The biotechnology industry has enjoyed spectacular growth since its inception in the 1970s, and especially during the past decade. Today, there are more than 1,415 biotech companies in the United States, with 329 of them publicly traded. The industry’s annual revenues are estimated at more than $68 billion. We’re all familiar with giants such as Amgen and Genzyme who have billions in revenue and multiple products for sale, but today the industry as a whole still has only 400 products on the market. What are the more than 1,000 other U.S. biotech firms doing?
Of course, they are all in various stages of drug development. Some are in the very early stages, though they may have tens of millions in venture capital backing and dozens of employees. Many others are engaged in early stage clinical trials. Another even more mature cluster is engaged in Phase 3 clinical trials where they come under increasing FDA scrutiny. If their products are approved, they will be looking to ramp up operations to full scale production and marketing.
Each of these three classes of companies share certain characteristics. Most have little or no revenue. Some have licensing agreements with large biotech or pharmaceutical firms, but by most estimates approximately 90 percent of biotech firms have less than $50 million in revenue, while 60 percent have no revenue at all. No matter how much venture capital or even public equity these companies have raised, all are operating on tight budgets. Obviously, much of their spending is devoted to attracting and retaining the high-priced talent they need to develop and market new therapies. But a lot also gets spent on information technology (IT).
The High Cost of Information Technology in Biotech
Even large biopharms spend far more on IT than companies in other industries – on average 4-5 percent of revenues – due to the cost and complexity of complying with FDA regulations. That’s twice the cost of IT in most other industries. As consultants and practitioners who have served and worked inside large biopharms for more than a decade, we can tell you that senior executives in those companies are not happy with such inefficiency. Most large biopharms are trying to cut or at least restrain their IT spend by adopting standard operating procedures based on best practices that are optimized for FDA-regulated environments. And they’re making progress, albeit slowly.
But what about the thousand or more emerging biotech firms with little or no revenue? The giants can afford to waste money on IT, even though they don’t like it one bit. But emerging biotechs cannot afford to make such mistakes. They need to know that their IT investments are justified.
Emerging biotech firms are challenged by how much IT infrastructure and which applications they need today, and how to plan for tomorrow. Some turn to managed services firms, outsourcing the complexity. Others decide to do it in-house. Still others choose a hybrid model, outsourcing some while retaining other parts of their IT operations. Whatever path they choose, emerging biotech firms need a cost-effective IT infrastructure that meets their current needs but can scale as their company grows and moves through the drug development lifecycle.
Just like their big brothers, emerging firms must comply (or at least get ready to comply) with numerous FDA regulations that govern their IT operations. Failure to comply can lead to fines, extended clinical trials and drug recalls. As mentioned earlier, many large companies are trying to get a handle on their IT spending by adopting standard operating procedures based on best practices. Many were shocked to learn that the IT practices in one department were different from those in another. Indeed, they often found that no two IT professionals handled the same project in the same way, and that very few practiced good documentation procedures, making FDA audits a difficult prospect at best. Unfortunately, at many companies IT operations and projects are more art than science. Even if they have only one or two IT professionals and an on-call service provider, emerging firms can learn a lesson from the multinationals: it’s never too soon to adopt best practices that make IT operations and projects a standard operating procedure. It’s the key to cutting costs, training new employees as you grow, improving IT service delivery and applications, and preparing for the future.
What is Good Systems Practice in IT?
The problem with ITIL is that its best practices do not fully address the issues facing FDA-regulated environments. Certainly, there is nothing in ITIL that addresses 21 CFR Part 11, the regulations governing electronic records and audit trails. A quality methodology that is based on ITIL but incorporates additional methodologies to look at processes, procedures, tools and training has been developed that has utility beyond simply managing the infrastructure. Good Systems Practice (GSP) is ITIL optimized for FDA regulated environments. Good Systems Practice takes its name from well-known FDA standards such as Good Manufacturing Practice and Good Laboratory Practice, which were earlier attempts to adopt best practices to improve quality in critical areas of drug development and manufacturing. Emerging companies that develop a Good Systems Practice will also learn the importance of validated applications and qualified hardware systems before they become necessary. Most scientists want to advance drug development and move into clinical trials. But the quality professional who joins their company may soon face an FDA audit. That person needs to know that the environment that his colleagues are working in will stand up to regulatory scrutiny when the time comes. What a tragedy for a successful startup to move into Phase 2 and 3 clinical trials, only to find that their IT systems let them down.
Good Systems Practice also combines ITIL with other quality paradigms, including CobiT and Six Sigma. CobiT helps to link IT processes, resources, and information to enterprise strategies and objectives. It provides enhanced risk management and helps to prioritize IT initiatives that support business requirements. Six Sigma helps managers and executives create a Lean organization by eliminating unnecessary process steps or waste. Six Sigma or Lean processes should be adopted by every IT organization, particularly those in regulated industries where IT expenditures exceed industry norms.
It should also be noted that many biotechs are using hosted application services instead of buying and installing complex enterprise software on-site. In most cases they can cut their IT costs by up to 50 percent by avoiding capital spending and additional staff. Document management systems, which every biotech will need, can cost tens of thousands (or more depending on your size) to install and maintain. The same goes for quality management systems, clinical trial management or adverse event monitoring systems. Buying software as a service is a big trend in every industry. Young biotechs who want access to great IT services at affordable prices should consider this course. Regardless, whether you acquire software or use hosted solutions, make sure you or your advisor thoroughly evaluates the vendors who develop and support it.
