Centocor: Commercializing Monoclonal Antibodies
On a beautiful late April day in 1991, Hubert Schoemaker’s family holiday was abruptly interrupted by a phone call he had been dreading. David Kessler, the head of the FDA, was on the line tasked with passing on some unfortunate news – Centoxin, the drug that Schoemaker had staked his company’s reputation and future on, was rejected for approval pending further clinical trials (1q). This news was the culmination of a devastating few months for Schoemaker’s biotech company Centocor. Stock prices had plummeted as uncertainty grew around Centoxin’s approval status, and public opinion on Centocor’s future was at an all time low. This was uncharted territory for the upstart biotech company, which had experienced enormous success since its inception in 1979. Even Schoemaker, known for his optimism, could not hide his devastation at the news. He knew that in order for the company to survive, drastic changes would be needed.
Centocor: Background Information
Centocor was borne in 1979 of a partnership between Hilary Koprowski, an immunologist and virologist who was serving as director of the Wistar Institute, and Michael Wall, an electrical engineer from MIT and serial entrepreneur (1). This partnership was created out of a desire to capitalize on the commercialization of a revolutionary new product biotechnology product; monoclonal antibodies. For the first time, researchers had developed antibodies that were immortal, produced in a standardized way, and could be engineered to specifically attack only desired epitopes or “targets” (5). The implications were widespread – mAb’s had potential as both diagnostic tools and targeted therapeutics. As the director of a renowned immunological research centre, Koprowski was well aware of the impact mAb’s were likely to have within these markets, having successfully developed mAb’s against various diseases in his own lab (1). Koprowski decided to team with Michael Wall to build his own company and commercialize these innovative biotechnology products. With Koprowski’s scientific expertise coupled with Wall’s industry connections and business savvy, Centocor was poised for success.
Hubert Schoemaker, a biochemist from MIT with valuable experience in commercializing diagnostics, was soon recruited on as the CEO of the company. Schoemaker would prove crucial to the company. During is tenure, Centocor would undergo dramatic changes on the path to commercial success and, eventually, enormous uncertainty.
Initial Strategic Planning
Initially, Centocor viewed diagnostics as their target market when developing mAb products. This decision was driven by a variety of factors. Firstly, the potential market was very large, with a valuation at $2 billion (1). Additionally, diagnostics were much easier to develop than therapeutics. The added benefit of not being directly used in the human body meant a much easier regulatory path to approval for these products as well, reducing the cost of development and time to market. All of these factors lead the team to believe that they could achieve revenues of $17 million in the diagnostics market by 1984 (1). Therapeutics were therefore seen as a long term strategy, with revenue from diagnostics being used as a tool to reach this goal.
While the diagnostic market was able to offer initial benefits over therapeutics, it was not without its challenges. The market was highly competitive, with with major players like Roche and Pfizer at the forefront. These companies were much larger than Centocor, with higher operating budgets and well established products available. Additionally, diagnostic tests available could only be analyzed through proprietary instruments, further solidifying the hold these major players had on the market (1). The executive team at Centocor were well aware that they would not be able to compete with these companies independently. Instead of relying on in house research and product development to gain a foothold in the market, Centocor based its strategic business plan on a collaborative approach. This meant that rather than developing competitive technologies themselves, the company would focus on building relationships and licensing agreements with labs that were producing promising results within the mAb diagnostic field. By leveraging the networking abilities and academic connections of the board members, it was believed that Centocor would be able to save money on original research and bring products to market at a much quicker pace (1).
Thus the plan was in place – fund promising research in exchange for licensing agreements on the technology produced, in order to quickly and efficiently bring products to market and build revenue. While less expensive than developing products in-house, this strategy still required a significant amount of capital in order to fund the research labs deemed worthy. Luckily, Schoemaker and Wall were successful in this regard. The company was able to raise significant capital through both private investment and public offerings, with their largest public offering bringing in $100 million in capital (1). This placed Centocor in a promising position for penetrating the diagnostics market.
Centocor enjoyed a high level of initial success using this business model. Widespread and diverse licensing agreements allowed the company to gain broad market penetration and establish a foothold in the mAb diagnostics market. Following this strategy of collaboration, Centocor was able to grow its research collaborations from 15 in 1985 to 80 in 1990 (1). These partnerships involved labs from across the world, allowing Centocor to grow its brand globally. The success of this strategy is evidenced by comparing the company’s growth in terms of sales and in-house R&D funding. During this period of growth, Centocor saw a fivefold increase in sales, while R&D funding had remained constant annually (7). Additionally, partnerships with high-profile companies within the market were established. This allowed Centocor to take advantage of these companies well-established distributions channels, eliminating the need for Centocor to spend time and energy on large-scale marketing and distribution of its products (1).
A number of products were instrumental to the initial success of Centocor. The first two diagnostic tests to achieve market success were for gastrointestinal cancer and hepatitis B. Both of these tests were produced by research funded in academia by Centocor – the former from the Wistar Institution, and the latter from Massachusetts General Hospital. These tests achieved regulatory approval quickly and sold well, providing a massive ROI from initial study funding for Centocor. Other products soon arrived from the Centocor pipeline, further bolstering the company’s market position. Diagnostic tests for ovarian cancer, breast cancer and colorectal cancer proved exceedingly popular (in fact, all three tests are still used today) (1). Again, these products were all licensed from various research institutes. This represented a remarkable success story in biotechnology commercialization – Centocor had grown to the point of generating $50 million in revenue by 1985, and by 1990 had a 25% market share in mAb based cancer diagnostics (1).
