Absorption Systems LP is well-positioned in several sense of the word. The Exton, Pa. and San Diego-based contract research organization managed to expand during the Great Recession, buying medical device toxicology firm Perry Scientific last summer.
President and CEO Patrick Dentinger told MassDevice that his 100-employee firm, which profiles the absorption of pharmaceuticals into the human body before the drugs go to clinical testing, has barely had to paddle to catch a growing wave of business. Pharma companies have begun to shrink their clinical facilities, Dentinger told us, and the manufacturing of devices that administer drugs has grown.
The company’s buyout of Perry Scientific may have seemed odd for a CRO of its size, but in addition to new business in drug administration technology, the move opened a new door for Absorption Systems. The Food & Drug Administration has begun to recognize the importance of pre-clinical testing technology; in November 2009, Absorption received an SBIR grant from the FDA to develop a drug-testing platform that uses actual human cells to test drugs, a big step beyond animal testing. It may come as no surprise that Center for Devices and Radiological Health chief Dr. Jeffrey Shuren encouraged device companies to embrace device-based prospects for pre-clinical testing at a June FDA town hall meeting in Woburn, Mass. A month after the grant, the company opened an AAALAC-accredited, GLP-compliant facility comprised of a 1,100-square-foot surgical suite for pre-clinical medical device testing in San Diego.
Dentinger started the company out of his home in 1996, with co-founder and chief scientist Ismael Hidalgo. The two have since built a company that remains competitive with Indian and Chinese CRO’s for business stateside, but also wins outsourced business from pharma companies in those countries. In the near future, Absorption may spin off its some of its new medical device business, but for now, Dentinger said, his company’s CRO and device development endeavors give Absorption an ability to meet clients’ needs that other CRO’s don’t have.
MassDevice: Your medical device testing facilities opened in San Diego. Why medical devices and why now?
Patrick Dentinger: We’re a contract research organization that’s been in business for about 11 years. Primarily, our work has been based on helping pharmaceutical companies that are developing small molecules. Most of the drugs you take are small molecules. We help profile those compounds and we try to predict, before they go into man, how they’ll behave in man.
Our company was founded on a lot of cell-based technology, but as required by the FDA, they have to eventually get into animals to be tested, so we expanded our capabilities to be able to work with animals. That expanded our breadth into the types of studies we do, not just dosing animals with a drug to see how much got into the blood system, but also the devices that were used to deliver the drugs. So as our business expanded and we started working with more clients, requests came in asking for models to, say, install a pump subcutaneously in an animal. That sort of expanded our horizon and we started saying, "Should we look at this more?"
We acquired a company in San Diego that had facilities to do the extensive animal work, but also had a facility to also expand it further to go into things like stents and looking at joint repair. That opened our eyes to not just go for the small molecules for the pharmaceutical companies, but to start looking at what medical device companies are doing and how we could help them with not only their discovery work, and how the devices work in the animal models, but how we could help them file with the FDA.
Since we took over that company about a year ago, we did a fairly extensive renovation of the surgical suite, which is where most of the medical device work is done. San Diego is a nice location for it because there are a number of teaching institutions there. Obviously UC San Diego is down there and what that affords us is a lot of top-notch surgeons that are in the area that work in joints and cardiovascular. There are medical device companies throughout the country, but there are an awful lot of them in the L.A. area and down south to San Diego. So there’s a close proximity, but what it affords them to do is tap into the expertise of the actual surgeons who are doing the work on a daily basis. We’ve found that it’s been a very welcome relationship, due to the fact that we’re in proximity to these companies and the physicians.
MD: From your seat, how did the financial downturn affect the competitive landscape for medical device CROs?
PD: Medical devices are going through an interesting change. The FDA is very active lately in evaluating how medical devices get approved, and one of the challenges they’re faced with — and the same thing we are — is how predictive is the data you’re generating going from, say, an animal to a human, and how extensive does the clinical trial need to be, once it’s in humans, to receive approval. The competitive landscape right now, coming off of the last couple of years, has really been an eye-opener, in the sense that not only did pharma take a big hit in this recession, but the medical device world did too.
From our perspective, because we’re relatively new in this space, and relatively young, we haven’t felt a downturn in this space. In fact, we’re finding that there’s a lot of interest, I think, because of our proximity. Our location makes it extremely convenient for that Southern California community to get access to us. From that standpoint, our regional presence is a real strength and has been very beneficial for us. The medical device world in itself, the actual testing in animals and all that, it’s still an art form. With the new devices and how they behave in an animal, the real challenge is how predictive is that in man, and no one has solved that riddle yet. From that standpoint, I think it’s still a very open space to figure out who can develop these predictive models.
MD: We covered the Center for Devices and Radiological Health’s June meeting in Massachusetts, where the agency’s chief Dr. Jeffrey Shuren encouraged the industry to move into this kind of testing. It’s a growth field and, from his perspective, might even make his job easier. You’re new to the space, but was your move into this space motivated at all by changes at CDRH?
PD: When we made the move out there, we had been hearing about this for a while. We were tangential to it, but we were seeing it. One thing we’ve seen out of the FDA from working in the drug space in the 20 years I’ve been in it, there is actually a commitment to constantly better predictive tools that will help us understand what will happen before you get into a human. So the commitment to this has always been there. The FDA has been very active in certain aspects of trying to promote technologies that better predict what happens in man. In that regard, we’ve been bullish in our market space, which included medical devices, for a while. The acquisition simply was an opportunity for us to move into the space. So we’ve been monitoring this for a while, and we think it’s a growth area. Devices involve not only a stent or some sort of stainless steel that would go into a joint or spinal column, they also involve getting into the area of stem cell research and tissue transplants. It’s a fairly broad area and I’m hoping I’m supporting what [Shuren]’s saying. We see this as a real growth area. We see that there’s a need for it and we’re hopefully in the right position at the right time.
