There are many different reasons for pharmaceutical and biotechnology companies to look to drug delivery technology providers as partners in the drug development process.

Drug delivery systems can clearly differentiate a drug in today’s highly competitive pharmaceutical marketplace, or salvage promising compounds that have been shelved due to formulation difficulties. Drug delivery systems can also be used to extend patent life and market exclusivity, and maximize a product’s lifecycle. More significantly, drug delivery technologies have the potential to improve the therapeutic efficacy of the compound.

Drug delivery technologies can help reduce adverse side effects, improve the action of a drug through faster onset, time-controlled or site-specific delivery, or lower the number of doses a patient needs to take each day. Delivery technologies may also broaden the potential use of a compound, by making a dose easier to take for people who have trouble swallowing, for example. By helping drugs work better, and making them easier for patients to take, pharmaceutical and biotechnology companies can help drive improved patient compliance, strengthened physician preferences, and ultimately increased value for the drug’s developer.

In order to fully realize the benefits of integrating advanced drug delivery technologies with the R&D process, drug and biologics developers must continually assess the broad range of advanced delivery technologies available, whether from in-house sources or via strategic partnerships with drug delivery technology providers. Ultimately, a clear drug delivery strategy is a critical part of an individual product’s development and commercial lifecycle strategy, and of a firm’s therapeutic franchise.

Going Outside vs. Keeping it Inside
The impact of drug delivery technology on a drug’s life cycle management strategy is being considered much earlier in the development process than in years past. The main reasons for this include: (1) the ineffectiveness of the “traditional” delivery systems to meet demanding physician, patient and payor expectations; (2) increased competition and shorter effective market exclusivity for new drugs; (3) increasing costs to develop new APIs as compared to the costs of reformulating the existing APIs; and, (4) an increased need for products with improved therapeutic index, less variability in absorption and better patient compliance. When defining the lifecycle strategy for each drug, patient-related factors such as quality of life, convenience of dosing and ease of handling are of increasing importance to drug marketers. Because of these concerns, the strategic importance of drug delivery technologies development has been shifted from building in-house organizations to forming alliances with drug delivery providers.

Of course, in order for there to be a paradigm shift within the pharmaceutical company from expanding in-house resources to forming outsourcing alliances for development and contract manufacturing of new products, the cost-value equation must be thoroughly explored. The drug delivery provider must offer a distinct advantage for optimizing the performance of the product as compared to the other systems available in-house, hastening the time to market and reducing the overall development and/or manufacturing costs.

There is a perceptual bias that it is always more expensive to outsource than to perform the same activity in-house. This bias is based on the generalization that firms engaging in outsourcing activities, be they drug delivery companies, analytical laboratories, clinical research organizations or contract manufacturers of finished dosage forms, are profitable operations. Therefore, if one has to pay cost plus profit to go outside, it has to be more expensive than just having to cover the costs of doing it inside.

The flaw in this viewpoint is that it does not measure the relative efficiency of the firm offering the outsourcing activity, nor does it consider the opportunity cost savings of not having to invest in the overhead to perform these activities. The decade-long trend by the pharmaceutical industry toward outsourcing all non-core competence activities evolved from increased competition to bring their products to market quickly. This pressure forced pharmaceutical companies to utilize their resources (specifically time, manpower and financial) more efficiently(1). During the past decade, they have learned to focus their in-house resources toward a smaller number of projects, while outsourcing others. Most outsourced projects typically fall into one of these three categories: 1) high priority with tight deadlines/timelines; 2) low priority or special one-time production; or 3) resources that are not available in-house, especially as it relates to access to drug delivery technology.

Today there is a trend away from vertical integration toward virtual integration. In this network, each firm specializes in a few core competencies. Companies no longer need to have the total complement of competencies within their firm. Decisions on what to own and what to outsource must be aided by a deep understanding of what is and what isn’t a “core” competence. This is because it is not an efficient use of one’s capital to invest in space, processing equipment or personnel for a product that underutilizes the available capacity when the core competency is not unique and is available elsewhere2.

This core competence evaluation can be extended to drug delivery technology. Success in a competitive market often is defined by being the first to provide an innovative new product. In order for the pharmaceutical industry to forego developing in-house core competencies in drug delivery systems, the cost-value assessment must result in a conclusion that the most advanced technologies, incorporating the highest quality standards are available through outsourcing and strategic alliance formation. During the 1990s, the pharmaceutical industry saw Alza’s and Elan’s profits burgeon with the launches of Procardia XL and Cardizem SR/CD and took notice as the effects of these successes were also seen on the P&L statements of Pfizer and Marion Merrill Dow. A partnering model was born.

