe also made significant contributions, with $20.61 billion and $11.46 billion, respectively. Despite the challenging economic environment, innovative biotech startups continue to thrive, securing substantial funding and advancing groundbreaking therapies.²

According to market.us, the size of the clinical trials market is anticipated to reach approximately $887.0 billion by 2032, showing a significant increase from its 2023 value of $483 billion. This growth is expected to occur at a compound annual growth rate (CAGR) of 7.2% over the forecast period spanning from 2024 to 2032. The global contract research organization (CRO) services market size was valued at $73.38 billion in 2022. The market is projected to grow from $82.60 billion in 2023 to $188.52 billion by 2030, exhibiting a CAGR of 12.5% during the forecast period.³

On one hand, there’s a group of biotech startups that are thriving, such as those developing GLP-1 receptor agonists, radiopharmaceuticals, and differentiated autoimmune assets, attracting nearly $3 billion in funding in Q1 2024 alone. Yet, biopharma layoffs rose 57% last year compared to 2022, with 187 industry workforce reductions in 2023 compared to 119, according to an analysis of Fierce Biotech data. Layoffs continue into H2 2024, affecting roughly 25,000 workers.⁴

Thus, the biotech sector has now moved into a “cash preservation mode” and investors are looking at creative financing options such as reverse mergers, licensing, debt financing, and royalty deals. Moreover, investors are looking to better understand how the capital is deployed, not just by creative financing options but beyond the pipeline. They strive to ensure a clear connection between capital allocation and value creation, especially in R&D but also in broader company operations.

The Challenges Developers Face In Today’s Market

For drug developers, the biggest challenges have been

• raising sufficient capital to fund long-term, risky, and expensive research projects, and
• implementing a refined governance mechanism for allocating capital (human and financial) and conducting research and development.

The venture capital industry has overcome one of the above challenges by raising capital and combining many independent high-risk projects into a single megafund. Thus, they are de-risking failure and return on investment.

Building organizations to establish a governance structure has existed for so long and feels so natural that it seems to be the only way to approach innovation. The incredibly long odds of successfully putting a drug on the market mean that very few biotech startup teams will ever launch a single drug; even more daunting, those that do have equally slim odds of doing it again.⁵ Smaller enterprises are often burdened with high overheads and don’t have the resources to adapt as easily.

The needs of every organization are different in different phases of their clinical development. In a single clinical asset organization, reaching proof-of-concept (POC) is a critical inflection point and milestone that defines the next phase for organizational growth in terms of investments for further asset development. If an organization is not able to meet its POC on time, it can have a catastrophic impact on the organization's finances and downstream impact on the resourcing. Thus, the question of scaling up sooner or later is always a challenge for a C-suite. Scaling up too early and then laying off the workforce can have a financial impact as well as a huge human resource burden for an organization to manage.

Hints From The Hollywood Movie Industry Model

In the winter of 2016, the MIT Sloan Management Review published an article by Harvard Business School Professors Andrew W. Lo and Gary P. Pisano, “Lessons from Hollywood: A New Approach to Funding R&D.” In this article, they proposed a novel approach to drug development governance inspired by the Hollywood production model. As mentioned in their article, the highly integrated Hollywood studios of yore have given way to individual movie projects as the central organizing unit. Movie projects are organized as independent entities typically incorporated as their own limited liability corporation or similar legal entity. The key resources for each film — financing and human talent — come from different sources and are committed specifically to that project. The project is not a permanent entity but acts as a contractual clearinghouse for its various obligations, which include returns to the initial investors and payments to the creative talent with residual claims. Once the movie has been distributed, the film entity essentially vanishes except as a legal mechanism to transfer payments during the film’s lifetime — which, in today’s information age, is essentially forever.

