Pullan's Pieces #158
Pullan's Pieces #158
April 2020
BD News and Analysis for  Biotech and Pharma
Dear --FNAME--,
Life amid lock-downs goes on.  

May 8th is my next webinar Pullan's Pieces Immunology Landscape - please sign up for a live or later viewing.  https://www.lesusacanada.org/event/LSS05082020

The whitepaper from my panel on Adoptive Cell Therapy is up.  ACT Whitepaper

You can watch the panel Seal the Deal. from my first ever virtual partnering meeting, BioEurope Spring.   

We are doing deals (Yeah!) and all the work to get there.   And just beginning to think of the next virtual meeting, BIO International - talk to us about helping you there! 



1.  Value Components
2.  Infographic: Immunology Sales                                              
3. Jessica:  Developing drugs for Covid-19
4.  Trevor:  In the bailout era, what about IP
Thinking about Value Components
Value components 

When talking about how to value a piece of a complex drug product, I realized that it could be helpful to set out a framework for the components of value.  I've touched on some of this in the past, with the whitepaper on "Valuation of your Early Drug Candidate", https://www.pullanconsulting.com/resources.html.  In that whitepaper, I covered calculation methods, a bit on modeling assumptions  and more. 

Here I want to dive into concepts of components of value.  

High level Framework
At the top, we can start with a conceptual framework of the 4 key questions a partner asks and how that makes up today's value. 

So for the highest level buckets for components of value, I'll use 
  • Fit / Competition
  • Potential
  • Reductions in Time and Money
  • Removal of Risks.  

From here, we can think about factors within each of those buckets,  perhaps helpful to stimulate your thinking.  

Fit / Competition Factors that drive value
  • Few competitors at target or disease (Potential to be First)
  • A large number of potential partners/buyers with strategic fit 
         Clearly, more bidders on an asset will help drive deal value
  • Demonstration of superiority (ideally in efficacy) over competitors in animal models
  • Exclusivity in the deal
         More value will be assigned to exclusivity if there is no other form of exclusivity - if you are bringing the only exclusivity. In a multi-component drug, exclusivity may come from 1 or more components.  
  • Absence of substitutes
          Formulations offer suffer in value calculations as there may be another formulation almost as good.  
  • IP -its strength, countries with coverage, types of claims, duration
          IP is a barrier to competition, and more value is assigned to composition of matter than method of use.  
  • Market not too fragmented
           It is harder to capture a market where superiority to or combinations with multiple established drugs.  It is easier to take away the market from a single drug than from many.  

  • Mechanism -  A biologically important mechanism suggests potential
  • Data - Data demonstrating effects in multiple models supports potential      
  • Big Addressable Market size
     This ideally means more than saying the indication is big; it should mean that the market segment where your drug best fits is big.  
  • Health economic benefits to payers
  • Additional indications Upside
    typically partners assign the value mostly to the lead indication but upside can help)

Reductions in Time and Money to be spent
  • Stage of development / Rapid path to approval (less time to sales)
  • Small trial sizes/ high effect size (less development costs)
  • Good manufacturing process development (low cost of goods)

Removal of Risks
  • Selectivity
  • Good drug properties (including solubility and PK)
  • Great target validation (especially in humans)
  • Evidence on mechanism in animal disease model
  • Biomarker for dose and/or patient selection
  • Clear regulatory endpoints
  • Validation of you as a partner

Thinking about these factors can help you wrestle with what the value of your program might be, and can help you prepare to tell others about your value. In our world of therapeutics, because the time to market is long, and the risk of failure is high, assessing value is an art but an art worth studying.  
Infographic:  Immunology Sales (part of May 8th Webinar)
Jessica:     Developing Drugs for Covid-19

Last month we talked about the impressive speed with which COVID-focused drugs are being developed with the sequence of the virus having only been completed and released in January of this year.  Naturally the next steps in the process will be to map out manufacturing plans, anticipate and plan for late clinical trials and market launch.  For the vaccines, significant investment and partnerships have already come in the form of government and non-government organizations (NGOs).  Here we’ll discuss some considerations for manufacturing and forecasting demand for COVID-focused therapies and briefly examine an underutilized regulatory path for emergency use authorization of medical products in the United States.

Addressable Market

Understanding the addressable market will help drive the estimation of how many doses will be needed per year.  Once there is an approximation of dosing per year, forecasting for manufacturing and revenue can be estimated.  Will this be a “one and done” treatment for each patient or will there be repeat dosing?  Will the drug be used only for only the most severe cases (in the intensive care unit, for instance) or for patients with co-morbidities and/or underlying health conditions?  The answers to these questions will dictate how many patients may be addressed with a new drug. 




