BIOTECHNOLOGY X-FACTORS WHAT MAKES A WINNER?

 

When building a biotechnology company, the exit or liquidation event normally represents the single event where investors can obtain a financial return on their long-term investments in your company. This naturally means that you as an entrepreneur have to focus comprehensively on reaching this long-term goal as efficient, fast and cheap as possible. Along the way, you have to secure venture financing and seek partnerships to develop and progress the underlying technology towards the final product launch with scientific and business bargaining power to maximize company valuations. It is fortunately the same elements that makes your company attractive for successive rounds of venture capital investments that ultimately makes your company able to make a successful exit: a big-pharma partnership, a company sale or an IPO. It is therefore imperative to secure projects and molecules with final commercial success potential at all steps of the business growth – what X-factors should you secure in your biotech development plans so you can get access to the most valuable transactions? And naturally address in your business plan?

 

X-FACTORS OF YOUR BIOTECH PLANS

The core X-factors you have to focus on are:

  • A value proposition that includes product differentiation as the single most important factor.
    • Build IP assets – you have to ensure freedom to operate and exclusivity.
      • A strong management and advisory team with respect to the technology and the business field.
        • A continuous focus on your technology and the market conditions – entrance of new competitors, changing regulatory environment etc. that potentially can affect the company/project valuation along the product development.
          • Ensure you try your best to avoid contingent liabilities.

           

          Ensure product differentiation – the molecular value propositions – Several studies have investigated the molecular success factors for pharmaceutical drugs: In general, the main drivers for commercial success is product differentiation with respect to the standard of care (safety, efficacy and convenience) and market size at time of launch (see figure below). No correlation between new MOA and market success have been found in several studies. See references at end of post for further information. Other variables (new MOA, competitive intensity at time of launch (including number of patented drugs, market share of generics and number of products in pipelines), period of exclusivity and addressing an unmet medical or market need (assessed in the same three areas as differentiation) were in a study by Hariharan and Singh found to be statistically insignificant with respect to product success. Possible X-factors for you as an entrepreneur to consider in your business development plans:

          • You should define the current and expected future standard of care. Your technology have to be able to deliver molecules that can exceed the bar with respect to the standard of care for clinicians. In this respect the most important aspects are improved safety, improved efficacy or improved convenience of use. Differentiated pharmaceutical products succeed in obtaining a price premium despite high competition.
          • A new MOA is not necessarily correlated with the differentiation potential of your final product – again, your product will have to deliver improved safety, efficacy or convenience of use for your customers, which are likely to be clinicians – include clinical teams early in your business development plans.
          • The most important aspects of your Target Product Profile might be what matters to the physicians.
          • You should aim for clinical differentiation rather than mechanistic differentiation.
          • Market size matters (and market growth).
          • Design of clinical trials – it might be valuable (depending also on the particular market) to include strategies to be able to demonstrate levels of differentiation.

           

          DifferentiationVsMarketSize-e1407361086426

          Differentiation and Market size are the single most important factors for Commercial success of new drugs. Differentiation given as an arbitrary score on differentiation levels in efficacy, safety and convenience. Market size at time of launch: Low is <$US 3 billion, high is >$US 3 billion. Modified from Invention reinvented, McKinsey perspective on pharmaceutical R&D, 2010.

           

          Build IP assets – The market value of a drug candidate (or other biotech products) with limited possibilities for exclusivity on the market has limited value. The “Freedom to operate”, often abbreviated “FTO”, mean whether a particular action, such as testing or commercialising a product, can be done without infringing valid patents of others and potential exclusivity through patents or an orphan drug designation. It is vital for your biobusiness to act on the fact that the market potential of a new biotech product to a large extent is defined by both the ability to market the product without interference from others (FTO) and by the availability of exclusivity platforms that can hinder others from marketing and selling competing products (patents and orphan drug exclusivity for pharmaceuticals (7 years marketing exclusivity after the orphan drug marketing approval is granted).

          The market conditions – it is naturally important to have a good understanding of the market and the unmet needs in the market you operate (see above). Moreover, most biotechnology products possess very long development timelines before a potential successful marketing approval. This means that the market conditions in which you operate can change significantly during the product development phases. Of particular importance are potential changes in the regulatory environment, reimbursement practices and new competing technologies. Some of the business development databases included in the BD section will might be able to keep you updated on the important matters.

          Avoid contingency liabilities – you can expect extensive due diligence on your company in any potential VC transaction, sale etc. with respect to validity of IP, compliance with the applicable law and so forth. This fact should naturally be included in your daily operational management administration.

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          RESOURCES, REFERENCES AND KEY LITTERATURE*


          ONLINE RESOURCES

          REFERENCES & KEY LITTERATURE
           Morgan, S., Grootendorst, P., Lexhin, J., Cunnigham, C., and Greyson, D. (2011) The cost of drug development: A systematic review. Health Policy 100: 4-17

           Kaitin, K.I., and DiMasi, J.A. (2010) Pharmaceutical innovations in the 21st century: New Drug Approvals in the First Decade, 2000-2009. Clin. Pharmac. Therap. 89:183-188

           Adams, C.P., and Brantner, V.V. (2010) Spending on new drug development. Health Economics 19:130-41

           DiMasi, J.A., and Grabowski, H.G. (2007) The cost of biopharmaceutical R&D: is biotech different? Mangerial and Decision Economics 28:269-279

           DiMasi, J.A., Hansen, R.W., Grabowski, H.G. (2003) The price of innovation: new estimates of drug development costs. J. Health. Economics, 22:151

           Adams, C.P., Bratner, V.V., (2006) Estimating the cost of new drug development: is it really $802 million? Health Affairs, 25:420-428

           Paul, S.M., et al., (2010) How to improve R&D productivity: the pharmaceutical industry’s grand challenge. Nat. Rev. Drug Disc. 9:203-14

           McKinsey & Company Publication (2010) Invention Reinvented. McKinsey perspective on pharmaceutical R&D

          Hansen, R.W., and Chien, R.I. (1979) The pharmaceutical and development process: estimates of development costs and times and the effect of proposed regulatory changes. In: Issues in pharmaceutical economics. Lexinton, M.A. Lexinton Books, 151-191

          DiMasi, J.A., and Grabowski, H.G. (2011) R&D costs and returns to new drug development: A review of the evidence. In: The Economics of the Biopharmaceutical Industry. Danzon, P.M., and Nicholson, S. Oxford University Press, 21-46

          *Note that the many of the mentioned papers are covered by copyright issues. For these we therefore only refer to a corresponding search engine result or directly to the journal publisher. BioNews & Earning Calls

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