The Expanding Role Of CMC In Biotech Investor Decision-Making
By Nathalie Huther, Ph.D., MBA; Carlos N Velez, Ph.D., MBA
Chemistry, Manufacturing, and Control (CMC) activities play a critical, but sometimes overlooked role in drug development.
Once upon a time, when all drugs were simpler small molecules, CMC challenges were sometimes daunting (such as poor solubility), but usually addressable. Today, things are different.
With increasingly complex modalities, undruggable targets, rare diseases, and narrowly defined patient subpopulations, CMC is an important area of due diligence scrutiny for prospective investors and licensees.
In Part One of this article, we expand on these ideas, and then in part two turn to suggestions for how CDMOs can lend their expertise earlier in discovery and development to improve the probability of securing a successful investment or license for their clients.
The Challenges of Drug Development
Drug development is both a risky and rewarding endeavor. Success can cure diseases, save lives, and bring comfort to millions of patients and their families. While pharmaceutical companies are frequently in the crosshairs of politicians, the reality is that less than 10% of all healthcare spending is aimed at pharmaceutical products.
From this perspective, drug development is a bargain, but with incredible risk. Our collective ability to successfully navigate clinical development has remained relatively flat over the years. According to IQVIA, our industry's Likelihood of Approval from Phase I peaked at ~25% in 2015, but has declined steadily since then, dropping below 6% by 2022.
Most of the causes of drug development failure are well characterized. For example, analysis of over 400 programs concluded that the inability to demonstrate Efficacy was the root cause of suspension at Phase III and Regulatory submission stages in over 50% of the cases. This is a startling statistic, considering all these programs successfully navigated through IND, Phase I, and Phase II stages of development. More modern candidates, such as cell and gene therapies, have even more troubling clinical success issues.
CMC As Drug Development Challenge
Clinical demonstrations of safety and efficacy are the primary (and most expensive) drivers of development failure. Thus, efforts to anticipate, mitigate, and even avoid safety and efficacy issues are paramount for drug developers and their investors/stakeholders. In many cases, these drivers are believed to be independent and unrelated to CMC.
In fact, the prevailing wisdom in our industry is that any CMC issues (such as poor solubility, poor formulation performance, manufacturing scalability and so forth) are relatively easy to solve, and therefore are not an area of immediate concern. And yet, as the modalities being developed become increasingly complex, these assumptions are unlikely to be true in an increasing number of cases. For example, a recent study noted that, unsurprisingly, 70% of clinical holds for cell and gene therapy trials were due to clinical concerns (primarily safety). CMC issues were also observed in over 20% of these cases.
CMC challenges can cause major negative impacts on drug development timelines and costs. The number of clinical-stage programs that are delayed or even cancelled due to CMC issues is difficult to know. One survey suggested that over 40% of unsuccessful IND filings were related to CMC issues, and were submissions primarily from smaller companies with limited regulatory experience. Even approved products such as cell and gene therapies (“CGT”) may be removed from the market not because of safety or efficacy reasons, but for their high manufacturing and delivery costs (all elements of CMC). With CMC also representing nearly 20% or more of all drug development costs, it cannot be ignored as a potential cause for drug development failure.
Impact Of CMC Delays On Project Value
Consider the following simplified example.
Suppose that a monoclonal antibody is ready for entry into Phase II studies. This antibody has Peak Year Sales potential exceeding $1 billion. Using various other assumptions, the risk-adjusted Net Present Value of this project is ~$50 million. If we introduce CMC-related delays totaling one year, and incremental expenses of $5 million over the Phase II program, the project value drops over 10%, even without reducing the probability of successfully navigating out of Phase II and into Phase III.
A 10% drop in value may not seem like much over the branded lifetime of the product. But zooming into the model, along with that 10% of lost value, a delayed launch could have significant commercial implications not considered in our simplistic model.
We are also ignoring the delays in the possibility to out-license this candidate after Phase II. Indeed, some therapeutic areas and indications experience significant levels of licensing at preclinical and Phase I. But this is not the case everywhere.
Hence, the speed to successful completion of a single Phase IIa trial can make the difference between a candidate successfully out-licensed and one which languishes due to a lack of patient investor capital. While that one-year delay may be tolerable over the lifetime of the product, the near-term license-ability of the candidate can be significantly damaged by this delay.
Another potential cost is the reduced ability of this company to raise additional venture financing. Assuming for a moment that the current balance sheet has enough capital for the entire Phase II program, any CMC-related risks which cannot be definitively resolved, will hamper that company’s ability to raise enough capital for Phase III and beyond.
Existing conversations with future investors may come to a halt if the perception emerges that this drug candidate will have CMC issues, even if those issues are relatively minor and with permanent solutions. If the company is listed, investor reaction can be even swifter and more severe. For example, analyses by IQVIA suggest that listed company valuations can trigger share price reductions of 10-20% upon the announcement of clinical trial delays and/or failures.
Investor And Licensee Perspectives
Historically speaking, investors in early-stage biopharmaceutical companies were keenly involved in achieving an efficacy-driven “value inflection point” as quickly and as cheaply as possible. With luck, that inflection point would manifest itself in a license with a multinational company, resulting in cash flows to the investee from upfront payments, milestone payments, and potential future royalties.
These investee cash flows may be used as investor dividends, invested in other programs, and make the investee much more attractive for a successful listing on a public stock exchange (resulting in liquidity for the investor).
Today, there is an increasing recognition that solid efficacy (and safety) data are nearly useless without potential CMC-related issues being identified and solved as early as possible. While we recognize that biotech sponsors are operating under a “fastest route to exit/license” model, we also need to recognize even clinical proof of concept may be insufficient with a minimalist (or immature) CMC package.
About the authors:
Nathalie Huther, Ph.D., MBA, is a commercial leader in the CDMO space with over 15 years experience successfully building/deploying territorial strategies to support revenue growth for companies offering discovery, CMC, nonclinical/clinical and commercial solutions supporting Biotech/Pharma innovators in Europe, the Middle East and Asia Pacific. In 2020 and 2021, she was named one of the UK Northern Powerhouse Export champions for successfully building and deploying export strategies for a UK SME leading to market penetration in new/unexplored territories. She is also a strategic board advisor and a mentor for early career scientists and women in biotech. She holds BSc and MSc degrees in Chemistry from the University of Strasbourg, a PhD in Organic Chemistry from the University of York and an MBA with Entrepreneurship Specialism from Warwick Business School.
Carlos N Velez, Ph.D., MBA, is a pharmaceutical and biotechnology strategic advisor, with 25 years experience in consulting, venture capital, corporate strategy, and entrepreneurship. Carlos specializes in helping pharmaceutical and biotechnology companies develop their in- and out-licensing strategies, with additional expertise and experience in portfolio assessment and prioritization, drug candidate valuation, valuation, and related services. He also develops and presents customized training programs (both live and virtual) for companies seeking to improve their in- and out-licensing processes. He holds a Ph.D. in Pharmacy from the University of North Carolina at Chapel Hill, and an MBA from the Rochester Institute of Technology.