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Evolution of regenerative medicine business models

Citation for published version:Banda, G, Tait, J & Mittra, J 2018, 'Evolution of regenerative medicine business models: Ecosystem effectson a disruptive innovation', Clinical Therapeutics, vol. 40, no. 7, pp. 1084-1094.https://doi.org/10.1016/j.clinthera.2018.06.003

Digital Object Identifier (DOI):10.1016/j.clinthera.2018.06.003

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Clinical Therapeutics/Volume 40, Number 7, 2018

Original Research

Evolution of Business Models in Regenerative Medicine:Effects of a Disruptive Innovation on the InnovationEcosystem

Geoffrey Banda, PhD; Joyce Tait, PhD; and James Mittra, PhD

Innogen Institute, University of Edinburgh, Edinburgh, United Kingdom

Accepted for publication June 4, 2018.https://doi.org/10.1016/j.clinthera.2018.06.0030149-2918/$ - see front matter

© 2018 The Authors. Published by Elsevier Inc. This is an open accessarticle under the CC BY license. (http://creativecommons.org/licenses/

TAGGEDPABSTRACT

Purpose: This article focuses on 10 case studies ofcompanies/organizations that are part of the currentinnovation ecosystem of regenerative medicine (RM) inthe United Kingdom. It analyzes the actors, linkages,and influences that will determine the future shape ofthe RM industry sector and its capacity to live up to itsinitial expectations.

Methods: Using the case study approach, purpo-sive sampling was used to get 18 interview respond-ents from 10 RM companies/organizations in theUnited Kingdom. We used semistructured interviewsfor data gathering and thematic analysis for identifyinggaps in the RM value chain (ie, the range of activitiesrequired for bringing a product from conception tomarket and end-use) and the influences of the innova-tion ecosystem on the evolving RM business models.

Findings: RM promises to address currently unmethealth care needs by restoring the normal form andfunction of cells, tissues, and organs. The innovationsemerging to support the progress of RM to satisfythese important health care markets will disrupt thebusiness models of incumbent industry sectors, partic-ularly pharmaceuticals. Companies involved in thisarea must develop innovative business models andvalue chains and negotiate the complex influences ofthe innovation ecosystem, including regulatory sys-tems and standards, financial support systems, andnew market dynamics.

Implications: This article highlights the needs formore systemic analyses of the needs of potentially disrup-tive innovations, in RM and more widely, and for policy-makers to give greater attention to these insights inplanning regulatory and other supporting initiatives, withthe promotion of innovation in mind. (Clin Ther.2018;40:1084�1094) © 2018 The Authors. Published by

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Elsevier Inc. This is an open access article under the CCBY license. (http://creativecommons.org/licenses/by/4.0/)

Key words: business models, regenerative medicine,United Kingdom, disruptive innovation, innovationecosystems.

TAGGEDH1INTRODUCTIONTAGGEDENDRegenerative medicine (RM) is a disruptive innovationset to change therapy for intractable medical conditions.It departs from conventional therapy because of its claimto cure rather than merely treat chronic conditions; andthe necessity for new forms of clinical delivery collabora-tions between therapy manufacturers and surgeons.However, there are concerns that the translation of dis-ruptive RM innovations may be slow or fail to material-ize.1 Gardner et al1 suggested, "RM products andprocedures will have to work very hard to find or createan adoption space if translation into clinic is to be suc-cessful." Our article builds on the discussion by Gardneret al1 of translational challenges in the context of clinicaltrials; regulatory norms; manufacturing, scale-up, andlogistics; reimbursement and commissioning; and clini-cal adoption. However, we focus on RM business mod-els; gaps in the RM value chain (ie, the range ofactivities required for bringing a product from concep-tion to market and end-use); and challenges, from theinnovation ecosystem, facing the emerging RM businessmodels, in the context of the United Kingdom.