Good Systems Practice for Emerging Biotechs
Consider the early stage firm. We call this phase “bio-launch” to describe a company that may have anywhere from a few to several dozen research scientists. It's the beginning of the move from an idea to a company. Most likely it is venture-backed, though in some cases it may already be publicly traded. Whatever its size and source of financing, this firm is deeply engaged in research and development and has yet to enter clinical trials. And yet it has critical IT needs. Of course, it must develop and support a web server, database server, and email server. It will need a basic document management system to record, communicate and track research results. It will need secure storage systems as well as file and print capabilities. And it will need systems that provide high availability. If IT goes down, work stoppages ensue. The only way to ensure that systems are highly available is to proactively manage them. Effective systems management is the key to providing a robust IT infrastructure. But the sooner they achieve success, the more rapidly their IT needs will change. Small and growing biotechs need cost-effective systems management – 24/7 monitoring with tools and processes that predict failure before it occurs.
We call the next stage of emerging biotechs “bio-growth.” This firm has entered early stage clinical trials. It has all the same needs as it did in the early years during its launch phase, and then some. Of course, it needs more and bigger hardware and communications systems, and more sophisticated software. Does this company need to start all over and build its infrastructure anew? Not if it planned well during its launch. Think of the cost of ripping out the “bio-launch” system and replacing it with a new one. If planning was done correctly, the company should be able to move easily and seamlessly from its launch to its growth phase. Of course, new needs emerge for this growing company. It will require more complex applications to manage and report its drug trials, along with document and records management, data archiving, enhanced security, sophisticated mobile communications, quality management systems, clinical trial data management and more than likely a virtual private network to transfer sensitive information. In addition, these growth companies need to develop a validated infrastructure and qualified applications that will comply with FDA regulations.
Finally we have reached the emerging growth firm: think of it as “bio-ready.” This firm is preparing an NDA for FDA submission. It’s ready for more investment money, ready perhaps for a larger company to propose an acquisition. This company is engaged in late stage clinical trials and is coming under ever more severe FDA scrutiny. Again, it will need all the same systems that the launch and growth companies required, only a lot more of them. With good capacity planning in the early stages, that should be no problem. The environment will scale to meet their needs without wasted expenditure. At this stage, “bio-ready” needs systems and services it didn’t require in its youth. For example, it will almost certainly need an enterprise resource management (ERP) system to help it manage complex financial, logistical and possibly manufacturing operations. It will want to ensure that it has mature but cost effective laboratory information management systems, as well as a cost-effective sales force management application or service. And, of course, adverse event reporting systems are critical at this point as the company moves toward product introduction.
If they are successful, every emerging biotech moves through each of these three phases. In order to conserve cash and build a reliable and scalable system it is important to understand whether your firm is in its “bio-launch,” “bio-ready,” or “bio-growth” phase. Then you can determine what systems you need to support your stage of growth. It makes no sense to buy software, systems, and services that you will need as a growth company when you are still engaged in the launch phase, and yet many firms make that mistake. On the other hand, you need to plan for the next stage so that your information systems can grow with your company as its requirements change. Failure to plan for these transitions will hinder your growth.
Cost Effective Project Practices for Regulated Environments
Quality Assurance and regulatory compliance are among the thorniest issues a biotech firm will ever face. Emerging firms can reap huge dividends by developing compliance plans and adopting standard operating procedures for validating software and qualifying hardware. Averting even one failed audit can save a company tens of thousands of dollars. At the very least, your IT professionals should be trained to apply Project Management Institute practices to help ensure compliance. It’s even better if your PMI techniques are optimized for FDA regulations. The goal is to make compliance an everyday part of the business. In addition, PMI guidelines should always be followed during application rollouts.
Sound records management is an often overlooked subject, but one that again can save emerging firms vast amounts of money. It is important to develop a records retention policy to ensure that important records are retained while obsolete records are destroyed. Maintaining records longer than necessary is costly and can create unnecessary audit risk. In addition, young biotechs will benefit by creating content management policies, tagging critical data to manage it more effectively and differentiate it from normal business information. This too will help your company determine which systems and data are liable for audit, and which ones are not. Many companies are confused by FDA’s risk-based analysis approach to determining which systems should be audited and spend vast sums validating common business systems that will never be inspected.
How Application Hosting Works
The cost and pain of doing business this way led to a customer backlash. Many simply stopped buying and tried to muddle through with their old systems, no matter how balky. But this had its costs, too.
During the past five years, application hosting has emerged as a viable alternative to buying and owning your own software. Service providers now buy all the popular and expensive software packages, install them in a secure data center, and then “rent” the applications that their customers want. Customer relationship and human resources management software were the first packages available this way. But now, document management and other enterprise systems can also be acquired as a service.
What are the advantages of hosted applications? First and foremost: cost. Many companies find that they can cut their costs by up to 50 percent for every hosted application. In addition, they get better service because the hosting provider can afford to hire top talent and amortize its cost across many customers. Small biotechs cannot afford the large IT staff needed to support complex applications. Moreover, hosting services optimized for FDA-regulated clients will have fully validated and qualified data centers, a huge cost and liability savings for any biotech. Finally, a professionally run data center uses proactive systems management tools and practices to ensure secure 24/7 operations. As young biotechs mature, application hosting should be a key tool in their business arsenal.
Keith Parent (firstname.lastname@example.org) is the CEO of Court Square Data Group, Inc,. a strategic consulting firm providing IT solutions for companies in transition. Christopher Port is Vice President of the company’s Life Sciences Practice. Court Square’s Good Systems Practice services are based on the most stringent quality management methodologies, and are optimized for government-regulated environments. Court Square has offices in Massachusetts, Connecticut, and New Jersey. The company serves life sciences companies throughout the Northeast.
Court Square Data Group, Good Systems Practice, and GSP are trademarks or registered trademarks of Court Square Data Group, Inc. All other product and service names are trademarks or registered trademarks of their respective owners.
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