Stockpiling is likely going to be the path forward for most of the COVID-focused vaccines in development.  Most of the development is, in part, being funded by government (eg BARDA in the USA) or international non-government organizations (eg CEPI).  Therefore, entities such as these are likely to establish purchasing plans to ensure that availability and affordability for vulnerable populations.  Some therapeutic medicines may also be subject to stockpiling as security measures for future waves of the COVID-19 (or future) pandemics.  For drug development and manufacturing this equates to predictable and reliable forecast for manufacturing and sales.

Acute Need

In the event that the COVID-19 pandemic ebbs and flows as the MERS global epidemics of 2012, 2015, and 2018 have, there will be a swift and significant need.  In these instances, manufacturing and distribution will need to ramp quickly and may abate within a few months.  For drug supply this means that manufacturing facilities will need to be licensed, validated, and stocked with raw materials to ramp up quickly as needed.  Additionally, in the event of a new wave of epidemic or pandemic, even stockpiled drugs will likely require some additional acute need manufacturing.

Chronic Need (eg seasonal flu vaccine)

It is possible, as it is still currently unknown, that SARS-CoV-2 will be around for a while and that there may be some persistent need for vaccines and/or therapeutics to address regular/seasonal spikes in cases (eg flu).  If this happens, some threshold level of manufacturing and sales can be expected, while occasional “acute need” spikes can likely also be anticipated. 

Vaccine Manufacturing Considerations

Most of the top vaccine candidates are currently in early clinical trials and are concurrently feverishly planning for incredible scale-up initiatives and pivotal clinical studies.  For a good overview of global vaccine development (and additional links therein) see: Science Translational Medicine.  With the incredible amount of effort and investment ongoing we’re realistically talking about the possibility of having one or a few of these vaccines on the market by the end of 2021.  In the context of being confined to our homes and conducting all external human interactions through virtual meetings, this is painfully slow.  However, in the context of standard drug development this is mind-blowingly fast!  Below is a summary of some of the higher profile vaccine candidates with some commentary on their disclosed clinical and manufacturing plans:


Emergency Use Authorization

Johnson & Johnson is the only sponsor of novel COVID-19 vaccine currently projecting an Emergency Use Authorization (EUA).  The EUA authority for the US FDA was in response to requests by Centers for Disease Control for use of medical supplies not yet marketed, or marketed for different indications, for the detection, prevention, or treatment of diseases that pose a severe public health threat.  The EUAs that have been issued, and are currently active, are as follows:   

​​​​​​​FDA EUA - 22April2020

There is so much to unpack here!  First, the amount of authorizations granted in the last 3 months for SARS-CoV-2 is dizzying!  New authorizations have been added (just about) daily in the last month.  And rightly so, as SARS-CoV-2 is impacting much more of the US population (not to mention global impact) than the others.  Focusing, for a minute, on the Pre-COVID EUAs - it’s interesting to note that the first of the diagnostic tests for Zika were authorized in 2016, with additional tests authorized through 2019.  The major outbreaks for Zika in the US were in 2015 and 2016 with the number of transmitted cases of Zika in the USA declining in 2017, with no known transmission within the US in 2018 (any cases were likely travel-associated acquisition), and no confirmed cases of Zika in the US in 2019.  This definitely highlights a “shadow” effect of <special> authorizations for medical advancements coming after the peak (or complete resolution) of an outbreak.  It is also interesting that for Zika, and the other disease outbreaks, the EUA has been used primarily for diagnostic testing and not therapeutic products.

EUAs and Treatments

Very few therapeutics have been approved through EUA; just 2!  Furthermore, the EUA authorized therapeutics are not novel, Doxycyline for Anthrax and Chloroquine or Hydroxychloroquine for SARS-CoV-2.  And a new, non-peer reviewed, study demonstrating an increased death rate associated with COVID-19 patients treated with Chloroquine or Hydroxychloroquine has many questioning the rigor with which these EUAs are granted. 

Indeed, the requirements along the path to authorization will be important as there is currently no precedent for EUA authorization for use of previously unmarketed treatments.  Johnson & Johnson’s assertion that they will seek EUA approval for their vaccine candidate would make it the first vaccine approved this way.  It is possible that other vaccine and/or therapeutic developers are contemplating the EUA path but have not yet announced the intention to do so.  After perusing the latest (updated 2017) EUA for medical products guidance from FDA it seems, in some ways, to resemble that of other FDA regulatory designations in which there is more flexibilty in requirements associated with defensible rigorous study design and data. 

Ultimately, we all, hope and expect to see safe and effective treatments come to the market in order to keep us safe and allow us to get back in touch with reality.

Trevor:  In the bailout era, what about IP?
In the Bailout Era, What About IP?

