Development of new medications is key to advancing ophthalmology in the 21st century and for providing new therapies to help fight blindness. Typically new ideas for ophthalmic treatments come from new technology, alternative medicines within the same class or additional uses for older medications. These ideas often arise from frontline, innovative scientists or physicians who are in a position to perceive patients’ needs.
However, for these new inventors, who are trained in the healing and scientific arts, becoming skilled in the process of drug development may seem a daunting task. In contrast, if inventors instead entrust their idea to a management team they may sense they have lost control of their invention, and that the value their accomplishments is not fully appreciated. Unfortunately, there is little information available to the inventor to help learn the skills of a drug development entrepreneur.
The purpose of this article is to outline basic steps for physicians and scientists regarding how to form a new, vibrant start-up and set themselves on the path to developing a successful new treatment. This article is meant only as a primer to starting a new pharmaceutical company and cannot replace more detailed information from Food and Drug Administration documents and appropriate consultants.1
The first step for inventors is to ensure they protect their intellectual property. If they are not careful, their new idea can be stolen from them even before they start development. Consequently, prior to discussing the medicine with anyone else, the inventor should request a confidentiality agreement (CDA). For the novice inventor, this may seem like overkill. However, for those working in the pharmaceutical industry, it is the anticipated first step before any discussion. CDA templates can be found online and adapted to personal preferences. If any doubts exist about the quality of a CDA it should be sent to a corporate attorney for review.
Once a CDA has been signed, discussions about IP can proceed. However, care should always be taken to limit IP discussions to those the inventor trusts, as even a well-written CDA cannot assure complete protection.
As soon as possible, the inventor should find a reliable pharma-experienced patent attorney to aid in developing an initial filing for his patent in the United States or other target country. The patent filing is not an issued patent itself, but will provide protection so another individual cannot file the same invention. This attorney also can guide in analyzing the start-up’s freedom-to-operate within the scope of existing patents and public information (prior art), for the product, its formulation and how it will be delivered.2
Although the total cost for issued patents, maintenance fees, attorneys’ fees and freedom to operate analyses may be quite expensive (easily costing in the six digits during development of the product), filing an initial patent to protect your IP can be fairly inexpensive, depending on the firm (as low as $1,000).2
Early in the development process the inventor should develop a comprehensive business plan. Although this seems like an arduous task, it is a very helpful step to assure the inventor has formulated answers to basic, pertinent questions regarding his product. Further, it prepares the inventor to articulate his company’s story so he can better express it to others. In addition, it assists the inventor to assess whether he really has a viable product and business model. Business plan templates are available on the Internet, and they typically are organized along these lines: summary; company description; new medicine description; product need; competition analysis; funding request; and budget.
Chief Executive Officer
The inventor will soon need to decide if he will develop his own product or hire a chief executive officer to direct their company. Relinquishing the CEO role may be a difficult choice because it requires the inventor to surrender most of the day-to-day control of the company.
The CEO position generally is full-time and should not be undertaken by someone too distracted with other activities. The demands upon the CEO make it difficult for inventors to perform this function themselves if they have demanding laboratory or clinical duties. In addition, the inventor may lack connections in the investment and the development communities, as well as business experience, to manage a start-up and mature the product to commercialization or licensing. In most instances it makes sense for inventors to hire a CEO they trust and with whom they can work closely.
If the inventor chooses to hire a CEO, the decision should be made carefully. A start-up CEO often comes from a large pharmaceutical company, is frequently in his or her mid- to late-career, and is willing to assume the risks of developing a new company.3 Generally, the start-up CEO receives a salary (low end of range is $120,000/year [1998 data]) and a stake in the company typically of up to 10 percent with potentially a yearly option package.2 One previous article stated that prior executive or ophthalmology experience was not necessary for an ophthalmic start-up CEO, although the former finding was of marginal significance.4 The remainder of this article assumes the inventor will hire a CEO.
In organizing the new company, the CEO must soon consider its overall personnel structure. There are two basic choices. The first is to hire a staff of professionals to provide all aspects of preclinical and clinical development. Although possible with adequate funding, this design requires a huge effort in time devoted to human resources, adequate facilities and high fixed costs until development is complete.
Although considered controversial by some, in this electronic age it is possible for the CEO to be the only full-time employee and orchestrate a virtual company to perform most aspects of development. This lends an advantage of utilizing ophthalmic-experienced pharmaceutical professionals who contract only when services are needed and can live in diverse locations, as well as permitting the company to be easily remodeled over time according to development needs. Further advantages include reduced HR issues and fixed costs (including personnel and facility expenses). For simplicity, the remainder of this article assumes the CEO will use a virtual model.
