CRIO Deals – Impact on Your Biotech Business Development Process

March 31, 2015

by samps

Contract Research and Investment Organizations (CRIOs) are an emerging entity in the biotech drug development space that can have an unforeseen impact on your team’s sales productivity. This article discusses critical considerations for teams that encounter a CRIO deal—ten examples are included as a starting point to better understand this trend.

A CRIO is a new term being used to describe the investment arm, or divisions within contract research organizations, that behave like traditional venture capital investors. With the recent trend in contract research (CRO) and contract manufacturing (CMO) service providers making investments in their biotech clients, these deals are something of which your sales and marketing team must be cognizant.

Impact on the sales process

You need to understand if your prospect has entered into any past CRIO deals prior to committing a pile of work on a bid. The easiest way to determine this is to ask during the RFI/RFP stage once you’ve signed the confidentiality agreement. If the prospect company has another service provider as an equity shareholder, then your bid could simply be a benchmark for the true cost of the project. The parent company of the CRIO equity holder is likely the first in line for any projects, assuming it is within the scope of their expertise. The conflict of interest around project pricing could be a tricky one to resolve, so what better way to gauge the market cost of the project than to ask several third party vendors to submit proposals.

You should also establish whether the company is entertaining any CRIO deals to pay for the project that you’re currently discussing with them. This could have a big impact on the price point because the CRIO’s offer could peg the project cost far lower than market rate.

The list of CRIO deals below is by no means exhaustive, but will help you understand how these deals play out.

Example 10: Contract research organization Tigermed’s investment in CANBridge Life Sciences (December 2014)

The original deal: Tigermed led a $10 million Series A round in CANBridge. Qiming Venture Partners (QVP)—one of Tigermed’s own investors—also participated in the deal, making QVP the all-around winners of this one. No mention was made regarding the specific services Tigermed would be contributing.

Example 9: Contract manufacturing organization Recipharm’s investment in Isofol Medical AB (August 2014)

The original deal: An SEK 8 million equity investment was made into Isofol, alongside the signing of a “long-term manufacture and supply” agreement. This could mean that Recipharm benefits as both an equity holder and the contract manufacturer if Isofol’s drug reaches commercialization. Recipharm has a dedicated venture fund that made this investment.

Example 8: CMO Therapure Biopharma’s investment in Induce Biologics (October 2008)

The original deal: The Induce/Therapure deal involved Therapure doing scale-up manufacturing work for Induce’s BMP product, as well as Therapure receiving an equity position in Induce and a seat on the board.

Where are they now? Induce is now entering proof-of-concept stage for its URIST bioimplant product, and Therapure’s CEO Nick Green sits on the board at Induce.

Example 7: CRO WuXi Pharmatech’s investment in Adagene (December 2014)

The original deal: WuXi’s venture arm co-invested in an $8 million Series A round along with Fidelity Asia Growth. There was no mention of specific services as part of the deal. WuXi is a force to be reckoned with on the CRIO scene and has made investments in a number of promising companies in both China and the US.

Example 6: CRO Integrium’s investment in Oncolix (January 2015)

The original deal: Integrium participated in a $4.2 million round to support the costs of a phase 1 study for Oncolix’s ovarian cancer drug, Prolanta. There is no mention of the specific services to be included in the deal, but Integrium is strong in the proof-of-concept space, so this is likely part of the trade.

Where are they are now? This deal was inked just two months ago, so Oncolix is ready to act. The Prolanta dose-escalation phase I will start this year.

Example 5: CRO Ergomed’s investment in Dilaforette (February 2015)

The original deal: Ergomed will run Dilaforette’s phase 2 sickle cell study involving sevuparin, and invest a portion of those earnings back into Dilaforette in exchange for an equity stake.

Where are they now? According to a March 20 release, the sevuparin phase 2 study is expected to start recruiting patients in the first half of 2015.

Example 4: CRO Numoda’s investment in MabVax (November 2012)

The original deal: Numoda’s Venture arm led a $5.2 million round along with Burrill and friends. The money was earmarked to support Mabvax’s sarcoma vaccine, which at the time was in phase 2, as well as to help cover GMP scale-up work, likely at a contract manufacturer because this is well beyond Numoda’s scope of expertise. The specific services Numoda will provide weren’t listed beyond “advanced and patented clinical trial information technologies and management systems,” which could be just about anything.

Where are they now? The Mabvax research program continues to progress and the company has advanced additional cancer vaccine candidates into clinical testing.

Example 3: CRO Ergomed’s royalty deal with CEL-SCI (October 2013)

The original deal: Services in exchange for a portion of drug profits. “Ergomed will share the costs of the clinical and regulatory costs in Europe, Russia and India for the phase 3 trial, which are estimated at approximately $30 million over the course of the study. Ergomed will receive its return on investment based as a single-digit percentage of milestone and royalty payments generated by CEL-SCI from Multikine, up to a specified maximum amount, from head and neck cancer sales of Multikine.”

Where are they now? CEL SCI last reported (March 3) that it had enrolled 377 of the 880 patients it needs for the global phase 3 head-and-neck cancer study. They expect to complete enrollment in 2015, but at the current enrollment rate, it could be a long time before Ergomed sees any royalty money.

Example 2: CRO Cato Research’s investment in Neurohealing (May 2011)

The original deal: No specifics released. Cato received an equity stake in Neurohealing in exchange for providing general clinical services to help move along drug NH001, a candidate to treat Parkinson’s Disease.

Where are they now? Neurohealing is still quietly moving NH001 and NH004 (another Parkinson’s treatment) through clinical research although the company appears to only have one active employee and a few consultants. An update in June 2014 put both drugs at phase 2 for Parkinson’s Disease indications. The company is also working on NH02D, a treatment for a different CNS indication.

Example 1: CRO Medpace’s ownership stake in Coherus.

The original deal: No press release was published about this deal. August Troendle, Medpace CEO and Founder, is managing partner of MX II Associates LLC, which owned 9.5% of Coherus at the time of Coherus’s IPO filling. Coherus signed a $51 MM master services agreement with Medpace. This is by far the most complex of the examples in the list and we may never know all the different influences coming into play at Coherus. Here’s a graphic that explains the Medpace/Coherus relationship in greater detail.

Where are they now? At the time of Coherus’ IPO filings in September 2014, there was 72% remaining on the $51 MM master services agreement with Medpace. Coherus is moving its phase 2 CHS-1420 into phase 3 this year.

Bonus example: CMO Catalent’s investment in Redwood Bioscience

The original deal: This began as a licensing agreement for Redwood’s platform technology, along with a minority equity stake. The agreement looked like Catalent would offer the platform to its own clients. Redwood originally planned to build out its own pipeline of drugs back in 2011, but somewhere along the way they must have realized the antibody drug conjugate technology they developed could be licensed as a platform to third parties.

Where is Redwood now? Catalent increased its ownership stake in Redwood Bioscience in March 2014 and then outright acquired the company in October 2014.