The biotech industry can now be considered “biotech 2.0,” according to Credit Suisse. It has moved from the “hope and a prayer” of version 1.0 to the point of actually delivering on its promise, Sara Jane Demy, CEO and founder of Demy-Colton Life Science Advisors, told the crowd at Biotech Showcase™ 2015 before introducing the luncheon panel discussion.
Biotech Showcase day 2 plenary panel
Despite the innovative, transformative products that are rolling out, high prices could derail any biotech rally. “It’s important for the industry to understand we’re in a changing environment when it comes to reimbursement,” Dan Mendelson, CEO, Avalere Health, pointed out. “Products will be judged on the basis of the value they bring to the markets in terms of quality and effectiveness.” In the US, that’s a dramatic change.
This change means that drug developers must consider the payers when pricing their products. For example, Mendelson said, “if you structure a deal with a payer for a 2% margin and the payer (whether a company or government) doesn’t factor in the launch price of the new medication, you could be eroding their margins substantially.” The payers should be aware, but “they may underestimate the price of the new drug. Health plans want predictability.” Therefore, talk with payers about the drug and about its pricing well before launch.
It’s important to focus on the capabilities of the product—particularly in a comparative effectiveness environment —and to build a business case for its use, panelists agreed. That includes showing the overall benefit in terms of reduced hospitalization, increased personal productivity and similar benefits. While some panelists suggested patients would demand best-in-class medications, others countered that expectations are set by their healthcare systems and that in the end, patients will support their doctors’ drug selections.
Ben Bonifant, Partner, Triangle Insights Group LLC, said the relevant worth of the innovation in the current market will be an increasingly important differentiator. “The best products are innovative and differentiated” in a way that helps them withstand scrutiny from multiple payers. That said, “payers are waiting for prices to come down in a few years” before they embrace innovation. “Why pay USD 80,000 for a treatment today that may be USD 60,000 or less in a few years?” he asked rhetorically.
“Pricing is very important when raising money, too,” emphasized Evonne Sepsis, Managing Director, ESC Advisors. Investors are now funding biotechs early in their development. At that stage, “it’s easier to drive interest based on the science,” Mendelson observed. Changes can be made then that can affect the ultimate economy of the product, he said, citing failures to align with clinical quality measures or to test likely populations as two common mistakes.
Other factors also are important, of course. Luke Miels, Executive VP, Global Portfolio and Product Strategy, AstraZeneca, said his company looks “for a high degree of passion, and something innovative that we don’t completely understand.” Exactly what an investor looks for varies depending on the company’s development and where they are in discussions.
When it comes to raising funding, the basic requirements haven’t changed. “But,” Sepsis said, “it’s not as black and white as three years ago regarding proof of concept (PoC). Investors are willing to start discussions earlier, even before PoC is achieved, and to find a historical benchmark.”
Financing rounds also involve more players, noted Ellen B. Corenswet, Partner, Covington Burling LLP. “Multiple VCs and pharmas may be involved, along with grants.”
When the financing market opened about two years ago, Contrafect Corporation was eager to tap into it. “We wanted to raise about USD 25 million and then do a followup as a public company. But, we were on clinical hold,” CEO Julia Gregory said. “We worked with a bank and told our breakthrough story.” When the IPO closed August 2014, it had raised USD 41.3 million.
“There’s one more twist,” Gregory added. “We didn’t do a strict common stock IPO. Instead, we issued publicly traded warrants matched to milestones. Some expire after 15 months, and another set is matched to our Phase II success, which triggers in 2017. We also can call those warrants, so we can raise another USD 50 to USD 60 million with that approach. Our goal now is to transition from individual to institutional investors.”
In December, the FDA removed the clinical hold on CF-301, making it the first recombinant bacteriophage lysin allowed to enter human trials. “We anticipate a great demand for our product and think we can achieve pricing power,” Gregory said.
“This is a wonderful time to be a seller,” Mendelson concluded. “Large pharma has a strong cash position and—generally—a weak bench of science, so they’re looking outside to build their pipelines.
“That could change if their cash position becomes poor, though,” he cautioned. “There’s an ebb and flow to the demand for biotech products.”
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