Movement to Therapeutics
With the company strongly established and profitable in the diagnostics industry, Schoemaker and his team of executives decided the time was right to move into the therapeutics market. This had always been the goal of the company – their ambition was to become a large pharmaceutical player in the same vein as Bayer and Merck. To achieve this, Centocor would need to produce a blockbuster mAb based therapy. This was no easy task – therapeutics derived from mAb had never been developed, and whether they would prove effective remained to be seen. Additionally, commercialization of such products would require significantly more resources than diagnostics, as clinical trials and regulatory approval were more rigorous and cost intensive. Penetration of a market where costs and logistical hurdles were so prominent was undoubtedly a risky move for Schoemaker. The rationale was that while the risks were large, the enormous potential payoff of having successful therapeutics provided enough incentive to move forward.
After evaluating of many candidate therapeutics, Schoemaker believed that Centocor had their blockbuster mAb therapeutic in 1988. This drug candidate, dubbed “Centoxin”, would be used to treat septic shock caused by Gram-negative septic bacteria. This was a major health concern during the 1980s, killing 100 000 people annually and costing $10 billion to the healthcare system (2). Centoxin was meant to solve this problem, while simultaneously establishing Centocor into a pharmaceutical powerhouse. With projected sales of $400 million in its first year, it seemed a great candidate to propel Centocor into the future (2).
Along with a change in market came a change in strategy at Centocor. Schoemaker believed that the enormous revenue potential of Centocor and growing resources available at his company warranted a departure from the traditional collaborative approach. Centocor intended to develop Centoxin on their own, without help from major collaborative partnerships with big pharmaceutical companies. This move was intended to maximize revenue for Centocor, as well as establishing necessary systems within the company for their evolution into a major pharmaceutical player (2).
This transformation would come at a significant cost. In the absence of a major pharmaceutical partner, Centocor would have to develop its own manufacturing facilities, distribution channels, sales force, clinical trial system and R&D facilities for Centoxin. This would require major capital expenditures. From 1986 to 1992, Schoemaker was able to raise $500 million for this purpose (2). Of this total, $450 million was spent on running clinical trials, creating a sales force and constructing two manufacturing plants (2).
Early indicators gave reasons for optimism. An initial randomized trial of Centoxin was found to reduce both Gram-negative sepsis and mortality by 39% and 47%, respectively, without any adverse affects (3). Centocor had submitted the drug to the FDA to begin the regulatory process, and by 1991 the FDA advisory board had unanimously recommended approval (3). The drug had been approved throughout much of Europe, and even the US army had placed a large order for use in the Gulf War. Expectations were high at Centocor, and the company was confident their drug would soon be brought to market.
Unfortunately, things did not stay optimistic for long. A number of issues would soon arise casting serious doubt over the viability of Centoxin. The earliest indicator of trouble was the loss of a patent battle between Centocor and Xoma, a close competitor, over the proprietary mAb used against sepsis. Centocor, being a relatively new company with little experience in patent battles, had decided to forego settlement and fight Xoma tooth and nail. This decision resulted in a huge loss of time and money which the company could not afford to waste(2). Additionally, questions about the efficacy and safety of Centoxin had begun to arise. A variety studies were being published reporting adverse safety affects in animal models as well as an inability to recreate effective treatment results in lab (4). The culmination of these events was an indication by the FDA in 1992 that additional clinical information would be needed before Centoxin would be approved. This news spelled disaster for Centocor. Financial markets were sent into turmoil – share prices plummeted 19% upon the report, representing a $675 million loss in Centocor’s market valuation (3).
This was the predicament Schoemaker found himself as he contemplated the phone call he received. His company was now on the verge of collapse – share prices had decreased from $60 a share in December 1991 to $6 a share in April 1992 (6). Additionally, Schoemaker knew the company’s cash burn rate of $50 million per quarter was no longer sustainable (6). With his biotech start-up company, once so successful, hanging in the balance, Schoemaker called his executive team together for a fateful meeting. How could the company survive this financial disaster? Were therapeutics worth pursuing? What management style and culture shifts were needed to keep the company alive? These were the questions lingering as Schoemaker and his team members considered drastic measures to save their fledgling company.
Information sourced from:
(1) Marks, L. V. (2009). Collaboration – a competitors tool: The story of Centocor, an entrepreneurial biotechnology company. Business History,51(4), 529-546. doi:10.1080/00076790902998512
(2) Marks, L. (2012). The birth pangs of monoclonal antibody therapeutics. MAbs,4(3), 403-412. doi:10.4161/mabs.19909
(3) Mccloskey, R. V. (1994). Treatment of Septic Shock with Human Monoclonal Antibody HA-1A. Annals of Internal Medicine,121(1), 1. doi:10.7326/0003-4819-121-1-199407010-00001
(4) Quezado, Z. M. (1993). A controlled trial of HA-1A in a canine model of gram-negative septic shock. JAMA: The Journal of the American Medical Association,269(17), 2221-2227. doi:10.1001/jama.269.17.2221
(5) Monoclonal antibodies to treat cancer. (n.d.). Retrieved from https://www.cancer.org/treatment/treatments-and-side-effects/treatment-types/immunotherapy/monoclonal-antibodies.html
(6) Schoemaker, H. J., & Schoemaker, A. F. (1998). The three pillars of bioentrepreneurship. Nature Biotechnology,16(S1), 13-15. doi:10.1038/5399
(7) Dickinson, S. (n.d.). Biotech’s Centocor Jockeys For Position In Drug Field. Retrieved from https://www.the-scientist.com/news/biotechs-centocor-jockeys-for-position-in-drug-field-61293