Ultimately the decision to partner with a drug delivery provider comes during a comparison of key differentiating competencies while evaluating the cost-value proposition. Today, drug delivery providers have progressed to the point where they offer more than just a single system. They employ a substantial scientific skill base across the disciplines of chemistry, pharmaceutics, biochemistry and engineering. They incorporate a regulatory group into their organizational structure. They are now housed in world-class R&D facilities with small- and large-scale GMP processing suites. And today, besides developing a product that incorporates an innovative (and often patent protected) drug delivery system, the industry leaders have the capability of providing full-scale commercial manufacturing and packaging services.

Addressing Intellectual Property Concerns
Recent studies on pharmaceutical outsourcing suggest that one of the main reasons pharmaceutical and biotechnology companies do not outsource more of their activities is due to concern over intellectual property (IP) issues. Most immediate is the concern over protecting the confidentiality of critical information about their new chemical entity during development stages. In addition, drug developers often feel concerned that, by incorporating a drug delivery technology’s patents with their compound, effective control over the compound’s intellectual property is lost. Furthermore, drug developers often do not want the delivery technology provider to provide the same technology to competitive products. Finally, drug developers often believe there is the potential for conflicts of interest at technology providers who also market their own drugs directly. Yet every one of these concerns can be adequately addressed through diligence and attention to detail in the contracting process, and thus should not be viewed as a barrier to realizing the benefits that advanced delivery technologies can provide.

Advanced drug delivery technology providers are generally very aware of the value of and need for the proper management of IP (both their own and that of their customers). In most cases, these providers have invested tens of millions of dollars developing and patenting the delivery technologies and related manufacturing practices and must protect the IP effectively as one of their most important assets. This, more than anything else, is what differentiates drug delivery technology providers from pure contract manufacturers, who have little of their own IP to protect.

The first step in addressing IP concerns is to establish a proper foundation at the start of the relationship by using a comprehensive confidentiality/non-disclosure agreement (CDA). The CDA should cover the IP of both the drug developer and the delivery technology provider, and should extend for a length of time sufficient to cover the sensitive nature of the information being disclosed. Further, the CDA should require that all confidential information provided is reduced to writing, and that any such information provided verbally be summarized in writing as well. This will ensure that the information is explicitly included in the obligations under the CDA.

The second step is to utilize contractual arrangements (feasibility, development or supply) to establish who owns what IP. Normally, the developer will own IP associated with the active compound, while the delivery technology provider will own IP for the delivery technology. Where the issue will normally arise is on occasions when the utmost goal of drug delivery is achieved—modifying the formulation or delivery of a drug to substantially improve its therapeutic efficacy. Quite often this involves improvements or customizations in both the drug compound and the delivery technology to synergistically yield the improved result.

In this situation, each party clearly contributes a degree of its own intellectual property, and has some interest in the resulting improved product. A number of alternate approaches are used in practice to address this issue. Occasionally a joint patent will be issued in the names of both the drug developer and the delivery provider; this generally only occurs in cases of significant “transformation” of a drug’s therapeutic efficacy. More frequently, the contracts will specify that drug developers will have the right to use any delivery technology improvements for the drug compound specifically, while the delivery technology provider will retain the right to apply the improvements to other drugs. It is important that both parties clearly define up front who owns (or has the right to use) IP developed during the project.

The third step is to address the “competitive product” concern. Clearly, most drug developers want to gain as much competitive advantage as possible, and one of the ways of doing this may be to negotiate for exclusive use of the delivery technology. In some cases involving extremely novel compounds or applications, this may not be an issue for the delivery technology provider. However, given the significant investment needed to develop and support most delivery technologies, delivery providers incur an “opportunity cost” by giving up the right to extensively use their technologies whenever yielding to requests for exclusivity. As a result, most delivery providers will request compensation for exclusivity provisions, to make up for all or a portion of this “opportunity cost.” Consequently, it is important that the drug developer determines which exclusivity is most critical to their product’s success. Instead of requiring delivery technology exclusivity for a broad therapeutic class, a drug developer may be able to achieve the same result in the market through a more narrow exclusivity; for example, one limited to a specific size, shape, color, or dosing frequency. Exclusivity can also be negotiated for certain regions or countries. In all of these cases, the narrower the exclusivity, the smaller the delivery technology’s “opportunity cost” may become.