The CEO is responsible for creating an organization structure that allows easy and accurate tracking of every aspect of the business. All important details must be carefully organized and documented. Some level of administrative help, preferably experienced in pharmaceuticals, is most helpful at this point.
There are a number of excellent inexpensive organizational electronic tools available, many through the Microsoft Office Suite of products. Numerous useful templates are built into the software, with more easily identified for download by a quick Internet search. Excel spreadsheets are one example of a useful tool for tracking and organizing development tasks.
Online data storage not only provides secure storage and backup of documents, but also allows remote access for team members. Strong consideration should be given to implementing cloud services for a new start-up.
Other experienced contractors, apart from an administrative assistant, can help the CEO with establishing essential procedures, such as a corporate attorney to review CDAs and contracts, a bookkeeper to set up accounting procedures, and an accountant for yearly audit and tax assistance.
The organization the CEO creates may be vital for success. A recent study we conducted evaluating success factors for ophthalmic pharma start-ups found that there was a greater chance statistically of a financial exit (sell or licensure) for companies that do so five years or sooner after incorporation and who were further along in the development process. Although the study was small (n=25) it implies that developing an efficient, well-financed development plan may increase the chance for a financial exit4 (See Figure 1).
Board of Directors
Once the company incorporates and invites other investors to participate in the venture, the start-up should create a board of directors. The BOD ideally should be founded using board governance techniques such as described by John Carver.5 BOD members should be chosen carefully, as they supervise the CEO and represent the shareholders. They should be affable and able to work as a team. Ideally the CEO should draw from a diverse group of individuals who share at least some comprehension of, and patience with, the rigors of pharmaceutical development. However, our previously mentioned study noted that the number of BOD members and their prior ophthalmic or BOD experience was not specifically important to success.4
Having a member with scientific expertise is helpful in advising other members regarding technical questions. In addition, some members should possess enough financial means to support the company in urgent times and bring new investors to the company.
The typical start-up BOD size is small, and members are usually compensated with at least a company stock option package.5 The CEO usually serves on the board, but should not be the chairman.5 The BOD usually meets at least quarterly, and as needed.
Paramount to a successful start-up is funding for the venture. The inventor probably will not have sufficient savings to completely fund the new venture. The inventor, however, does have ownership equity, which can be used to induce others to help develop the new treatment.
Owner’s equity can be a difficult subject for the inventor because he may wish to keep his equity and protect the rewards of his invention. However, investors also have worked hard for their money and seek a good return on such a high-risk investment. Consequently, the investor and the inventor can help each other, but it requires dispersing owner’s equity, over time, in a judicious manner. The inventor may end up owning only a small percentage of the entity but in a successful company this value may still be quite high!
Generally, funding a new ophthalmic start-up occurs in three rounds, A, B and C. The A round is often called the friends and family round, from whom the inventor may receive initial funding for the venture. This round also might include public or private grants or so-called “angel group” funding. The amount may range approximately from $100,000 to $1 million and funding often leads to product identification as well as preclinical efficacy, pharmacology and non-GLP (Good Laboratory Practice ) toxicology studies and the initial simple formulation of the new medicine. The B round also may derive from wealthy private individuals and/or an angel group that would further the invention, perhaps through GLP-preclinical research into clinic testing. B-round funding typically ranges between $6 million and $10 million.6
Ultimately, the start-up must make a decision to develop and market its own product or license the medicine to a larger company that will complete development. Recently, to minimize risks, both big pharmaceutical and venture capital groups frequently have delayed funding new ventures, often until the end of human trials.7 Consequently, the CEO often must raise enough lower-level funding to bring the product to the beginning of human trials.7 Our survey of ophthalmic start-up CEOs showed that procuring financial funding is by far the CEOs’ biggest concern.8 The CEO of a start-up may spend a lot of time raising funds and face rejection on many occasions.
If a CEO can mature the product for human (Phase III) trials, large pharmaceutical or VC groups may more likely consider an investment (C round), license or purchase of the company. However, VC groups may insert their own personnel into the company or board to help manage the product. This assistance may be an advantage to the CEO because of an angel’s or VC’s start-up experience. However, it may cause the CEO and the BOD to sense they have lost management control. C round funding may easily reach $20 to $50 million to complete the development of the project through human trials.
There are more than 200 products currently being developed by both large and small pharmaceutical companies in ophthalmology (Internal data, PRN PharmaFarm). Consequently, adequate market analysis for a new product is vital to accurately judge the opportunity. Often a CEO and inventor may not recognize the importance of careful market assessment since they themselves are excited about the potential of their product.