MD: In your interview on Executive Leader Radio, you talked about how investment, at least in the last couple of years, was drying up for the life sciences and how pharma companies were shrinking, at least in terms of their testing. Has increasingly regulatory stringency in the FDA been an indirect boon for your company?
PD: Indirectly is has. The pharma industry itself has really run into a little bit of a problem now. For discovering new drugs, it’s all of the sudden become extremely difficult, and this has been going on for a while now. This isn’t a new phenomenon. The genesis of our company was based on the fact that launching new, big blockbuster drugs was not going to happen into the future. The writing was on the wall 10 or 15 years ago that the market was going to shift and in fact it has. The FDA has made it clear that it’s tightening up the rules a little bit on how it’s going to let things be approved, and the same thing is true for the medical device field.
What we have seen, and this is from my perspective, is that VCs are not allowing their investments to go towards building infrastructure within these companies. What they’re saying is: We’ll invest in a technology, we’ll let you hire up enough staff that supports directly that technology, but all the ancillary research that needs to be done really could be outsourced.
So really the shift is, instead of the large pharma companies doing everything, they’re shrinking. Instead of the little bio-techs receiving investment and staffing up to do everything, the work is being shifted to a middle ground, which is a CRO space. So we’ve been seeing that now for several years, and our business is predicated on that.
At the same time, though, there’s a challenge. We refer to it as big pharma settling down. They’re in such a state right now, where they’re very large and they’re re-defining to themselves how go into the future and you’re seeing these mergers happen, followed by lay-offs and reorganizations. They’re still trying to sift that out, trying to figure out how they’re going to reorganize, what’s going to be done where. When they settle down, it’ll come back to getting highly focused again at developing drugs and the direction they want to go. We will see this market pick back up again. I think we’ll see the pharma companies take off again, but I think we’re still a couple years away from that.
In the mean time — we work with, on an annual basis, between 250 and 300 companies, so we have a pretty good pulse on that. It’s not that the research has stopped, obviously 2008 and 2009 were off years, but we’re starting to see it tick back up. What we haven’t see though, yet, and we get glimmers of it, is the biotech investors going back in, the VCs going back in. That’s still light. Deals are happening, but we have a long way to go before we get back to the way we were in 2006, 2007. Fortunately for us, we’ve weathered this pretty well and, in fact, we’re in a growth mode right now.
MD: What’s coming up through your pipeline?
PD: The premise of our company is trying to find or develop tools that better predict what happens in man before it goes into man — that’s a huge commitment that we’ve made. It’s the foundation of the company.
We’re actually launching a series of products called the cell port product, which are based on predicting safety issues in man using actual human cells. This type of testing is of extremely high interest down at the FDA right now. It’s a hot topic right now in the industry.
What it is — when you take one drug and it has a certain profile — that is it enters and leaves your body at a certain rate, if you were to take a second drug, would those interfere with each other. That’s a question the FDA wants to answer, the drug-drug interactions. We have a suite of products that are coming out here of which the research is being funded by the FDA, as tools to predict what happens before you go into man. What’s interesting about this type of testing is that it goes from a human cell and there’s not stopping it in a [17:37] because we can’t use animal models in this. Once we see these results using human cells, the correlation goes right to man.
MD: Will Absorption Systems ever move toward more product development, rather than traditional contract research?
PD: This expansion is something we’ve wanted to do for a while. The tools we’re developing, and they are tools, we will continue that. In fact, we’re aggressively funding that to ramp it up even more. What will eventually happen with that is we’ll be forced to continue in that direction or we’ll spin it off, because product development and contract service, at some point — they’re two different business models.
On the other hand, the one thing that is very critical to product development is making sure that the industry knows how to use your product. One of the safest ways to assure that is to work with clients in a service relationship, where you demonstrate the utility of the product, and that’s why we’ve kept the two together. Because it’s great to launch a product, but you’ve got to make sure that you’ve got some sense of control and understanding of what the client’s looking for and how they would use it, or, in this case, interpret data. So the two of them will actually go hand-in-hand for quite a while. We will be moving more and more into product development. There’s no question about that.
MD: You talked about proximity in terms of your location. Are you still competing with companies in India and China?
PD: Oh God yes. Obviously the low-cost labor market has really been attractive to the pharma guys. Anyone who can save money, it’s great. There was a tremendous euphoria to go overseas and work with these companies because they were cheap. We’re very bullish on our position. If you look at the perspective of the countries, especially India and China, India’s pharma industry was primarily based on the generic space where historically they would knock off existing drug products, so their expertise in pharmaceuticals, that is, making tablets and capsules — they’ve been doing that forever and they’re extremely good at it. Also the other space, process chemistry, they’re very good at that as well, and the Chinese are good at that as well, but clearly India in the pharmaceuticals space.
In the space of actually discovering a drug, where biology is a huge component of that, I’m not sure either of the countries have a legacy of doing that. China and India have tremendous natural products, natural remedies that have been used treat illness over the years, which actually contain true drugs, but actually going through the process of developing drugs, neither of those countries have a long track record of doing that as it would be approved here in the U.S.
In my opinion, what is happening is a lot of the pharma companies here are trying to transfer over that knowledge. I think we’re years away from that being a strong presence there. If part of the biology that is being transferred over there is part of a process, I have no doubt they’ll be able to do it, but if it’s based on interpreting data and experimental design and input from a variety of experts from different fields, I don’t think that institutional knowledge is there yet. So yes, we’re feeling it in some areas — mostly price pressures. In other spaces we’re not seeing it. In fact, a number of companies in India outsource to us to get stuff through the FDA. We’ve never outsourced to India, and yet they’ve come here, and it’s worked out well.