Biotech Buzz: Charles River Labs Sees Opportunity With VCs
Contract research organizations begin to branch out
It turns out that venture capitalists don't know everything.
And in the high stakes, high-risk environment of biotech investment, what you don't know can, and will, come back to bite you.
As a result, venture capitalists in search of the next big thing in terms of biotech therapeutics or treatments are turning to contract research organizations like Charles River Labs in Shrewsbury.
A New Avenue
Ronnie Farquhar, divisional vice president at Charles River, said he's seen a shift in his traditional customer base. In the past, contract research organizations, or CROs, served big pharmaceutical or established biotech companies almost exclusively. But today, that relationship is evolving, opening the door for new relationships with venture capital firms.
Traditionally, a big company would approach a CRO like Charles River with a promising new compound or protein. Along with that compound came a rigid set of defined testing procedures, written by the big pharma company, that the CRO would follow to the letter.
In this older, purely transactional model, the CRO added little to the drug discovery process.
The established company paid the CRO to do the testing it did not have the time or the resources to do on its own, and that was pretty much it, Farquhar said.
"The nature of the business between the customer and the CRO is changing," Farquhar said. Rather than just asking the CRO to do research, customers are coming to companies like Charles River and asking for insight into the testing process, including assistance with developing protocols for testing treatments.
And the drug companies aren't alone, Farquhar said.
Charles River's client roster now includes a number of venture capitalists or fund managers, in addition to its more traditional corporate clients.
As drug companies look to increase their revenue streams, they often sell the rights to the promising compounds they've discovered but have chosen not to pursue development on.
Venture capitalists eager to find the next big thing are a ripe market for such transactions. But, burned too many times by expensive compounds that amounted to nothing, venture capitalists are now seeking the help of CROs to evaluate these prospects before committing millions of dollars to them, Farquhar said.
"Not long ago, VCs were funding biotechs in terms of infrastructure, bricks and mortar," Farquhar said. "That doesn't happen as often nowadays. Now, it's project by project. VCs are looking to invest as little as possible in a project, and what they want is proof of concept before going any further."
Farquhar said Charles River is well-positioned to take advantage of this growing market. He said it's possible that Charles River could soon begin selling "testing packages" to VCs or select funds. For a fee, Charles River will open its facility to VCs seeking to evaluate a compound before buying it.
Farquhar said a company or fund could purchase what he called "project slots" ahead of time from Charles River.
If the customer wanted to evaluate a certain compound, they could cash in one of those project slots and bring a team in to Charles River to oversee the evaluation process.
Doing so would allow companies and funds to effectively screen a much greater number of potentially effective compounds than previously possible, due to the lower cost of having the compound evaluated by a CRO, Farquhar said. Screening more drugs could lead to more potentially life-saving treatments.
"This way could allow a lot more shots on goal, in terms of drugs that actually get tested," Farquhar said.
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