There are 2 important RM therapy categories: (1)autologous, in which a patient's own cells are

by/4.0/)

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harvested; manipulated in a laboratory, factory, orclinical setting; and reintroduced into the same patient;and (2) allogeneic, in which different patients receivecells manufactured in a central facility, from a singledonor.2,3 The choice of autologous or allogeneic ther-apy is determined by disease area, the availability oftherapy, or regulatory pressure on developers.4 Weargue that accelerating the clinical adoption of RMwill depend on an innovation ecosystem that facilitatesfaster integration of RM and allied business models toform viable value chains,3 aided by proportionate andadaptive governance systems.5 Regarding value chaingaps and innovation ecosystem challenges facing RMbusiness models, we accept Faulkner's6 assertion thatRM is a site for "opposing forces for gatekeeping andinnovation." The key to resolving these opposingforces, in keeping with the EU's innovation principle,7

is to develop regulatory systems that are more propor-tionate and adaptive to the needs of new technologiesthan are those currently in operation, involving morecreative use of standards and guidelines.8 Downstream,innovation ecosystem challenges need to be resolved, inparticular the adoption of RM therapies by clinicalpractice, as exemplified by the UK government's effortto establish advanced-therapy clinical centers and reim-bursement. Mahalatchimy9 discussed 2 routes of reim-bursement: (1) health technology assessment, forlarger-scale disease populations; and (2) highly special-ized technology evaluation, for rare diseases (which ismore appropriate for many RM therapies).

In this article, we discuss the value chain gaps andinnovation ecosystem challenges facing the evolvingRM business models in the United Kingdom. The anal-ysis has 3 categories: (1) nonintegrated value chains;(2) technology and delivery models gap; and (3) dispro-portionate and nonadaptive governance systems. Thediscussion of each category contains illustrative exam-ples: for nonintegrated value chain, manufacturinggap, clinical adoption gap, and translational servicesgap; for technology and delivery models gap, differentdynamics for autologous and allogeneic therapies, RMlogistics issues, and national regulatory and reimburse-ment systems; and for disproportionate and nonadap-tive governance systems, first-mover disadvantages ofregulatory learning and costs, and limited patient num-bers for clinical trials in small indication.

In the rest of the article, business models, innovationecosystems, and the framework used by STRATIS (Stra-tegic Planning of Advanced Technological Innovation

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Systems) framework are briefly discussed; and findings,a discussion, and conclusions are presented.

Materials and MethodsUsing the case study approach, purposive sampling

was used to get 18 interview respondents from 10 RMcompanies/organizations in the United Kingdom. Weused semistructured interviews for data gathering andthematic analysis for identifying value chain gaps andthe influence of the innovation ecosystem on the evolv-ing RM business models.

TAGGEDH1RESULTSTAGGEDENDRegenerative Medicine Business Models and ValueChains

Business models are frameworks of understanding thelogic of an enterprise, that is, how it creates and appropri-ates value from its unique product(s) and service(s) offer-ing(s). A business model describes, "for a sector or sub-sector, how firms operating within it can create, captureand deliver value. It acts as a guide to incumbent andfuture businesses aiming to increase the amount of valuethey can create or capture, often through the adoption ofinnovative technology."8 In this article, we use the 6 RMbusiness models (Figure 1) identified by Banda et al (per-sonal communication, [2018]), defined as follows:

� Materials and service provision business model. Thesefirms or organizations supply raw materials, reagents,machinery, and other equipment and quality-assuranceservices to RM firms/organizations. They derive valuefrom offering services and products for RM activitiesspanning preclinical, efficacy, and tolerability testing.

� Early exit Phase I/II business model. These firms ororganizations focus on the early stages of develop-ment of RM therapy. They capture intellectual prop-erty after developing innovative products, processes,and platform technologies. They appropriate valueby progressing therapies to proof-of-concept orPhase I/II clinical trials or trials demonstrating effi-cacy and tolerability, and exit the RM value chainby selling off intellectual property or technology tomore resourced firms, for example "big pharma."

� Manufacturing and scale-up business model. Thesefirms or organizations specialize in investing in currentGood Manufacturing Practice (cGMP)-compliantplants and contract manufacture therapies for otherRM firms. They also assist other firms in developing

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Figure 1. Six emerging UK regenerative medicine business models.

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the manufacturing procedure, scaling up theirmanufacturing capabilities, and producing cells forclinical trials.

� Translational services business model. These firmsprovide technological, business development, andregulatory advisory services as well as physicalinfrastructure (eg, cGMP plants) to support small tomedium enterprises (SMEs) without in-house capa-bilities. They de-risk the early stages of therapydevelopment, allowing SMEs to delay investing incGMP plants and related skills.

