Todd Brady, a principal at Domain Associates on Palmer Square, looks at drug development from the perspective of the venture capitalist he is. What he sees in the industry is a move among biotechs away from licensing to big pharma and toward developing and selling their own products.

"There are two ways of building a company," says Brady. The first is to develop a product internally and then license it. In exchange for licensing, a bigger company pays money up front, makes milestone payments as the product advances, and pays a percentage of sales. The second is for a company to develop at least one drug but not license it, and if development is successful, to build a sales force and sell the drug – becoming what the industry calls a FIPCO, a fully integrated pharmaceutical company. "So you’re not giving away as much of the up side," says Brady. "You retain 100 percent of the sales."

Brady speaks on "New Partnerships and Investment in Drug Delivery and Specialty Pharmaceuticals" at a conference on "Drug Delivery Technologies and Deal Making," running from Monday, September 25, at 8 a.m. through Wednesday, September 27, at the Hyatt Regency in New Brunswick. Strategic Research Institute, a conference organization company, sponsors the event. Cost: $2,790. Register online at or call 800-599-4950.

Brady says young companies that only outsource are simply treading water. They are living on royalties, "clipping coupons," as the industry dubs it – sitting and waiting for the money to come in. "In today’s market," he says, these companies are "unlikely to be acquired by another company or go public, so investors don’t make money."

The second and, according to Brady, the preferred model, however, requires lots of cash, enough to pay for development and build a sales force. The roadblock to becoming a FIPCO is the financing, and Brady says that the way to go is to raise money from investors.

"Either you’re very wealthy or you call a venture capitalist," he says. Today venture capitalists don’t want to invest in companies that outsource, because they are not rewarded for it. But with companies that pursue drug development, investors are often bought out before the drugs are finished going through development.

Although it is common today to have a hybrid company, where the lead program is kept inhouse and other programs are outlicensed, things are changing: "With venture capitalists having more money and larger funds, we are seeing a shift toward retaining the vast majority of programs in-house," says Brady.

Brady earned a PhD and MD from Duke University. After a stint at a venture capital firm, CB Health Ventures in Boston, he left to help found a drug development company, Phenome Sciences. As CEO he raised over $10 million and merged the company with Xanthus Pharmaceuticals. In 2004 Brady joined Domain, a venture capital firm focused exclusively on life sciences.

Brady’s talk will focus on drug delivery companies that, like other biotechs, must decide whether to out-license or develop in-house. These firms take a drug that is generic, or nearly so, and "reformulate it" so that it can be administered in a different way. For example, a drug that is administered orally may be reformulated as a patch. "You get a new patent on the formulation and in a sense extend the patent life," says Brady.

Altering drug delivery mechanisms is also easier than traditional drug development, where companies have to come up with a new molecule, and test it in animals and then humans. "In drug delivery, the risk is already taken out of the equation," says Brady.

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