When you consider the value of an asset, it can effectively be expressed as the integration of several variables over the lifetime of the product. During discovery there is research value or scientific value; then clinical and medical value follow as you develop the product; when it actually gets approved you then find the commercial value and most importantly the patient value.
There are many factors in that equation that either will increase or decrease the value during the asset’s development, depending how you manage it. The value perceived initially may be very different from the value realised when it is launched into market, and one of the problems with discovery and development organisations is that they see a lot of value in the science and a lot of value in the research – without necessarily answering the question about whether that will translate into commercial value.
The statistics point strongly to the low odds of taking an asset from its scientific starting-point to having commercial value. In 2016 there are just under 14,000 assets in the development pipeline around the world; approximately 2% of these will be approved. Unsurprisingly, slightly more than half (approximately 8,000) of those in development are in the early stages (preclinical and phase I).
In addition, worldwide there has been an explosion of new companies. In the last five years there has been an increase of over 50% (2,387 in 2011 to 3,687 in 2016) in start-up companies. Over half of those in the market are developing just one or two assets – in effect betting the whole company on the success of one drug. It’s a very big gamble, which is why persisting with an asset that is clinically sound but commercially irrelevant is such a mistake. There are many small start-up companies which spent eight to ten years developing a product, only to fail in approval, or else realise too late that there were no proper commercial endpoints or it did not meet a substantial unmet need.
To be successful means identifying the need and the commercial value early on in the development process, as well as revisiting and refining the value as you progress through the various phases. It means understanding what else is coming onto the market from a competitive perspective and the clinical relevance from a patient perspective. If other products enter your market before you launch, this will alter the commercial value of your asset and may alter the clinical relevance of your asset, so you will need to rethink the endpoints.
Clinical relevance is increasingly important for approval, and if your asset is not superior – certainly in Europe and increasingly in the US – you are unlikely to gain approval. Or possibly a worse case – approval with little utilisation. With as few as 30 or 40 new products approved in these markets each year, the threshold is set high.
Persisting with an asset that is clinically sound but commercially irrelevant is such a mistake
The other reason for thinking about value throughout the development process is that at each phase, more investment will be needed, especially in smaller companies – and bear in mind that many of these have no revenue at all. So if the (perceived commercial) value is not going up at every stage, investors will be reluctant to continue backing the asset.
Investors understand that it’s a gamble, but like every gambler they want the best odds. The figures really are staggering: there are companies with assets in development that have capital values in the billions, and they don’t even have a commercial product.
For example, Alnylam Pharmaceuticals, with its lead product in phase III, has a market capitalisation of $7.4bn, despite having no marketed products; or Achillion Pharmaceuticals with a market capitalisation of $1.2bn, with its lead asset in phase II. Those figures represent a huge show of confidence by investors that the scientific value of their assets will eventually translate into commercial value.
But while venture capital investors are pumping many billions of dollars into the sector, biotechs wanting a slice of that cash to support the development of their asset are increasingly having to demonstrate not just the scientific value of that asset, but the potential and/or actual clinical and commercial value of it as well.
So that is why managing the metamorphosis from scientific to clinical to commercial value is so vital. What actually needs to be done to achieve that aim? By looking at key decisions which need to be made at the value inflection points, we can improve the probability of getting a drug successfully to market.
You need to accept that there will always be market forces that you can manage but can’t control. Having a good look over the horizon of what is happening in the market clinically and commercially is pretty important, because if you have a static programme for development over six to eight years you’re bound to fail.
However, if you have a dynamic process, meaning you understand the market changes (which new drugs may emerge, how the clinical differentiation may evolve or how patient needs may change) and adapting your development to those changes (which is perfectly possible, because you can change your target product profile and therefore your endpoints), then you can improve your probability of success.
To survive, these research companies have to be commercially viable
So keep an eye on value. That means understanding, and making sure you’re addressing, patients’ needs. But it also means understanding payer policy and payers’ needs as well.
Even entering phase II you need to get a good read on things like cost benefits, reimbursement policies and positioning, because without doing that you could end up with an asset that is clinically relevant but commercially irrelevant.
But even earlier in the development process – coming out of discovery, entering phase I – your value proposition is essential. That is when you do proof of concept, when you outline a value proposition that needs to include not just a commercial view of what is in the market, but also a payer view.
This early phase is also when you need to start doing things like early medical communication, touching in to the market to understand how receptive customers (physicians and of course patients) will be.
As you move through the phases of development, the next step is to take that unmet need and value proposition, and understand the clinical and commercial endpoints. As you move up that curve of value and commercial relevance, it is important to get payer acceptance of your concept, because you will now need to start putting serious money down, hence the expected value needs to be realised as you go forward.
This is often the point (phase IIA or IIB) at which smaller companies decide to out-license, because they are facing a huge investment; if the value can be demonstrated, they can attract investors. If you only start to think about the inherent value of your asset at this stage, you are unlikely to be an attractive proposition.
In some cases this commercial imperative doesn’t come naturally; many researchers get enamoured with the intrinsic (scientific) value of the research. But to survive, these companies have to be commercially viable, so you really need to have a commercial view on life from day one and not be blinded by your personal investment in the research.
In a lot of companies marketing and sales is viewed as a ‘dirty function’, because scientists tend to be a little more idealistic about their research, but there’s a point where idealism in research has to give way to realism of commercialisation. If you are a scientist it’s ok to embrace the ‘dark side’ of commercialisation, because in the end it is what will allow your research and development to get to the patients who need it most.
In the end, passion can’t replace profit. Those biotechs that recognise the need to manage the value of their asset during the development process, to make it both clinically and commercially relevant, are those who will see their assets translated into approved products on the market. Ultimately it’s about adding value to the healthcare system, providing a commercial return for those who had the faith to invest in the product, and helping patients. Scientific passion, relevant product and appropriate profit equals value.