� Virtual business model. These prerevenue SMEs optto buy-in services and products from manufacturingand scale-up or translational services providers toavoid quickly running down their funds by carryingout the activities themselves.

� Integrated business model. This model incorporatesall of the other 5 models, and the firm controls thelaboratory-to-patient translational activities for achosen therapy because it has internal technological,financial, and management capabilities. None of theorganizations we studied displayed this model.

These business models are interlinked to form valuechains. We conceptualize value chains as describing

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"the full range of activities required to bring a productfrom conception to market and end use, includingdesign, production, marketing, distribution and sup-port to the final consumer. It can be covered by a sin-gle, probably large, firm or involve multiple firms,nationally or globally. Each firm will be working to adifferent business model, appropriate to their role inthe overall value chain."8 We bring together the busi-ness models and value chains in the methodology ofStratis,10 which brings together a range of aspectsof value chain analysis for the development of RMtherapies, including market identification, complexmanufacturing processes and their scale and locationin the value chain, distribution processes for vulnerableliving materials, partner selection and collaborative/networking approaches, intellectual property andaccess to cell lines, management of clinical trials andother regulatory approval processes, control of costs,and identification of alternative sources of value.

We borrow aspects of an innovation ecosystem fromAdner,11 who defined it as "the collaborative arrange-ments through which firms combine their individualofferings into a coherent, customer facing solution."Adner11 argues that the innovation ecosystem leveragessynergies across multiple firms/organizations to bring

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value to a customer that no firm/organization couldsingly deliver. We depart from his approach slightlybecause he describes mature markets, and their defini-tion is what we call the value chain. We consider thelife sciences innovation ecosystem to include the valuechain, all of the other things in which the value chain isembedded (the system's environment), as well as exter-nal influences such as regulation and national orregional innovation systems. We however adopt the 3risks that are characteristic of innovation ecosystems—initiative risk, interdependency risk, and integrationrisk—from a value chain perspective. Adner11 definesthe risks as follows: initiative risk is "the familiaruncertainties of managing a project"; interdependencyrisk is "the uncertainties of coordination with comple-mentary innovators"; and integrative risk is "theuncertainties presented by the adoption process acrossthe value chain." This conceptualization is relevant tounderstanding that the RM sector is at a stage at whichcollaboration with competitors is problematic and thusthe firms are likely to face different dynamics for initia-tive, integrative, and interdependency risks as theynegotiate the 6 business models discussed earlier. Forexample, in integrative risk, the higher the number ofactors in a value chain, the higher the number ofsequential innovation adopters before a product

Table 1. Effects of nonintegrated value chains and ecosyness models.

Challenge/Examples Business Model

Nonintegrated value chainsManufacturing Few cGMP planClinical adoption Lack of collaborTranslational services Squeeze on und

Technology and delivery gapsAutologous versus allogeneic therapy Product-vs-procLogistics Distribution; "stRegulators and reimbursement Large up-front p

payments for cDisproportionate governance

First mover disadvantage Steeper learningpioneer innova

Limited patients for clinical trials Clinical trial deshigher for sma

cGMP = current Good Manufacturing Practice.

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reaches the market, which we focus on when we discussvalue chain gaps. As firms transition from developmentto clinical adoption, they need to choose other businessesto work with to deliver value to the patient, and theNational Health Service will be a key player as industryexperts perceive that the value of RM is predicated onthe value chain for blood, tissues, cells, and organs—areas of expertise for blood transfusion services.

Value Chain Gaps and Innovation EcosystemChallenges Facing RM Business Models

The following 3 categories (Table 1) illustrate ourargument about the effects of nonintegrated valuechains and innovation ecosystem vacuum on evolvingRM business models. These findings are based on 10case studies of RM organizations that we studiedbetween 2015 and 2017. Eighteen semistructuredinterviews were recorded and transcribed. The namesof the organizations and interviewees have been anony-mized.

