Basic Questions ...

 

1. What is my goal?

All of us have been engaged in medical research in a hope ultimately to make significant contribution to the welfare of patients. Some research activities may directly lead to the discovery of new therapeutics while others may help elucidate the pathogenesis of diseases. If your research activity is directly involved in the invention of new therapeutic modalities, the information provided below would of value.

In general, cost of developing a new drug is said to exceed half billion dollars as well as significant numbers of personnel of different expertise from toxicology through production. Accordingly, it is apparent that obtaining market authorization is not the mission of academic researchers. Instead, our goal should be to transfer promising candidate projects to pharmaceutical or medical devices companies so that they will complete research activities needed for registration purpose, including clinical studies.

A biotechnology company may be positioned as a step stone to transfer a project to a pharmaceutical company.

 

2. How to get funded?

Strategy for funding depends on your goal. To be updated later.

 

3. Who should be contacted?

Networking is a key to successful deal making. Even when you have a very promising candidate project, it is not easy for pharmaceutical companies or venture capitals to make fair scientific and financial assessment because of novelty of technology as well as generally recognized high uncertainty at early stage projects (high failure rate).

Another point that you need to remember is that many pharmaceutical companies have website or contact address for prospective licensing candidates. Such generic inquiry site receives hundreds or thousands of proposals every year.

Accordingly, it is better to assume that your project will not receive sufficient attention without additional efforts.

The ideal tactics is to identify a champion who is willing to make “personal” (in many cases) efforts in persuading the stakeholder within the organization to understand the value of your projects.

In addition, your project always goes through third party review (cross-check) before executing the formal licensing contract. As such, networking and your credibility in the academic society is also of importance as well.

 

4. What is the market size?

In recent years, the cost of new drug development becomes prohibitively high. Therefore, in order to ensure appropriate return on investment, it is almost imperative to develop a new drug for the worldwide market.

Therefore, even when the number of patients for your new therapy is only 30 patients in Japan for example, due to ethical differences, the total number of treatable patients may exceed 1,000 worldwide. The annual treatment cost of some orphan drugs exceeds $500,000. So, 1,000 (patients) x $500,000 = $500 million annual revenue! If the drug is only for the Japanese market, the sales is only 30 x $500,000 =$15 million, which is not justifiable for investment considering inherent risks associated with R&D of new drugs. Accordingly, whenever you think about the market size, it should be based on the worldwide as default.

The next thing that you need to understand is what percentage of patients who can get benefited from your new therapy, especially in cancer treatment? In cancer, treatment is classified as either 1st, 2nd or last resort. The number of patients available diminished as positioned later in the course.

 

5. How to estimate the drug price or therapeutic cost?

Drug pricing different from country to country and there is not single calculation formula for drug pricing. In general, the drug price is most expensive in the US followed by Japan and EU top 5 countries. Drug prices in all the other countries are only half or much lower than the US price. Accordingly when you would like to know the sales potential of your product, you need to calculate the sales estimate for US, Japan and EU top 5 countries (Top tier market). All the other markets are assumed to be XX % of top tier market. It is usually less than 25% except vaccines.

Drug price in the US is market-driven and is decided based on demand and supply as well as willingness of pay by payers (e.g., managed healthcare organizations and government programs). On the other hand, drug price in Japan is government-controlled and is approximate to the certain range (75-150%) of the average price in the leading industrialized countries (US, UK, Germany, France and Italy).

If you product is used only once in a life for a given patient, sales expectation might not be high except transplantation medicine costing multi-million dollars. On the other hand, if the target disease is life long and requires daily medication, even when the cost of single drug is very cheap, sales may exceed several hundreds million dollars as with aspirin for anti-platelet indications.

 

6. What are NPV and IRR?

In order to justify the investment, any corporation needs to ensure that appropriate return or profit can be obtained in the future. Generally accepted parameters for investment decision are NPV and IRR. NPV is an acronym for Net Present Value while IRR is Investment Return Rate. Traditional NPV does not take into account product development risk or assuming R&D activities are successful and garner market authorization. However, in reality, the majority of projects are prematurely terminated for various reasons such as failure to demonstrate acceptable risk-benefit ratio. Therefore, risk adjusted NPV or so called rNPV is used at some corporations. The methodology for rNPV is detailed in the following article (….).

IRR is an index for investment efficiency. In established pharmaceutical industry, the target IRR is generally 10-15% while biotechnology companies try to achieve 30% or much higher. Both NPV and IRR can be calculated using Excel.

 

7. Project valuation model (Excel)

As alluded above, the project valuation model is detailed in the above article. We hereby attach simplified format for your convenience [LINK].

 

8. Project presentation kit (PowerPoint)

Non-confidential data package is usually sent for non-confidential data review. It is usually 15-20 pages. Sample format and content is attached [LINK].

 

9. What is anticipated timeline?

Please find below a sequence of events until the execution of the definitive agreement (financial transaction) (best case scenario).

Non-confidential review                  1-2 month

Non-disclosure agreement              1-2 months

Non-binding financial proposal         2-3 months

Due diligence                                 2-3 months

Definitive agreement                      2-3 months

As such, it may take one year from the initial contact through the definitive agreement.

 

10. What is my reward?

It is generally true that later the development you out-license, more financial return you may obtain. The timing of out-licensing, your financial expectation and your research funding situation determine the best timing for out-licensing. There is no single formula on this point.

According to benchmark data, the total amount of out-licensing deal is in a range of several hundred million dollars if successfully out-licensed. The share of the original inventor may be in a range of a few to dozens of percentages. Once venture capitals are in, your share is unlikely to exceed 10% after a series of fund raising campaigns.

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Regulatory Pathway for the Development of Advanced therapy
Presented at 2011 JSGT, Fukuoka,JAPAN Guideline_poster201107.pdf