Exploring a new mechanism to fund the timely execution of deprioritised trials
By necessity, biopharma companies allocate their development resources to assets and clinical trials that promise the best return. Building on common sense and sound business practice, pharmaceutical companies are proficient in prioritising their development dollars. However, the downside of that equation is the opportunity cost of not progressing lower-priority clinical studies.
The value of development assets is based on potential future revenue. The limiting factor to that value is the patent expiration date associated with it. This means any critical path trial that is delayed postpones registration and reduces the value of an asset because the period during which revenue can be earned is shortened.
The cost of funding a clinical trial today can cost biopharma companies upwards of $100 million.1 Global pharma businesses that spent the last decade building a robust pipeline of early stage compounds and indications are now faced with a wide portfolio of potential assets without the resources to fund their development. The result? Drug makers that have made the investments necessary to ensure strong R&D pipelines are now losing billions each year in potential revenue as promising new therapies are sitting dormant, waiting for their patents to expire.
Innovative strategists in Big Pharma are exploring a new way to claw back some of these costs and expand the number of new therapies that go through to the development and clinical trial stage. In a word, partnerships. Working with CROs, universities and patient advocacy organisations, drug makers can find investors who see their compounds and indications as valuable assets, and are willing to provide the capital and share the risk involved in getting a promising new therapy through the development stage, regulatory approvals and launched to market.
Companies interested in partnering to fund lower-priority drug trials should consider this investment roadmap to begin exploring the possibility of partnerships to fund lower-priority drug trials (Figure 1).
When reviewing their portfolio of deprioritised new therapies, drug makers must make tough choices about which clinical trials will attract external investors and be profitable once in market. Trials need to be relevant and complementary. The relevance of a trial is based on its potential market demand, and will predict the value of the development asset if trials are successful and it is approved by regulators.
Packaging a number of trials for new drugs in the same therapy area is an attractive offer for investors, and will reduce upfront costs. Even trials in the same therapy area need to be complementary — in the form of geography, indication, trial duration, patients, etc. — to realise these operational advantages and identify the right CRO to execute them.
Remember, a real transfer of risk is required for the partnership to help the drug maker develop its assets without adding development costs to its bottom line. However, that means that actual risk needs to transfer from the biopharma company to other parties. A clinical trial with a 95% probability of success would not satisfy this requirement, as it would just be a financing arrangement camouflaged as an investment.
A successful partnership will bring together the biopharma’s science and data, the CRO’s trial operation capability and capacity, and the investors’ funds, along with their knowledge of structuring and exiting these types of transactions. Finding the right CRO will be based on their location, track record and expertise in the relevant therapy area. Finding the right investors takes careful targeting and multiple approaches. These could be venture capitalists specialising in biopharma, non-profit organisations and patient groups with a focus on a specific therapy area, and other types of investors with an interest in the specific disease area or public health issue.
Once partners are committed to the project, the next step is to develop a legal structure and financing arrangement. The new entity could be a joint venture or special-purpose organisation, established solely to operationalise and manage the execution of the included trials, with governance by representatives from all of the partners. Setting clear goals for each partner and doing a full risk assessment are critical to setting the new organisation on a strong foundation. The risk assessment must include thorough due diligence and a clear exit strategy that ensures all partners are clear about the outcomes and their role in delivering the final goals.
During the next 2–4 years, the new organisation will be working toward completing development on the selected potential therapies. This will require establishing processes and roles upfront to ensure efficient and effective operations. Consider the following four areas before operations begin:
The partnership must have a clear, pre-agreed process for closing out of the relevant trials, realising value for each partner in line with the contract, and effectively dispersing or disposing of accrued assets. Arthur D. Little developed this model during a project with a major biopharma client. Through portfolio analysis, we identified 33 clinical trials that met the initial criteria for acceptance into this model. The 33 trials represented six different therapeutic areas, and the combined cost of all 33 trials was approximately $480 million (Table I).
From this initial list, we selected the respiratory trials (relating to three development compounds and three different indications) and developed a high-level financial model to understand the possible attractiveness of the concept. The required total investment to run the clinical trials in the new entity was $120 million. Based on the asset data, we developed a model by building on the current valuation of the asset, as well as the probability of success and impact of the trial (successful or unsuccessful) on the valuation of the asset through adjustment of net present value (NPV).
The outcome of the model was an estimated value increase of $500 million in 3 years on the overall assets. This generates a positive NPV for investors and allows them to double their investment in 3 years, assuming some of the trials have positive outcomes. This compares very favourably to the return on big biopharma company shares.
The pharmaceutical industry is already well versed in partnering at the drug discovery and marketing and distribution stages. Building these new partnerships to fund clinical trials and get new, life-saving therapies to market is a natural next step for those with robust R&D pipelines, and will result in improved value creation for companies and improved quality of life for patients.