Finally, many delivery technology providers are focused primarily on their platform of delivery technologies and expect the technologies themselves to generate sufficient revenues. Nevertheless, some larger delivery providers are increasingly shifting towards the development and/or in-licensing of pharmaceutical and biotechnology products which they will market directly. In some cases, this may lead to competition with their drug developer customers. And in other cases, the acquisition or internal development of drug delivery technologies by pharmaceutical companies may also be competitive with the outside delivery technology provider. Both parties to these contracts should assess the potential “conflict of interest” risks that may arise in each project, and should structure CDAs and other agreements to address the specific risks.

In summary, typical intellectual property concerns arising from partnering with drug delivery technology companies can be effectively and sufficiently addressed through clear legal agreement and negotiation, and should not be a barrier to working with drug delivery technology providers.

Lifecycle Management Issues
The main function of lifecycle management is to maximize the clinical and commercial value of the drug product. With a currently marketed compound, drug delivery technologies are considered when their use will result in new therapeutic indications, improved dosing and an improved clinical profile or market exclusivity. Product line extensions are seeing greater emphasis as development time continues to increase and patent expirations come sooner after launch than before. Often, market pressures demand a change in dosing. Patient acceptance may hinge on noninvasive or simplified delivery. Physicians may prefer a shorter or longer duration of action. A recent example of this is Alza’s Concerta® product. Alza took an old drug, methylphenidate, and performed market research to determine what patients and physicians did not like about the existing products. Next, they expended the energy to understand the pharmacology and improve the therapeutic effect. The result was the development of a product with an ascending delivery profile so that the drug continued to work later in the school day for the ADHD patients that required it. Currently, Concerta® is the market leading methylphenidate product in the U.S. with sales in excess of $300 million and a market share in excess of 25%.

An area where ease of dosing plays a factor is in fast dissolve dosage form delivery systems, such as the Zydis® system. This quick-dissolving feature results in a more rapid speed of onset and a perceived enhanced product performance by patients. Therefore, patient acceptance and compliance improves—especially with children and seniors.

Integrating drug delivery technology earlier into development programs will reduce the timelines on bringing new products to market. Major pharmaceutical companies have all recently established technology assessment departments that serve as a repository of drug delivery information. This group provides an initial assessment of new technology and systems and can commission early stage development and feasibility studies in order to determine or confirm the relevance of the technology to the goals of the development program. Proving the relevance of a new drug delivery system often involves the need to present clinical data to gain credibility. Patents are not enough—the drug delivery provider should be able to show the applicability and performance of the technology through in vitro and in vivo experimental results, clinical data and experience with other marketed products. Yet even if it proves its relevance, in order for any new drug delivery system to be integrated into a development program, the delivery provider is expected to be fast and flexible, since the pharmaceutical company will undoubtedly relinquish direct control of the development process.

Market pressures will maintain the pharmaceutical industry’s interest in new drug delivery technologies. Once a specific technology shows an improvement in therapeutics and a contribution to the life cycle management goals, the partnerships that succeed will be those where the drug delivery provider can offer broad access, fair and reasonable terms and multiple technologies while following through on its R&D commitment.

Recognition of where core competency lies within big pharma (drug discovery and marketing as opposed to drug delivery technology), as well as advances in the understanding of biological processes and polymer sciences, will continue to drive the development of new drug delivery systems by delivery providers. In addition, there will be greater prevalence of product line extensions requiring advanced drug delivery systems in an attempt to expand patent positions and prolong product life cycles. It appears that increased emphasis will be placed on technological sophistication with more emphasis on OTC applications if the costs can be contained.

Ultimately, the goal is to create a model where the pharmaceutical industry can create and design molecules that take advantage of the evolution in drug delivery systems and technology.

Notes
1. M.J. Valazza, G.G. Wada, “Creating A Successful Partnership With A Contract Manufacturer,” Pharmaceutical Technology Europe, Vol. 13 No. 5, 26-34 (2001).
M.J. Valazza, “Optimizing Manufacturing Costs: Strategic Uses of Outsourcing to Improve Supply Chain Management,” Pharmaceutical Technology, Contract Services Supplement, 26-32 (1998).