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Nepkar – Market & Competition
The drug screening market’s attraction lies in the size of the existing market, its exceptional profit opportunities, and its substantial growth potential. The pharmaceutical industry is one of the largest in the world, and has undergone rapid expansion for the last 30 years. This growth has been driven by an increasing demand for health care, fueled by biomedical developments and catalyzed by intense R & D activity. R & D is the lifeblood of the pharmaceutical industry, and explains why it spends more on R & D than almost any other industry, typically investing 25% of income on research.
Traditionally, pharmaceutical companies have searched for new drugs by identifying potential targets from in-vitro and in-vivo disease models and screening for compounds with efficacy using assays based on these models. Lead compounds emerging from these screens were then optimized for absorption characteristics, pharmacokinetics, and toxicological profile by synthesizing a large number of analogues and subjecting them to a battery of pharmacological tests before selecting a compound for development.
This approach was inefficient and, at best, only partially effective. Despite the huge R & D investment made by the pharmaceutical industry, few, if any, companies could rely on a steady stream of drugs from this approach. Furthermore, a number of major diseases have remained refractory to the development of useful therapies. Meanwhile, pressure on pharmaceutical companies has increased due to competition from generic companies, health-care cost-containment and escalating regulatory hurdles. This has meant that pharmaceutical companies have had to abandon safe me-too strategies for more ambitious attempts to develop genuinely novel breakthrough products. Failure to adapt and innovate leads to lack of a new-product pipeline and eventual liquidation.
Against this background, it is not surprising that pharmaceutical companies are rushing to embrace the new technologies of genomics and combinatorial chemistry. It will soon become possible to access any human gene from a database, clone the gene, and express the protein product. It is estimated that there are about 100,000 genes in the human genome. If only 10% of these are potential drug targets, then it is clear that the problem of too few targets in the pre-genomics era has now been replaced by the problem of too many. How to select molecular targets and how to identify compounds that interact with them are the challenges facing today’s pharmaceutical industry.
There are four elements required to deal with this problem:
- Screening technology:
- Developing new approaches to identifying drug leads from a large number of targets. This reduces the need to prioritize, and provides early lead compounds for evaluation in disease models.
- Functional Genomics:
- An umbrella term describing the panoply of techniques required to deduce the function of a gene product starting from the sequence alone. For example, the application of transgenic technology to develop mice in which the gene of interest has been disabled.
- The use of powerful computers, large databases and sophisticated homology and pattern-seeking algorithms to tease meaning out of the mass of data emerging from genomic sequencing projects.
- The study of the genetics of human disease. Genes predisposing an individual to a particular disease provide powerful insights into the underlying cause of the disease, and allow prioritization of potential drug targets.
Nepkar’s product will be to provide services and products in the first two of these areas. It will also seek to form a strategic alliance with Oxford Applied Genetics, another Oxford-based biotech company with expertise in the complementary skills of bioinformatics and disease genetics.
In order to minimize development costs while maximizing exposure to drug discovery technology, the industry trend is towards co-operation (alliances), and outsourcing part or all R&D. We believe, therefore that there is a real need for a UK-based company applying novel technology to develop high throughput screens that complement genomics-driven research activities in the major pharmaceutical companies.
In addition to drug-screening relationships with pharmaceutical clients, Nepkar will enter into several alliances. Three are anticipated.
Oxford Applied Genetics (OAG) is an allied company performing gene-sequencing. Dr Mark Alias is currently employed by OAG as Chief Scientific Officer, with permission to act as a consultant to Nepkar. The main nature of the OAG alliance is to share marketing efforts. There is considerable synergy in a combined marketing approach, and the benefits to Nepkar include lower marketing overheads. Nepkar will also require some modest gene-sequencing, which will be available from OAG at low cost without the large capital expenditure that would otherwise be required. Nepkar and OAG will be located in adjacent premises, offering substantial overhead savings.
Nepkar is currently entering into negotiations with a large scientific-instrumentation company, with the intent of developing biosensor instruments. The intended structure is a Joint Venture with the partner, with all biotech development performed by Nepkar scientists, but the costs funded entirely by the partner. Nepkar will retain substantial royalty rights on product sales, and the partner will retain responsibility for developing the instrumentation, manufacturing, distribution and marketing. In effect, this allows Nepkar to gain from the partner’s strengths at no cost, and low risk, and to exploit Nepkar’s biosensor advantages (explained in Appendix 8).
Nepkar may also enter collaborations with members of its Science Advisory Board, to further develop genetic and yeast technology. The benefit to Nepkar is in providing a new product development pipeline, gaining access to leading-edge research, and gaining an advantage in recruitment of scientists.
Screening Market Size
Global pharmaceutical R&D spend is currently estimated at £25 billion; of this the UK accounts for just over £3billion. Assuming 28% of R&D expenditure is spent on discovery research, and 10% of this is spent specifically on drug screening, then the UK drugs screening market alone is worth £84million. The market is segmented in three main ways:
- Target class:
- e.g. GPCRs, ion channels, enzymes, nuclear receptors, anti-infectives.