Nonintegrated Value ChainsIn the early stages of RM businesses, value chain

development and integration are crucial, and this wasconfirmed by interviewees who forecasted that in thecoming years, firms' time and effort would be devoted

stem vacuum on evolving regenerative medicine busi-

Effects

ts and lack of capacity for clinical productionations between therapy manufacturers and clinicianser-resourced start-ups

ess approaches to logistics and manufacturing choiceuffing pipe"ayment for therapies that cure vs longer-term smallerhronic diseases

curve for pioneers vs followers as regulators learn withtorsign challenges as well as the trial expenses bar setll companies

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to developing robust products and processes for clini-cal trials and marketing authorization.

Manufacturing Gaps—Public Investment inInnovation Infrastructure

In mature technologies, different businesses with dif-ferent business models link up to form viable valuechains. However, in RM value chains, there are stillgaps. Certain crucial functions have no players due tomarket failure, for example, lack of regulatoryapproved facilities for clinical grade cell manufacture,as the under-resourced SMEs cannot invest in theseexpensive plants. cGMP clean rooms are keymanufacturing cost drivers for SMEs, with basic main-tenance costs of around £250,000 (US »$334,500) perannum. Of the 6 business models, only 2, themanufacturing and scale-up model and the integratedbusiness model, can afford to construct cGMP plants.Since there are yet no integrated business model actors,only a few private sector manufacturing and scale-upbusiness model players are active in this area.

In 2014, the United Kingdom had the following 13GMP plants with 56 manufacturing clean rooms: CancerResearch UK, Biotherapeutics Development Unit (Hert-fordshire); Cellular Therapeutics Ltd (Manchester); Guy's& St Thomas' Hospital, GMP Facility (London); Impe-rial College London, John Goldman Centre for CellularTherapy (London); Kings College London, Rayne CellTherapy Suite (London); King's College London, CellTherapy Unit, Clinical Research Facility (London);National Health Service (NHS) Blood and Transplant�-Speke (Liverpool); Scottish Centre for RegenerativeMedicine (Roslin Cells and Scottish National BloodTransfusion Service; Edinburgh); University CollegeLondon, Great Ormond Street Hospital Cellular TherapyLaboratories (London); Moorfields Eye Hospital, Insti-tute of Ophthalmology, Cells for Sight Advanced Ther-apy Medicinal Products Manufacturing Unit (London);University of Newcastle Biomanufacturing Facility (New-castle); Intercytex Ltd (Manchester); and University ofOxford, Clinical Biomanufacturing Facility (Oxford).12

Of these, at least 8 are public sector or academic based,and Intercytex has now ceased operations.

In response to gaps in the value chain, the UK gov-ernment set up the Cell and Gene Therapy Catapult(CGTC) with a remit to provide: innovation infrastruc-ture (the new cGMP plant in Stevenage, UK); supportfor further investment in RM through grants; andadvice on regulation, clinical trial design, and business

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management. A respondent from an immunotherapydevelopment firm noted, "[The CGTC is a] perfectmodel for us. . . . Because [of] what it does, it de-risksthe manufacturing for us. . . . We do not have to investin building our own [cGMP] building, so we do nothave that cost. . . . So you push the risk, the point atwhich you have to invest your own money in a build-ing, further down the development pathway."

The CGTC's Stevenage plant represents publicinvestment in innovation infrastructure that covers avalue chain gap while also de-risking early stage devel-opment for under-resourced SMEs. Thus, SMEs delayearly risky investment in cGMP plants until they havedemonstrated proof of concept, efficacy, and tolerabil-ity, making them more attractive to investment byventure capitalists. However, the United Kingdom stillhas limited capacity for manufacturing cells for clinicaluse; manufacturers can produce batch sizes for treatingonly 50 patients at most. Cognizant of this fact, theUK government set up the Advanced TherapiesManufacturing Taskforce, which produced theAdvanced Therapies Manufacturing Action Plan,focusing on "retaining and attracting advanced thera-pies manufacture into the UK."13 In addition, there areharmonization and collaborative efforts by organiza-tions such as the London Regenerative Medicine Net-work and the CGTC.

Clinical Adoption Gaps—Public Investment inTrialing Clinical Adoption

There is also a lack of cooperation between therapymanufacturers and end-use clinicians regarding whatclinical adoption of the therapy will look like. The levelof cooperation depends on therapy type; for example,tissue engineering would need more intimate collabora-tion between the NHS and the RM therapy provider,as the procedure involves seeding a preprocessed scaf-fold with autologous cultured cells, and potentially sev-eral rounds of surgery, which require the training ofsurgeons in procedures. A respondent of our survey,from a tissue engineering firm, stated, "We work veryclosely with the surgeon. So, we are restoring anatomyas well as function. I guess, we have two componentswe have to fit together; . . . it is not just cells, it is notjust scaffold. We have to fit them both together in away that will work."

