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What’s your Drug Development Really Worth?

Drug Development Posted on: 30 Jan 03
What’s your Drug Development Really Worth?

Summary

Drug development is an expensive and risk-intensive process. Even if a company manages to get its products to market, success is not guaranteed as there is the threat of competitors to contend with.
A Risk-intensive process
A huge cost is involved in successfully getting a drug to market, now estimated at around US$800 million (1). In addition, the considerable failure rate makes the process highly risk-intensive. Only about 15 percent of new drugs entering development subsequently reach the market (2). Even if a company manages to get its products to market, success is not guaranteed as there is the threat of competitors to contend with.

Companies are finding it increasingly more difficult to dominate the market before competition arrives. Over time there has been a shortened period between first and second products in new market segments (3). For example, when Inderal was launched it had ten years market exclusivity, whereas 27 years later Invirase had just three months exclusivity over its rivals.

Starting early
Patents are considered to be the life-blood of research in the pharmaceutical industry. Considering the high cost of R&D, companies believe that they can only pursue their research if they can be guaranteed a degree of protection to recoup their investment. A 1988 study of 12 industries carried out by the University of Pennsylvania estimated that 65 percent of pharmaceutical products would not have been introduced without adequate patent protection.

Since 2000, a number of high profile products have been due to come off patent and this has caused considerable worry for pharmaceutical companies. Some observers have predicted that more than 50 of the top 100 pharmaceutical products will come off patent by 2005. Not surprisingly, many companies have strengthened their approaches to defend their intellectual property rights and this has generated some criticism from sections of the media and from consumer groups.

Although much of the media attention that is paid to intellectual property occurs when a patent is due to expire, intellectual property protection is central to a company’s overall business strategy. Companies have to start thinking about protecting their intellectual property at the earliest stages of drug discovery.

An interesting development in this area has been the concerted efforts made by universities, academic spinouts and start-ups to protect their discoveries in order to commercialise their research. However, the world of intellectual property is highly complex and simply taking out a patent does not automatically mean that the research and technologies of these small organisations will be highly valued externally.

One of the problems in valuations is that each stage of the pharmaceutical R&D process must considered in the context of how it contributes to the overall development of the pharmaceutical product. In general, the value is linked to the contribution that the particular part of the process contributes to the overall development of the product. For example, if the product is still in the pre-clinical stages, it has a long way to go before becoming a successful product and the value perceived by researchers may differ significantly from the value placed on it by external observers.

Clinical is key
Activities that “remove risk” from the R&D process are the ones that confer greatest value on a new chemical entity or technology. Although drug discovery is where the patent process begins, the progression to clinical trials is where greatest value is found. Completion of each stage of the clinical trial process (from Phase I to III) brings greater value to the company’s compounds or technologies.

For small companies with limited in-house capabilities, outsourcing offers a good way to expedite the clinical side of drug development. Furthermore, the use of a CRO (as opposed to a partnership with another pharmaceutical company) allows the organisation to retain overall control of its products. An experienced CRO should be able to advise the client on the clinical and the regulatory aspects of the proposed studies. By proactively dealing with a CRO the organisation can ensure that it gets the best out of the clinical trial process and takes some of the risk out of the process.

Interestingly, Dr John Stageman, Global Vice-President of Enabling Technologies at AstraZeneca, recently concluded that if AstraZeneca could “turn the clock back” it would be far more proactive in outsourcing areas of its R&D (4). Furthermore, these statements were made in a panel discussion on whether biotechs should emulate big pharma in the way they approach drug development.

References


  1. Outlook 2002. Tufts Center for the Study of Drug Development. http://csdd.tufts.edu


  2. Kermani F and Findlay G (2000). The Pharmaceutical R&D Compendium. http://www.cmr.org/rdcompendium.html


  3. Sykes R (1997). The Pharmaceutical Industry in the New Millenium: Capturing the Scientific Promise. CMR International Annual Lecture. http://www.cmr.org


  4. Anon (2002). Big Pharma offers biotech advice. Scrip No. 2792 October 23rd. p12.



For further information on Chiltern’s work, please contactPietro Bonacossa(Pietro.Bonacossa@us.chiltern.com) in North America
or Faiz Kermani (faiz.kermani@chiltern.com) in Europe.Visit the Chiltern International website at www.chiltern.com

Dr Faiz Kermani

Last updated on: 27/08/2010 11:40:18

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