The journey of each individual medical treatment from idea to market requires the involvement of multiple parties big and small.

The general consensus seems to be that it takes a big player to get a drug to market, which more often than not means the smaller players enact some sort of M&A deal to get their drugs or devices across the line.

But it’s not always the case and sometimes it’s the pioneering biotechs that hit the home run to market.

Innovation, however, is a multi-player game and it often sends the majors out in search of a market-leading idea, in many cases by way of swallowing a smaller player that’s done the hard slog.

But not all the majors reckon they’re leaving the hard R&D work up to their smaller peers.


Value in smaller peers

Earlier this week Australia’s biggest biotech and listed company CSL (ASX:CSL) announced it was buying private biotech Vitaeris.

CSL has been working with the Canada-based company since 2017. The pair have been investigating how an antibody called clazakizumab treats a kidney transplant-rejecting inflammatory gene.

Now CSL has opted to bring Vitaeris and its project in house. Executive vice president Bill Mezzanotte said Vitaeris would help continue growth of its strategic platform of recombinant proteins and antibodies.

Stockhead contacted CSL for further comment and it said its acquisition strategy was “commercial in confidence”.

But a spokeswoman for CSL did say the company is not leaving all the work to smaller companies and snapping them up.

She said CSL was Australia’s largest private investor in health R&D, chipping in $US832m ($1.19bn) last financial year.

“We have a very robust R&D portfolio focused on innovation in new products, improved products and manufacturing expertise thereby ensuring our continued growth,” the spokeswoman told Stockhead.

“The pipeline utilises expertise in plasma fractionation, recombinant technology, and cell and gene therapy to develop and deliver innovative medicines that address unmet medical needs or enhance current treatments in five therapeutic areas.”

Those five areas are immunology and neurology, haematology and thrombosis, cardiovascular and metabolic, respiratory and transplants.

“Acquisitions are complementary to the R&D portfolio and part of a broader strategy of collaboration with the biotech industry,” the spokeswoman said.


Small caps doing the heavy R&D lifting

One of the ASX’s small cap biotechs is Race Oncology (ASX:RAC), which is trialling its Bisantrene drug against Acute Myeloid Leukaemia.

Unlike many other biotechs’ drugs, Bisantrene was an orphan drug that went through clinical trials in the 1980s and 90s but it got discarded through big pharmaceutical mergers.

Last week Stockhead spoke with its newest director, Phillip Lynch, who joined Race after a 30-year career in the sector. A significant portion of his career was spent among big pharmaceutical companies including Johnson & Johnson.

Lynch said during his career the industry had fundamentally changed in that smaller companies had gained more power.

“Historically the industry was led more so by global multinationals very much like the company I used to work for, Johnson & Johnson, but other names you would know [such as] Bayer [and] Merck,” he told Stockhead.

“Those large companies used to do drug discovery, research and development and they would commercialise and take those drugs to practitioners and patients thereafter.

“What’s changed is that innovation has decentralised and the biotech industry now is such that innovation can come from anywhere in the world from any lab, from any scientist, from any university.

“That’s what’s really fundamentally different — you’ve got innovation growing in a lot of different places.”

However, despite smaller companies doing more of the development, the larger companies do more of the selling.

“The business model still ultimately remains with commercialisation being executed by global multinationals,” Lynch said.

“Because once you’ve got a drug that has proven efficacy and safety, to commercialise and take it to the populations of the world you need companies with regulatory experience, that have relationships with key medical opinion leaders and that have sales teams.”


Small companies, big dreams

While some companies at a clinical stage are cautious about thinking of any involvement beyond that, others are optimistic.

The ASX is home to several companies that have taken ideas through the clinics and into the market.

A couple of examples include Avita Medical (ASX:AVH) and PainChek (ASX:PCK). Both companies were among the best performing health stocks in 2019 as they commercialised their products.

The company that took the biggest step this week towards commercialisation of a treatment is Opthea (ASX:OPT). Yesterday it revealed its drug passed another phase two clinical trial.

It will have to undertake phase three clinical trials in both wet-Age-related Macular Degeneration (AMD) and Diabetic Macular Edema (DME) before commercialisation.

But investors are already looking ahead to commercialisation, asking CEO Megan Baldwin about future options.

While she would not elaborate on which of the paths Opthea would take to commercialisation, she said there were multiple options.

“There is a lot of interest in how this may be moved forward either independently or in collaboration with one of the companies that are in this space,” Dr Baldwin said.

“We remain open to a lot of different options in that regard.”

Other companies, however, are firm in wanting to go it alone. Last year, when Clinuvel Pharmaceuticals’ (ASX:CUV) drug to treat a rare skin condition was approved by the FDA, CEO Philippe Wolgen said he would not out-licence his company’s drug or put it up for sale.

“That is not our model, out-licensing means you lose control of your product and let someone distribute it, that’s not how we build value,” he told Stockhead.

Clinuvel rejected a 2014 bid of $95m from major US biotech Retrophin. The move is vindicated now with the company having built itself up to a market cap of $1.16bn.

But having only begun selling the drug this year and with other plans down the track, it doesn’t look any more likely to be keen on partnering now.