Immunotherapies may not require the same level ofcollaboration. However, clinical care is important formanaging a potential cytokine storm response in

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patients. Figure 2 illustrates, in immunotherapy, theclose collaboration between the clinic and manufac-turers with regard to scheduling, logistics, testing, andproduct release activities. The patient goes into theclinic and undergoes leukapheresis for the harvestingof T cells, which are modified and manufactured fordelivery to the patient, who may spend, on average, 3to 7 days in the hospital. Prior to therapy, the patientwould have been preconditioned with chemotherapyto down-regulate his or her T cells. The T cells aremodified in the manufacturing center, which works inclose collaboration with the clinic.

The findings from our study indicate that not allhospitals are able to offer RM therapies. The UK

Figure 2. Immunotherapy using chimeric antigen receptobetween the clinic and manufacturing with regaractivities (blue arrows and boxes). The patient goharvesting of T cells, which are modified and maon average, 3 to 7 days in the hospital (green arr

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government has, as a result, invested in advanced ther-apy clinical centers to build models on how RM ther-apy will work in hospital settings. Indications from ourinterviews are that RM therapies may be offered inregional centers. However, the nature of advancedtherapy clinical centers is yet to be established.

Translational Services Gaps—Public Investment inAdvisory Service

One firm we studied had identified a need in theindustry and had re-engineered its business model froma contract manufacturing organization (CMO) to atranslational services business model offering advisoryservices for RM-related businesses. It had become

r technology (CAR-T) illustrates close cooperationd to scheduling, logistics, testing, and product releasees into the clinic and undergoes leukapheresis for the

nufactured for delivery to the patient, who may spend,ows and boxes).

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cash-neutral but then became unviable when a better-resourced, publicly funded entity, the CGTC, begandelivering a similar service. The paradox is that theCGTC, as part of the innovation ecosystem, was set upas a national response to fill gaps in the value chain forRM development. The firm could not compete with awell-funded institution: "The CGTC said, 'We are goingto build a manufacturing facility. We are going to be aCMO. We are going to provide regulatory advice; weare providing business development advice. We haveresearch labs.' And they put £100 million ($133.8 mil-lion) into it. We could not compete with that."

This example highlights the tension between the inno-vation ecosystem policy and practice interventions thatbridge value chain gaps and the need to balance this withallowing enough "space" for smaller players to operateand provide a variety of actors leading to sustainablevalue chains. Institutions like the CGTC have a markedeffect on at least 2 business models—manufacturing andscale-up, and translational service provision. The crucialquestion is whether commercial companies will be ableto fill the gap when the government eventually with-draws funding from such institutions.

Technology and Delivery Model Gaps

Different Dynamics for Autologous and AllogeneicTherapies

The availability of either an autologous or an alloge-neic therapy will influence the manufacturing model,distance of manufacturing sites from the clinic, distri-bution model, and achievement of economies of scale.Autologous economies of scale can be achieved bywhat one industry expert termed scale-out—processingmany autologous samples at the same time; however,scale-out carries the risk for cross-contamination com-pared to scale-up for allogeneic therapies. Scale-outdepends on closed-system automated manufacturing toavoid contamination, which requires timely coevolu-tion of allied technologies/innovations. As a result,allogeneic therapies are deemed more commerciallyviable; however, some players choose to develop theautologous therapies first because the regulatory andmanufacturing routes of autologous therapies are lessdemanding than are those of allogeneic therapies. Aninterviewee reported that allogeneic therapy was sub-ject to stricter regulatory processes compared to autol-ogous therapy: "The reason is really learning as we goalong, it was always the concept that allogeneic was

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likely to be the easier way to commercialize to scale upand produce large amounts of drug product and selldrug product at low price or relatively low price and beable to make a big enough profit for the commercialcase for investors. But it is a longer route, . . . regulatoryapproval of an allogeneic product in Europe, and so wedecided to start with an autologous product as a proofof concept that this could work. We have done that,we have treated the first 5 patients, and we have col-lected 2-year data in some cases and 1 year in all cases.And we have enough evidence to say as a product itappears to work; now we want to turn it into a muchmore commercially viable product. . .. So we have anew Innovate UK grant which is focused on turningthe autologous product into an allogeneic product andwe have just started that."