Thus, based on this model Lo and Pisano proposed the “project-focused organization” (PFO) model emphasizes project-specific governance, where resources are allocated to individual projects rather than permanent entities. According to Lo and Pisano, PFOs can be entities that are created with the sole purpose of conducting a specific R&D project. When the project is completed, the PFO is disbanded, residual returns (if there are any) are distributed to investors, and intellectual property and other assets are sold off. PFOs are an attractive alternative to both the traditional vertical integration model and the traditional venture capital/entrepreneurial startup model.

Thus, this approach allows for greater flexibility, reduced overhead, and more efficient use of resources. However, the challenges seen with this approach have been the lack of a standardized platform for development and a well-functioning liquid market for proof-of-concept projects.⁵

Inspired by the PFO model and to tackle the issue of a standardized platform, PAR Clinical has built and implemented the SPEO^TM — i.e. Strategy, Planning, Execution, and Oversight — delivery model to integrated under one single platform. This model optimizes asset portfolios by implementing strategies that consider every aspect of drug/device development. This model enables the deployment of a team of experts in pre-clinical, clinical, and regulatory strategy based on the type of asset, therapeutic area, and milestone outcomes. It then analyzes assets from multiple vantage points, offering seamless guidance early in development. Through comprehensive and actionable plans, development challenges can be addressed early so that biotech companies can maximize their investment runways and optimize clinical efforts. Acting on our whole-picture guidance, this model allows pharma companies to make earlier, faster, more informed decisions about risk and rewards, giving each asset its greatest chance of success. Keeping an experienced, operation-focused, and lean team helps bring in resource and cost efficiencies, thus helping companies extend their runway and achieve drug development corporate milestones.

The Future With KROs

By adopting innovative models and leveraging their extensive expertise, knowledge research organizations (KROs) are helping to overcome the challenges of drug development, ultimately bringing new therapies to market more efficiently and effectively. A KRO is a company that offers strategic knowledge-based strategic solutions or services to support pharmaceutical, biotechnology, and medical device companies in the development of drugs and medical products. KROs help clients avoid scaling up too early in their development journey, leading to derisking their asset development, extending their financial runway, and reducing their time to market by resource and cost-optimizing initiatives. As the industry continues to evolve, the role of KROs will be increasingly vital in advancing medical research and improving patient outcomes.

Acknowledgements:

The term "KRO" was coined by Vishal Mehta, CEO of Ubuntu Research and adapted by Sid Parulkar at PAR Clinical. Together, Sid and Vishal are making conscious efforts to raise awareness of the importance of KROs in the biotech industry and their impact on resource and cost optimization.

References:

1. (M. Hay, D.W. Thomas, J.L. Craighead, C. Economides, and J. Rosenthal, “Clinical Development Success Rates for Investigational Drugs,” Nature Biotechnology 32, no. 1 (January 2014): 40-51)
2. The global biotech funding landscape in 2023: U.S. leads while Europe and China make strides
3. Market Research Report from Fortune Business Insight, The global contract research organization (CRO) services market is projected to grow from $82.60 billion in 2023 to $188.52 billion by 2030
4. The global biotech funding landscape in 2023: U.S. leads while Europe and China make strides: Analyzing the biotech funding landscape in 2023: U.S. still out front
5. Lessons From Hollywood: A New Approach To Funding R&D, Andrew W. Lo Gary P. Pisano Vol. 57, No. 2

About The Author:

Sid Parulkar is the CEO and founder of PAR Clinical, a strategic knowledge research organization (KRO) established in August 2022. PAR Clinical provides a comprehensive range of services, including strategic consulting, clinical development, regulatory strategy, and program management. With a master’s degree in pharmacy and nearly two decades of experience in clinical drug development, Sid has a blend of experience with building functional departments, operational strategies, program and project management, business development, and resourcing planning/line management. Sid has played a pivotal role as the operations lead in two drug approvals, GAVRETO (Pralsetinib) and VARUBI (Rolapitant). Sid was head of clinical operations of numerous early-stage companies like Imaara, Codiak Biosciences, and Aprinoia Therapeutics before starting PAR Clinical in Aug 2022.