Much has been written over the last month and a half about how to manage through this period of massive uncertainty.  By now you may have read Bruce Booth’s (of Atlas Venture) piece on navigating crisis through strategic planning and execution, echoes of which were undoubtedly bouncing around the virtual boardrooms over the past several weeks as companies large and small wrestled with the critical need for removing uncertainty through the generation of important data.  

We’ve also heard lots of pundits say that this is a healthcare and not a financial crisis.  I suppose that’s true if we call a financial crisis only that which emanates from the financial sector and associated mechanisms of capital flow.  But moves like we’ve witnessed in most major markets (May WTI oil contracts anyone?) don’t happen if liquidity is present.  When you see the Vice Chairman of Berkshire Hathway, with well over $120 billion in cash on the balance sheet, talking about preserving liquidity, it would seem that there is some component of a financial crisis at play:


Or how about the trillions that have been printed out of thin air; oxygen, as it were, for those people and companies suffocating under financial stress.  There’s an old quote attributed to 1950’s US Senator from Illinois Everett Dirksen, "A billion here, a billion there, pretty soon, you're talking real money."  We’ve officially crossed the line from a “billion here, a billion there” to a “trillion here, a trillion there”.  What is “real” money in a world like that?  Sort of makes the biggest biobucks deals look pedestrian by contrast. 

But what about those deals?  So far, most of the dialogue during the pandemic has been focused on hightened challenges to raising new financing and the direct costs associated with mounting delays in clinical trials (one count shows a 41% increase globally from end of February through April in trials that “were suspended, terminated, withdrawn or moved to ‘not recruiting’ status” on ClinicalTrials.gov).  However, the carnage in clinical trial operations has a knock-on effect to the underpinnings of the way the industry protects the value created by the massive investment required for the research and development in order to bring a new drug to market – intellectual property.

What happens to the risk-adjusted net present value (rNPV) models that play a key role in deal-making when the duration of Phase III is extended by a year while the ability to protect your investment for a standard period of time is simultaneously reduced by a year?  Is there a  Pandemic Premium that may find it’s way into deals going forward?

Let’s say you are a late-stage company with a lead asset that managed to clear Phase II with good data and solid Phase III planned.  You’ve faced down the naysayers and along have carved out a leading role in an indication of substantial unmet need.  You’re plan has been to seek an M&A deal prior to Phase III to reward long-time investors and employees and to off-load the remaining development and commercialization efforts.  Typical rNPV modeling might show 3 years in Phase III, a year for approval and 10 years of revenue.  The rest of your company’s particular inputs leads you to a risk-adjusted net present value of approximately $783M, a number that you believe represents a fair value from which to further negotiate terms.  But your prospective partner now sees the potential for delays as an unknown risk it wishes to quantify in some way and adds a year to the duration of Phase III in their models which results in an rNPV nearly $100M less than your model (note: models are not usually shared between acquisition/licensing parties, this is for illustrative purposes only). 

Now let’s say that the partner also wants to apply a haircut to the forecasted years of protected revenue to account for competition that comes in a year earlier since your key patents still expire on the same date.  The modeling is imperfect here as it shows a cliff as opposed to a gradient in loss sales but the impact is evident in a further, substantial reduction in rNPV valuation:

The easiest way for acquiring companies to account for this new perceived risk might be to not deal with those variables previously mentioned (i.e. trial duration, years of sales – 10 years is usual and customary) but instead to adjust for risk by increasing the cost of capital.  All else being equal, the increased cost of capital from 15% to 20% results in considerably lower values. 
In a March 27, 2020 article for Bloomberg Businessweek, Robert Reich (economist and former Labor Secretary under Clinton) gets a couple things wrong about what companies will “have” on the other side of the pandemic:

In an industry so heavily reliant on patent protection to provide proper rewards for the ridiculously high financial risks and long period of time before a revenue-bearing product is taken to market, time-ticking on patent life is deleterious to value.  It’s hard to imagine a wholesale extension on IP (what are the cutoffs?) but that would be one way to restore lost value.

www.Pullan Consulting.com

Pullan Consulting (www.PullanConsulting) provides advice and execution for biotech partnering and fund raising, with outreach to partners and investors, help with shaping of presentations, evaluations and market analysis, preliminary valuations and deal models, and negotiations from deal prep to term sheets to final agreements. 
We have extensive scientific and financial experience, with many deals signed. 

Send us an email or set up a call if you want to explore how Pullan Consulting might be of help!

Linda Pullan                     Linda@pullanconsulting.com 
Trevor Thompson             Trevor @pullanconsulting.com 
Jessica Carmen               Jessica@pullanconsulting.com 
9360 W. Flamingo Road, Suite 110-554 Las Vegas, NV 89147