Inexpensive analyses can be performed by surveying ophthalmologists or optometrists to better understand if there is a perceived need for the new treatment. Further, inexpensive patient surveys can be performed in physicians’ offices, shopping malls or online, as appropriate. The survey might assess: delivery route; dosing; willingness to pay out-of-pocket; clinical effect; and potential safety issues. Additionally, speaking with development professionals at large pharma companies may provide a sense of their potential future interest in the product. Eventually a reimbursement analysis of government and private payer groups may be warranted.
The CEO and inventor should assess their own product carefully and its ability to compete in the marketplace, based on the available pharmacologic, efficacy and safety data, as well as a market analysis. Such information should help the CEO discern if the product could succeed, despite the huge competition for funding that currently exists in the ophthalmic industry, and if not, what corrective measures are needed.
Lead Product Identification
Once the CEO has established a legal structure, administrative support and IP protection, then, or at the same time, identifying the lead compound for development is a primary concern. The choice of a compound should be based on a combination of understanding the pharmacology, toxicology and the efficacy of the medication. This information may be derived from the laboratory of the inventor, or by contract with a university or independent CRO. This part of the development may be completed relatively inexpensively by non-GLP procedures. GLP procedures are part of the regulatory requirements specified by the FDA, which will later have to be followed.
The inventor may have a number of compounds that he believes are potentially suitable for development as the lead compound. Typically only one compound is developed because of the extensive financial and regulatory requirements. A series of experiments, using appropriate animal models if available, typically is designed to facilitate an understanding of which compound might be most available to the target tissue, efficacious and safe.
Ultimately, the CEO and the inventor should be able to narrate a story that the chosen lead compound is efficacious in an appropriate animal model, is available at the targeted tissue in concentrations sufficient to activate the targeted receptor or enzyme, and demonstrates a favorable benefit/safety ratio. Also, ideally they should be able to describe the effect of the medicine on the targeted disease based on its known molecular-based pathogenesis.
As development progresses and the basic (non-GLP) pharmacology may be known, the CEO should contract with a company that performs GLP pharmacology testing in ophthalmology. Importantly, this company must perform the FDA-required pharmacology testing of the new medicine including absorption, distribution, metabolism and excretion (ADME), and safety pharmacology.
The ADME analysis is known as pharmacokinetics, which describes the effect the body systems have upon the medication. ADME analyses are also important to understand the metabolites that are produced, and their concentrations, activity and toxicity.
In addition, pharmacology evaluations should include GLP-compliant safety studies to understand the pharmacodynamics (effect of the drug on the body) of the medicine and should be completed prior to human trials. The safety pharmacology core battery studies provide a greater understanding of potential toxicity to the cardiac, pulmonary and neurologic systems. Additional safety pharmacology is performed on other organ systems as needed depending on the pharmacology of the medicine.
Important also in safety pharmacology are studies evaluating the metabolism of the medicine and its influence on drug-drug interactions. A new product may influence the levels of another dosed medicine by altering its absorption, transport, distribution or excretion, as well as through induction or inhibition associated with metabolic enzymes.9
The last study often performed before initiating clinical studies is GLP toxicology. The concentrations chosen for this study should help clarify the safe concentrations to use in the first-in-human trial. In addition, the route of delivery should be the same, and the formulation should be similar to that planned for the clinical trial.
The toxicology study generally should be performed for the same length of time as planned for the initial human trial and should involve ophthalmic, systemic and laboratory evaluations along with necropsy, histology, organ weights, blood chemistry, complete blood count, urine analysis, animal weight and food consumption.
Topical Draize (for ocular irritation) hypersensitivity and phototoxity testing with the product may also be required. In addition, GLP toxicology studies include hazard screens, which evaluate the medicine regarding carcinogenesis, mutagenesis and reproductive effects. A toxicokinetic study may be required to help associate serum levels and the timing of adverse events observed in the primary toxicology study. Again, the use of an ophthalmic-experienced CRO for GLP toxicology studies is very helpful.
Generally the first formulation of a new product is made under non-Good Manufacturing Processes and may be derived out of the inventor’s lab, an independent formulator or a university facility. This initial simple formulation is generally used for performing non-GLP efficacy, pharmacology and toxicity studies.
Soon however, the CEO will need to contract with contract research organizations (CRO) specializing in developing a GMP- compliant drug substance (DS) and drug product (DP) that will be utilized for initial human dosing. These companies will greatly assist the CEO with manufacturing needs. Irrespective of the CRO’s experience, the CEO must qualify these CROs and evaluate their capacity to perform GMP-compliant manufacturing.
GMP standards require that quality be built into every step of the synthesis and formulation process. Requirements increase as the DS and DP mature to their final form for Phase III human trials.
The DS must have its clinical formula, structure and scientific characteristics determined (e.g., melting point, solubility, pH, etc.). For both DS and DP, the CRO must develop control standards for manufacturing including: personnel; production and processes; facilities; equipment; components; distribution; records; packaging; storage; laboratory; and returned medicines. The syntheses of the new compound ideally should be based upon known reference standards (e.g., US Pharmacopeia).