Thus, the stringency of a regulatory process candirect innovation into certain directions, which maynot be optimal and may be wasteful of resources andtime in the early exit Phase I/II or virtual business mod-els. A tissue engineering firm also reported choosingthe autologous approach because "the cell therapyguys would say, 'Well, we've got more tolerability andregulatory concerns to deal with because you're givinga cell therapy that's . . . allogeneic rather than autolo-gous.' So, we chose autologous because it is safer, andfrom a regulatory perspective, as well it is also easier."A CMO pointed out that it can take 6 to 12 months todevelop expertise in a new cell therapy manufacturefor highly competent and versatile players. Therefore,switching source material results in significant delaysin bringing products to market. We discuss issues ofregulatory pressure on innovation subsequently.

RM Logistics IssuesThe second technology and delivery model issue is the

logistics challenge for both autologous and allogeneictherapies. There is a cryopreservation technology chal-lenge as well as working out efficient distribution systemsfor RM therapies. All respondents identified the need todevelop better cryopreservation techniques that enhancelong-term cell viability for allogeneic therapies and insome cases for autologous therapies. Thawing proce-dures also need to be easier for clinical staff. There is atechnology limitation, as current state-of-the-art cryo-preservation may not be good enough for certain thera-pies. Also, scheduling and coordination betweenmanufacturers and clinicians need to be optimized. Arespondent from a cell therapy firm carrying out clinical

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trials spoke of adverse weather affecting their operations:"I remember one winter when all the cells froze in thevan we had, the temperature dipped down because thedriver parked the car at his house halfway up to Edin-burgh overnight and everything just froze because it was�10°C. ...It was the first time I realized how importantthe logistics are in these things."

Cryopreservation and logistics affect business per-formance. A respondent with US and UK RM knowl-edge reported that the dermal substitute Dermagraft(Organogenesis, Canton, Massachusetts), which soldfor $1000/unit, was cryopreserved, whereas Appligraf(Organogenesis), which sold for about $800/unit, wasnot. Shipping and storing a cryopreserved productwere more expensive, and the cost of acquiring the�80°C freezer was borne by the cell therapy provider.Clinicians complained of the noise and heat that thefreezer generated, and that thawing introduced a riskfor mishandling the product. While Dermagraft had ashelf-life of over a year, Appligraf had a shelf-life of5 days. Consequently, the respondent said, "It wasexpensive to hold Dermagraft stock for long periods,and accountants were not happy because salesmenwere 'stuffing the pipe,' that is, they would buy a year'ssupply of products now and get a volume discount."The result was that short-term sales went up and long-term sales suffered. This example illustrates some ofthe systemic technology and delivery challenges thatthe UK RM sector will need to resolve.

National Regulatory and Reimbursement SystemsThe findings from our study show that firms in the

RM sector are currently focusing on resolvingmanufacturing and clinical trial issues but neglectingreimbursement and health care adoption. All of thefirms actively developing therapies said that reimburse-ment is further down the road and that they wouldconsider it more carefully when the time came. Arespondent from a cell therapy firm, with UK and USexperience, highlighted the health technology assess-ment and affordability challenge, especially whennational health care systems are financially con-strained. He cited the example of diabetes and ques-tioned whether the health care system could afford ahigh upfront payment for a therapy compared to thecurrent small costs spread over the lifetime of a patient.

