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Founded in 2014, Treehill saw an opening to help struggling biotechs early in its existence. “The whitespace was: Can we step into companies that have failed the clinical study, have difficult financing situations, board and management issues, and can we stay there and help restructure these companies?” explained Pashazadeh, a surgeon and seasoned healthcare investment banker. “So essentially, can we run into a burning building?”
Dissecting common biotech pitfalls
After working closely with roughly 100 struggling biotechs that had failed clinical trials, Treehill found a spectrum of strategic and operational breakdowns. In conducting a forensic analysis of what went wrong in each case, Treehill found recurring patterns of flawed decision-making. “What we found is that you could actually back-calculate when the wrong decision was made,” Pashazadeh said. “Wrong indication, drug formulation, the wrong molecule had gone out, they hadn’t done the preclinical work, they’d left IP on the table, and so on and so forth. You could actually see, if you spent enough time there, where the issue had arisen.”
As Treehill’s advisory business grew, the company began working with one of the world’s largest CROs. This experience provided the company with a bird’s-eye view of the industry’s landscape. “As we looked at 1,200 or so companies over an 18-month period, we saw that about 5% of them were developing a drug for commercial success,” Pashazadeh shared. He estimated that eight out of ten of the Phase 2 and 3 studies it reviewed had one or two material flaws in them that hindered a capital raise or a re-licensing. “Sixty percent of those studies have limited commercial utility,” he said. “People are running the study they can run as opposed to the study they should be running.”
The human factor in drug development can often get overlooked
Pashazadeh argues that drug development failures are often rooted in execution. He believes the industry focuses excessively on the “probability of success” metric, overlooking the human factor. “As you dig into it, it’s often not the molecule that fails. It’s the way the drug has been developed that is usually the issue,” Pashazadeh said. “So it’s a human capital issue.”
One key problem, according to Pashazadeh, is a disconnect that can sometimes occur throughout the drug development chain. “The interface of a CRO, whether it’s the consultants, the advisors, or the CROs themselves, is not to pressure test a decision. It is to facilitate what the company wants to do,” Pashazadeh said.
Another reality is that clinical trial phases can operate as a distinct silo, often with different teams and goals. In addition, commercial teams, crucial for eventual market success, are frequently brought in at a late stage. “You might have a Phase 2 team optimizing for efficacy without considering if the chosen formulation is even marketable,” Pashazadeh explains. This disconnect can result in a product that, while scientifically sound, lacks commercial viability. “We’ve seen companies complete Phase 3 trials only to realize their drug, as formulated, isn’t something physicians or payers will support.”
Navigating the clinical trial labyrinth
This siloed approach can lead to decisions that are optimized for individual phases rather than the end goal of commercial success. “What we found is again and again, people were making phase 2 decisions, optimizing for phase 2 without thinking about phase 3, and phase 3 teams were optimizing decisions made without thinking of going to commercial,” Pashazadeh said.
Given the high cost — both in terms of time and money — the status quo is unsustainable in the long run. On top of that, the biotech industry in some ways is still dealing with the aftermath of the pandemic, in which the sector saw an infusion of cash but subsequently saw funding and dealmaking slow. “Do I expect the market to bounce back? Yes, markets always mean revert,” Pashazadeh acknowledges. “However, I believe it will take three to five years for the life sciences sector to return to a bull market.”
Laser focus on the target product profile
In the meantime, a number of companies are struggling. “Some companies have been on a starvation diet for the past three years. They’ve laid off staff and reduced their efficacy rates,” Pashazadeh observed. “They might be able to spend the money, but do they have a phase 3 team? A pre-launch team?”
Rather than accepting the status quo, Treehill Partners advocates for an integrated, commercially-minded approach. “The offering that Treehill has is: With your preclinical or early clinical work, let’s focus on the target product profile,” Pashazadeh said. “Let’s make sure that every single decision we make is focused on having a commercially successful drug.”
With its own clients, it has noted cases in which the cost of drug development fell by 30% through changes in strategy. “We also found we could reduce the length of a study by six to nine months, and we could improve the margin for the CRO by about 15%,” Pashazadeh said. “Because you were running the study that you needed, with no fat on the bone, running in an incredibly lean, efficient manner, looking at getting the best results for the company in that target product profile.”
Filed Under: clinical trials, Drug Discovery, Drug Discovery and Development