Further, the DS and DP must provide proof that the product is stable (i.e., same as the length of the clinical trial or up to six months) and ultimately to two years. Stability testing is undertaken in a variety of standard and extreme conditions of humidity, light and temperature.
In addition for DP, ideally all excipients (non-active ingredients of the formulation) should have been used in the eye before and should be derived from a known reference standard. Further, the container system also needs to be constructed under FDA quality standards.
This is a vital part of the development of any medicine. Early conversations with the FDA are encouraged and formal meetings can occur in a pre-investigational new drug meeting (PIND), often just before initiating the GLP toxicology study or the Investigational New Drug License (IND) application. Following the GLP toxicology study, the IND application must be submitted to the FDA, with a 30-day waiting period for comments, before dosing human subjects can begin. Both the PIND letter and IND application are exacting documents. A regulatory contractor with ophthalmic experience is advisable to help guide these important documents and the relationship with the FDA.
Most applications will require a 505(b)(1) route, which is a full application for a new clinical entity. There are occasions, however, when prior data exists for a new product. When available, the Hatch-Waxman Act (1984) allows for the use of prior research to save money and development time; this is known as a 505(b)(2) application.10
Once ready to begin human testing, the clinical development plans will vary according to the indication and compound. Clinical development should be performed under Good Clinical Practice regulations, which assure the protection of human study subjects. All FDA regulations regarding manufacturing, clinical operations and laboratory studies are found under the Code of Federal Regulations Title 21 (11).
Clinical development is performed in three phases. Phase I typically is done to obtain safety and dosing information in healthy subjects. Phase II also generates safety and dosing information but tests patients with the target disease of the medicine. In some instances, combining Phase I and II is possible. Phase I and II studies usually are limited in scope, between 30 and 200 subjects, and may be short in duration (indication-specific).
If a medicine proves safe and effective in Phase II trials, the company will schedule an end of Phase II conference with the FDA for Phase III planning. Sufficient data should be available from Phases I and II to choose the most effective and safe dosing regimen to advance into Phase III.
Two pivotal Phase III studies typically are performed against a placebo- or active-control that is a gold standard for the intended indication. If the medicine demonstrates adequate efficacy and safety in these two Phase III trials the company may submit a new drug application (NDA) to commercialize the product.
During development the new company may plan, for marketing reasons or resulting from FDA request, additional studies (Phase IIb or IIIb) that may clarify the pharmacology, dosing, safety or additivity of the new medication. Studies performed after commercialization are known as Phase IV.
Clinical development involves increased costs compared to laboratory studies. Generally in ophthalmology, although no certain rules exist, about 1,000 subjects are needed for the safety database submitted to gain FDA approval. As in preclinical development there are CROs that exist to handle the human testing aspects of new compounds.
High Risk, High Reward
The development of a new medicine in ophthalmology is a high-risk, potentially high-reward venture. Pharmaceutical development is high risk, because of the competition from other compounds often with the same indications (e.g., age-related macular degeneration, glaucoma and dry eye), the exacting nature of the regulatory requirements, the difficulty of obtaining financing, and a business model that does not easily allow for an early revenue stream to offset development costs (Internal data, PRN CV).8
It is only through the efforts of capable physicians and scientists who shoulder these risks, along with those who finance and administer start-up companies, that new medicines to fight blindness and improve the lifestyle of ophthalmic patients are developed.
William and Jeanette Stewart are founders of PRN Pharmaceutical Research Network, LLC, an international ophthalmic clinical study management and consulting firm, as well as PRN PharmaFarm, LLC, which specializes in financing new ophthalmic start-up companies to assist them in maturing their ventures towards product commercialization. Lindsay Nelson is a research coordinator for both companies. This article received no financial support from any private or government funding source.
Contact Dr. Stewart at 109 E. 17th St., Ste. 3407, Cheyenne, WY 82001; e-mail: email@example.com; or visit prnorb.com.
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4. Stewart WC, Chaney PG, Stewart JA, Kruft B, Nelson LA. Qualitative factors underlying the successful investment in new ophthalmic pharmaceutical products in the United States. Acta Ophthalmol 2013; in press.
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10. FDA. Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Amendments). Online at http://www.fda.gov/newsevents/testimony/ucm115033.htm.
11. FDA. CFR – Code of Federal Regulations, Title 21. Online at http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfcfr/cfrsearch.cfm.
12. FDA. New Drug Development and Review Process. Online at http://www.fda.gov/Drugs/DevelopmentApprovalProcess/SmallBusinessAssistance/ucm053131.htm.