22 June 2020
Venture-backed biotech companies – 1 of 2 Insights
Shortly after the COVID-19 lockdown started in the UK on 23 March 2020, the Biotech Industry Association polled its members to ask for their biggest concern as a life science business.
The main issues highlighted by the membership were:
Intriguingly, at that point, operational disruption was the main concern, with supply chain disruption and capital raising coming someway behind. As the COVID-19 crisis has unfolded over the last few months, and as some labs start to return to work, it seems likely that capital raising concerns will creep up the corporate agenda.
In this first article of our two-part series, we'll explore the operational issues facing venture-backed biotech companies (with Part 2 focusing on the impact on capital raising).
We're starting to see operations in the biotech industry return to normal, so much of the discussion around disruption is now historic. However, operational issues remain relevant because of the impact of the resulting delay in generating clinical data and/or increased costs on biotech companies ability to raise capital, and on their cash runway.
With that in mind, let's examine the two key operational issues for biotechs that have emerged.
First, the social distancing ("stay at home") instruction put much lab work on hold for the initial two months of the pandemic lockdown, at least in the UK. Processing of clinical trial results was also potentially affected, though the statistical analysis techniques involved were more amenable to being carried out remotely.
Labs are now beginning cautiously to re-open (for example, the Institute of Cancer Research was reported to be re-opening its labs last week, with appropriate social distancing). However, many labs donated their stocks of PPE equipment to the NHS at the height of the pandemic for use in urgent clinical work, so shortages of PPE may continue to hinder re-opening. Social distancing is also likely to mean that lab work will progress more slowly than originally planned. Productivity has in some cases been dramatically impacted.
Secondly, some clinical trials have been impacted as NHS resources have been directed towards clinical care for COVID-19 patients and COVID-19 related trials have been prioritized. The NHS was left with less capacity to participate in commercial clinical trials. Moreover, the National Institute of Health Research (NIHR), the Health Research Agency (HRA) and the Medicines and Healthcare Products Regulatory Agency (MHRA) focused very quickly on COVID-19 trials, de-prioritising everything else.
The NIHR, HRA and the MHRA all issued guidance in mid-March 2020 to sponsors and principal investigators/sites on how to manage clinical trials during the COVID-19 pandemic. The guidance emphasised that access to NHS staff, facilities, and participants was likely to be severely impacted during the COVID-19 pandemic.
Another concern was that, even where trial enrolment, dosing and patient monitoring was unaffected, data readout (eg biomarker analysis) would be delayed as labs focused on testing for COVID-19.
The focus of the guidance was on ensuring the safety of the trial subjects. Sponsors and sites were asked to carry out a risk assessment on a trial-by-trial basis regarding continuation of the trial for both ongoing participants and recruitment of new participants. All relevant factors were to be considered, including: participant populations, IMP mode of action, and trial design.
A range of actions were proposed, including:
According to research carried out by NIHR at the end of April 2020, at that point 55% of commercial clinical trials had been unaffected. However, 43% of commercial clinical trials had been paused or otherwise affected (ie protocol adaptation or suspension) and 2% had been stopped completely (trial close down).
For the 43% paused or otherwise affected, the main consequence for the sponsor is delay in achieving its milestones (increased trial costs are also a potential concern).
In addition to the delay itself, there has been a high degree of uncertainty about when clinical trials could resume, and hence the likely length of the delay. As it happens, over the last few days NIHR and MHRA have issued guidance about re-starting clinical trials. However, it remains unclear how quickly this can be done, and hence the ultimate impact on the sponsor's timelines. This uncertainty has made it harder for biotech companies to develop contingency plans to address the delay.
For example, at the start of the pandemic, some biotech companies looked at moving early chemistry work or pre-clinical development work to CROs in Asia-Pacific, which were still operating, in order to keep timelines as close to original timelines as possible. But it was unclear whether the cost and disruption involved would be justified, given uncertainty over the likely length of delay in the UK and at other European sites.
Given that trial data is often essential for biotech companies to be able to raise a new tranche of capital, the timing of trial result availability is key. Delay increases the risk that the company's cash runway will come to an end before further capital can be raised.
Please check back later this week for the second article in this series, where we'll examine concerns related to availability of investment capital and cash flow.