NEW YORK (360Dx) – British Prime Minister Theresa May in November promised to spend £2 billion (US $2.5 billion) a year by 2020 on scientific research and development within the UK, raising hope of increased funding among UK organizations developing technologies such as in vitro diagnostics.
Executives at London-based DNA Electronics (DNAe), a company developing semiconductor DNA analysis technology, are hopeful that funding will be allocated not just for early-stage research, but also for the later-stage development of promising research projects into commercial products.
"Historically, there has been this gap in funding products to get to commercial success," Steve Allen, CEO of DNAe, said in an interview. "There's also a long-lamented tradition of Britain doing great research, but leaving it to US investors and companies to step in and take an innovative technology over the line and provide the funds needed."
UK government funding is certainly vital for early-stage, pure research, he said. "Unfortunately, that does not get you across the line and get a commercial product to market," but well-structured UK government funding for commercial development could be one way to reverse that trend, he added.
Recent regulatory and legislative developments in the US may also translate to more funding for US diagnostics companies, Quanterix Executive Chairman and CEO Kevin Hrusovsky said.
In one of those developments, the US Food and Drug Administration in November said that it had decided to delay finalizing its draft guidance on regulating lab-developed tests, adding that it realizes "just how important it is that we continue to work with stakeholders, our new Administration, and Congress to get our approach right."
In addition, the US Senate passed the 21st Century Cures Act, a $6.3 billion bill that would give $4.8 billion over 10 years to National Institutes of Health programs, and provide $500 million to the FDA, while altering some of the agency's drug and medical device approval policies. It also seeks to broadly define the roles of the US Department of Health and Human Services Secretary and the US Food and Drug Administration to advance precision medicine. The secretary would be required to provide and update guidance and information to assist those practicing precision medicine.
In a section related to "FDA advancement of precision medicine," for example, the bill calls for periodically updating guidance to assist sponsors in the development of a precision drug or biological product.
The passing of the bill could lead to more expedited drug approvals that would provide an incentive for VCs and give them return ratios that would allow them to put higher volumes of funds into development of companion diagnostics, Hrusovsky said.
Greater levels of investment for development projects could materialize if improved regulation triggers a significant shift in the timeline and investment required to bring a diagnostic to market, he added.
The US government plays a vital role in R&D expenditure for early-stage diagnostics innovation, but the risk profile is so high at that stage of investment that VCs would normally not provide investment, he said. However, less regulation could encourage VCs to invest even earlier in the R&D cycle, "if a project shows a clear track to profitability," he added.
Navigating the valley of death
Many innovative ideas disappear into the infamous valley of death, a timeline that begins when a startup receives capital and ends when it begins generating revenue. New companies are faced with operating costs necessary to start generating sales at a time when there are no sales, and the level of market need is sometimes uncertain.
Most inventions perish before reaching the marketplace, for "lack of a large and growing market, a strong value proposition and business plan, or sufficient resources," noted the former president of SRI Ventures, Norman Winarsky, in an article for the Harvard Business Review, while writing about his firm's development of Siri for the Apple iPhone.
The phenomenon underscores the importance of adequate funding for development work.
"The strategic imperative is to try to get money into startups through grants, and that's a worthy goal, but it can have unintended consequences," Allen said.
Government funding for pure research has worked quite well in the UK and throughout Europe, and there's been a deep focus on linking academia with commercial companies, and often creating consortia involving several organizations, Allen said.
However, DNAe has had to rely in part on the US government for the scale of funds required to develop its sequencing platform for antimicrobial infections and pandemic influenza.
Awards from the US Department of Health and Human Services' Biomedical Advanced Research and Development Authority could provide a valuable example for funding agencies interested in investing in development work, DNAe's Allen said. His firm received a contract in September from BARDA worth $51.9 million to support development of its semiconductor-based next-generation sequencing diagnostic test for antimicrobial-resistant infections and influenza.
Under the auspices of the project, DNAe will complete development and validation of its Genalysis platform. It will also submit its tests for FDA clearance. The company's first product is expected to be a diagnostic test for sepsis that it hopes to launch in 2018.
"The interesting thing about the BARDA grant is that it is very purposefully designed to support getting a product onto the market," said Nick McCooke, chief commercial officer of DNAe. "That's the unambiguous goal of the grant, and it's structured to achieve its goals. Not all grant money is so clearly focused."
The concern that valid and innovative research could disappear prior to becoming a viable product may be an issue specific to companies, but it is not necessarily specific to any region or country.
In the US, venture funding comes into play when investors feel that there's sufficient opportunity and a risk profile that is amenable to their limited partners, McCooke said. He noted that VCs may be more willing to move further into research in the R&D cycle with greater certainly around regulations.
Hrusovsky said that there's a valid case to be made for government investment in early-stage research when a significant national benefit can be accrued from the work. In cases where you can demonstrate that the work could support a shift from treatment to prevention, for example, it makes sense to invest in projects that can catalyze R&D, but "I don't think this would ever get done if you didn't have the government taking on that responsibility," he said.
There are genuine reasons to fund certain early-stage research, and many breakthroughs and new technology innovations come about because of it, Allen said.
UK companies doing scientific research can be quite confident that funding promised by the prime minister will be approved and reach people doing technology innovation work, he said. "In the UK, getting the funding approved and allocated is straightforward."
Hrusovsky said that in the US if changes in regulations lead to drugs getting approved quicker, that could catalyze greater investment into companion diagnostics. As personalized medicine efforts increase, pharma companies are looking for ways to get drugs to market along with proven in vitro diagnostic platforms, but getting diagnostic companies to make those investments and bring forward those tests has created a logjam for the pharmaceuticals industry, he said.
"Many diagnostic houses have felt that they could not get a good return on a companion diagnostic investment, so they have been less motivated to support the pharmaceutical industry," he said.
Shorter drug approval cycle times, however, could be a "lever of opportunity for the diagnostics industry," he added.
The need to navigate around regulatory uncertainty led Quanterix, which has developed the Simoa single-molecule array technology to quantify proteins simultaneously, to rethink its business strategy. When Hrusovsky joined Quanterix as CEO, the company intended to develop in vitro diagnostics for clinical applications.
"We realized that this strategy would take too long in achieving revenue growth and creating value for our investors," he said. "So, we've pivoted to a short-term solution in drug research markets, while we wait for diagnostics," and according to Hrusovsky, that has been a successful move.
"We've taught drug companies that by using our platform, they could determine whether the biomarkers of interest were tracking the way that a drug was expected to move those biomarkers," he said. "So, we have taken a platform that ultimately will be a great diagnostic test and, in the interim, applied it to help drug companies determine the value of a drug."