A shift in the Medicaid reimbursement model in theUnited States had a negative effect on Organogenesis.The respondent reported that "instead of paying

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whatever the clinician claimed, they [Medicaid] saidtreating venous leg ulcer will cost so much; it's up toyou how you fix it. This was way less than was beingreimbursed for Appligraf and Dermagraft. This exam-ple caused huge problems for Organogenesis [andaffected their manufacturing capabilities]." Reimburse-ment of the cost of therapies is a value chain gap thatneeds to be addressed. One of the firms we interviewedcommissioned a reimbursement study in the UnitedKingdom, considering quality-adjusted life-years andNational Institute for Health and Care Excellenceguidelines, and preliminary results showed that theycould be reimbursed. The National Institute for Healthand Care Excellence also commissioned a mock healthtechnology assessment for RM therapies. The conclu-sion was that existing methods of assessment could beapplied to the sector; however, there remain challengesabout clinical evidence.14

The third innovation ecosystem challenge that thesector faces is different regulators for different markets,especially if they target European and North Americanmarkets. Evidence from the field suggests that Euro-pean regulatory authorities are considered more strin-gent on cGMP requirements earlier on in developmentcompared with the Food and Drug Administration inthe United States. The firms argue that it is possible inthe United States to avoid GMP right up to early stageclinical trials, whereas in Europe, that happens muchearlier. The second issue highlighted by one of the firmsthat we studied was that European firms may have tostart from scratch with the Food and Drug Administra-tion, and would have to collaborate with an Americancompany to accelerate approval. Turning to the Euro-pean setting, the firms reported that they get centralregulatory approval from the European MedicinesAgency (EMA), but they require nation-by-nationreimbursement, with each applying different criteria,making this expensive for under-resourced RM firms.However, in their discussion of regulatory systems inEurope, Japan, and the United States, Milne et al15

reported that there are attempts at harmonization.

Disproportionate and Nonadaptive GovernanceSystems

First-Mover Disadvantages of Regulatory Learningand Costs

The findings from our study indicate that some RMpioneering firms face a first-mover disadvantage as

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they bear the costs of learning how to manage the regu-latory process, and that of helping the regulators tolearn, with benefits accruing to follower innovators.According to a pioneering cell therapy firm in theUnited Kingdom, "Initially, it was very tricky for us,because the regulators hadn't really seen much of thisbefore. So in some senses, we were pioneering the regu-latory pathway, by almost being the first in. Certainly,that was the case with some of the interactions we hadhere in the United Kingdom. So the regulatory systemhas got a lot easier here in the United Kingdom—ormore efficient, would be the better word to use. Andthe efficiency has led to . . . the process has just becomemore manageable, in terms of . . . submit[ting] applica-tions for regulatory approval, the . . . number of bodiesthat . . . [the] application has to go through. It used tobe much more cumbersome in the UK than it is now.And I think the UK's definitely got its act togetherthere."

Trust develops as regulators and pioneering innova-tors work together, a phenomenon that, at a work-shop, a representative from the Medicines andHealthcare Products Regulatory Agency called the fel-low traveler concept, in which regulators acknowledgethat they learn from innovators, as it is likely that, inniche areas, innovators know more than do the regula-tors. Some firms acknowledged that when they started,they did not know what the regulator wanted and theywere unsure of the stance they would take on a particu-lar issue, especially in situations without precedents.However, firms pointed out that the regulatory processis still expensive, which can hinder innovation. Forexample, one firm reported that the regulator informedthem that they had to run trials in in vivo animal mod-els, and the trials had serious limitations and did notdeliver useful data. They felt that use of in-vivo animalmodels was wasteful of animals, money, and time, butthey had no option because that was the advice fromthe regulator. Another firm argued that regulators canbe accommodative of innovators if one knows what heor she is doing. They sought clinical trial variation foran immunotherapy and obtained it. The accommoda-tion by the regulator may have worked for thembecause of their extensive in-house regulatory experi-ence and long-term liaison with the regulators, whichcould have built trust.

Turning to standards, we found that first-movers'advantage could be obtained by "gold-plating" stand-ards or regulations. Pioneers could set higher standards

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than are required as a competitive tool and barrier forentry (see Tait and Banda5 for a detailed discussion onstandards in cell therapies). Reinforcing this aspect,one respondent reported that in-house regulatory staffhave 2 employers: the firm and the regulator. They canchange their employer but the regulator remains thesame, and as a result, they are motivated to preservetheir reputation with the regulator by being overlystringent, thereby gold-plating standards.