- Screening technology:
- e.g. Mammalian cell, isolated protein, recombinant yeast.
- Industry type:
- e.g. Pharmaceutical companies, Biotech companies, reagent companies.
Our goal is to capture about 5 1/2% of this segmented market within three years by focusing on GPCRs in yeast, concentrating limited resources on establishing technology and reputation. This will necessitate establishing up to 8 screens a year with a contract fee of £500k (including success fee). There will be considerable potential for exponentially increasing revenues from royalty payments, though we will seek to increase early cashflows through offering royalty buy-out options in our early research contracts.
Given the large number of potential pharmaceutical targets, we do not believe that there is a risk of market saturation in the short or medium term. For example, there are probably 3-4000 G-protein coupled receptors, of which 25-50% may need to be explored pharmacologically. Add to this the other types of drug target that can be screened in yeast (nuclear receptors, ion channels, signaling proteins etc.) and it is clear that there is huge scope for a yeast-technology-based screening company.
The screening business is a competitive field. Interest in G-protein-linked receptors as drug targets is high, as evidenced by the number of conferences dedicated to this theme. Most, if not all, large drug companies have programs involving high-throughput screens already, and some, such as Glaxo and American Cyanamid have been exploring the potential of yeast in this area. Cadus is a US biotech company actively exploiting the application of yeast to drug discovery programs. Approaches other than yeast are being used to develop high-throughput smart screens. For example, Aurora is using mammalian cell lines engineered to give a fluorescent output in response to receptor activation. The table summarizes the prominent competitors in the area.
|Cadus||Yeast-based screens. Direct competitor.||Serious. Will attempt to retaliate by expanding client base. Signed $20m deal with SmithKline Beecham November 96.|
|Oncogene Science||Automated cellular screens.||Moderate. Mammalian cell-screening only.|
|Aurora||Ultra-high throughput cell-based assays using fluorescence detection.||Serious. Currently the leader in mammalian high-throughput screens. Signed $60m deal with Bristol-Myers Squibb March 97.|
|Sibia Neurosciences||High throughput screens based on human cells. Neuroscience focus.||Moderate.|
|Xenova||UK-based screening company specializing in secondary metabolite screens.||Low.|
|Panlabs||Taiwan-based contract screening operation.||Low.|
|Euroscreen||Small company specializing in tools for GPCR screens.||Moderate. Reputation not well established.|
|NovaScreen||Automated cellular screens.||Low.|
|American Cyanamid||Major pharmaceutical company with very strong yeast screening program.||Moderate. Hold good IP position, with likely further work undisclosed. Likely to be screening only internally.|
|Glaxo||Major pharmaceutical company who have invested in yeast technology.||Low. Are only using internally, research-only. Have run yeast screens on 200K compounds.|
We believe, however, that there is much scope for a Europe-based company developing and exploiting new yeast-based technologies for screening and functional genomics. Despite the growth potential of this sector, there are still relatively few dedicated screening companies. The logic for Nepkar can therefore be summarized as follows:
- Proximity to European pharmaceutical research.
- Strength of UK science base in general and yeast research in particular.
- Size of the international pharmaceutical research market.
- Number of targets emerging from genomic research.
- Scale of the functional genomics problem.
- Increased willingness of major pharmaceutical companies to form research alliances.
A detailed review of relevant patent positions held by the competing companies is shown in Appendix 7. In summary, we believe the key to fast, reliable screen development is a way to improve the coupling between the human receptor we insert into the yeast cells, and the yeast cellular machinery. Unlike our competitors, we have two proprietary ways of achieving this, both offering significant advances over the competitors.
One is to use accelerated, directed evolution, so that many yeast mutants are produced, and only those which have coupling will grow.
The second is to physically join the human receptor to the first stage of the yeast signaling machinery. The proximity of the machinery to the receptor is then guaranteed, and coupling should be better. We will be able to use both techniques in combination. We anticipate that as development continues, substantial improvements will be made to the screen-development process, and that these will be protectable by means of patents.
Our patent strategy is simple. We will patent as much as possible as quickly as possible. Key early patent filings will include the selection approach for the coupling of mammalian receptors in yeast. These will be followed by more specific filings on key process steps, and the multiplexing of screens. We recognize that this is an expensive approach. Nonetheless it is critical to the success of the Company that it establishes a strong IP base. By restricting initial filings to the UK, and following this by the PCT route, we believe that costs can be kept down over the short term. Longer term it is always possible to drop patents – it is not possible to retrospectively claim priority dates.
Although the management team has extensive experience of filing patent applications in the pharmaceutical area, we would seek expert assistance by choosing a patent agent with proven expertise in the biotechnology field.
|Table of Contents||Appendices|
|1. Executive Summary
|All information herein is confidential and belongs to Nepkar.|