Limited Patient Numbers for Clinical TrialsLimited numbers of patients with rare indications

lead to challenges in designing clinical trials. Forexample, epidermolysis bullosa has a prevalence of1 in 1 million (about 60 patients in the United King-dom). If 8 clinical trials were required, the RM firmswould run out of patients. One firm that was inter-viewed had only 11 patients and could not proceedfurther with clinical trials. Small patient numbers areespecially difficult for under-resourced SMEs runningeither the virtual or early exit Phase I/II business mod-els because they cannot afford to recruit patients out-side of the United Kingdom. However, Faulkner16

reported that regulatory systems are now beingadapted for rare indications, and Mittra et al17 arguethat the usual approach for indications such as b-thal-assemia is to choose a country with a patient popula-tion sufficient for the clinical trial.

A related issue is shifting goals for later-comertherapies in clinical trials as standards of careimprove. A respondent from a cell therapy firminformed us that the effects of Organogenesis'Appligraf therapy were measured against those ofstandard therapy for venous leg ulcers at that time,an Unna paste boot (zinc oxide paste, with an elas-tic wraparound), Appligraf easily passed. On theother hand, a therapy from Advanced BioHealing(La Jolla, California) failed in Phase III clinical trialsbecause its effects did not reach statistical signifi-cance compared to those of a 4-layer compressionbandage (Smith and Nephew, London, UK), whichhad become the standard of care and was more effi-cacious than was the Unna paste boot. In this case,the pioneer had first-mover advantage as the barwas raised for subsequent competing therapies. Thisexperience is common among companies andresearchers working on the frontier of innovationwhen they are unaware of a competing innovationemerging from a different field of science.

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G. Banda et al.

TAGGEDH1DISCUSSIONTAGGEDENDThis article has identified a number of gaps in the valuechains required for delivering RM therapies to variousmarkets, and in the innovation ecosystem, that willneed to be tailored to more effectively meet the needsof small and large companies innovating in this area. Ifgovernment supports were removed, current RM valuechains would not be viable.

This articles has focused on gaps that are holdingback the development of the integrated value chainsthat will be needed for RM therapies to become inde-pendently viable treatments. We have identified 3 valuechain�related gaps—manufacturing, translationalservices, and clinical adoption—and public investmentis currently bridging these gaps. Specific areas requiringattention include re-engineering the dynamics of distri-bution and logistics in cell therapies, the coevolution ofsupporting expertise (eg, in cryopreservation, surgicaland medical skills), increasing the scale and quality ofmanufacturing facilities, and cultivating and support-ing end-user markets.

For issues arising in the innovation ecosystem, wehave considered regulation and how it can channelinnovation unintentionally in certain directions. Impor-tant factors are the first-mover disadvantage, in whichpioneers incur severe regulatory learning costs, and thefirst-mover advantage, in which pioneers are able togold-plate standards to make life more difficult thannecessary for followers. Clinical trials also presentproblems for innovative companies in terms of theneed for recruiting patient numbers large enough tomeet the requirements of a regulatory system designedfor large-scale medical indications. The differentrequirements of regulatory systems in different nationaljurisdictions are also inhibiting international collabora-tion in RM development.

TAGGEDH1CONCLUSIONSTAGGEDENDThe findings from this study highlight the needs for (1)more systemic analyses of the needs of potentially dis-ruptive innovations, in RM and more widely; and (2)policymakers to give greater attention to these insightsin planning regulatory and other supporting initiatives,with the promotion of innovation in mind. Some of thegeneral manufacturing and translational challenges arebeginning to be addressed by organizations in theUnited Kingdom, such as the CGTC, London Regener-ative Medicine Network, and specific centers that have

July 2018

been set up for this purpose, including, for example,the Engineering and Physical Sciences Research Coun-cil's Centre for Innovative Manufacturing in Rege-nerative Medicine, Loughborough University(Loughborough); the Centre for Regenerative Medi-cine, University of Bath (Bath); and the UK Regenera-tive Medicine Platform (https://www.ukrmp.org.uk/hubs).

TAGGEDH1ACKNOWLEDGMENTS TAGGEDENDThis work was funded by the UK ESRC Grant Ref ES/L002779/1.

TAGGEDH1CONFLICTS OF INTERESTTAGGEDENDThe authors have indicated that they have no conflictsof interest with regard to the content of this article.

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Clinical Therapeutics

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1LZ, United Kingdom. E-mail: Geoffrey.Banda@ed.ac.uk

Volume 40 Number 7