Over the last few weeks, we have reviewed some key challenges that, based on our interviews at various biotech congresses, appear to be at the forefront of Biotech executives’ thinking:
1. Finding patients
2. Challenges with clinical trial design and recruitment
3. Regulatory requirements
4. Long term revenue stream
5. Reimagining commercialisation.
Inevitably, we have focused on bringing rare and orphan diseases and targeted, advanced, novel therapies to market. We have explored the challenges of finding patients, clinical trial design and recruitment and last week we focused on some of the regulatory challenges specific to rare and orphan diseases, especially when considering advanced, novel therapies.
Over the next two weeks we will focus on additional commercial aspects, this week focusing on the long term revenue stream challenges arising in rare and orphan diseases.
For Biotechs lucky enough to gain approval, having navigated the challenges and risks of clinical development; arguably the next biggest challenge when developing a product targeted at smaller patient populations is reimbursement. We will discuss this in depth in next week’s article. Today we will focus on the challenges on building a business that will be successful over many years.
Although we are some way off ‘curative’ therapies being common place it is important to analyse this in regards to Biotech companies’ long term revenue; especially as this is the long term aim for many orphan therapies. Although not a product for an orphan disease, Gilead’s Solvaldi highlights some of the challenges facing curative therapies.
When Sovaldi launched in 2014 it delivered $10.3 billion in sales in the first year. It proved to be a nearly fool-proof cure for Hepatitis C Virus, or HCV. Later in 2014 Gilead’s next HCV product Harvoni was approved by the FDA. Over three years, Gilead's flagship HCV drugs pulled in more than $44 billion. They doubled the company's net margins, pushing them past the 50% level at one point in mid-2014. The challenge was, Gilead didn't just treat hepatitis C. For the most part, it cured patients after about three months. Sovaldi had an unheard-of success rate of up to 95% in some hepatitis C patients, and its follow-on treatment, Harvoni, proved more effective in some cases. Eventually, the patient pool was going to become smaller, and it has. Sovaldi and Harvoni sales started to fall relatively soon after launch, even as early as 2016 sales fell a respective 24% and 34% from their peak.
For non–orphan products such as Sovaldi this problem may not be as extreme due to the sheer volume of patients and the quantity of new patients being born every year. In addition, a large commercial pharmaceutical giant can more readily plan for and offset a sharp decline in sales with their broader portfolio, through a rich pipeline and through in-licensing and acquisition whilst exploring new indications with the same asset; a luxury smaller Biotechs do not have.
The challenge is magnified for pre-commercial Biotechs or those small biopharmaceutical firms with limited portfolios and/or funds. It is also more and more common for Biotechs in the Rare and Orphan space to be working on ‘curative’ therapies. Take for example Bluebird bio. Bluebird bio is developing innovative gene therapies for severe genetic disorders. Bluebird bio’s Cerebral Adrenoleukodystrophy CCALD product program has the potential to halt the progression of CCALD by providing a functional ABCD1 gene to the patient’s own stem cells. Biotechs developing these innovative gene therapies often do not have the funds at an early enough stage in their life cycle to develop their programs further for future indications; often requiring sales from their first indication to do this. This poses a significant challenge for Biotechs who need a solid ‘portfolio’ plan for each asset if they are to make the returns they need to cover up to $2.8bn development costs, whilst also investing in future programs and future indications. This challenge is heightened when the first indication (and subsequent indications) is in a small, rare population. At the same time, these Biotechs are also making critical decisions about building a commercial infrastructure, figuring out where to partner and where to build, when they still have no commercial product.
In the future, pricing pressure will continue, squeezing the targeted therapies we are discussing further. It is vital that Biotechs have a solid pipeline and a robust early commercial plan if they wish to be a successful commercial enterprise. Part of this, requires early and thoughtful work to gain insights into future market dynamics, with a specific perspective on potential future indications and trends in target markets in order to prioritise the assets and indications that are most likely to be commercially successful whilst minimising risk.
There are similar long-term revenue challenges for Biotechs developing novel IO agents. Complicated by the current desire for combination therapies, with checkpoint inhibitors as their likely backbone. Take for example Bergen Bio (Norway), a clinical-stage oncology company developing kinase inhibitors as a potential cornerstone of combination therapy for multiple cancers. Their lead compound is Bemcentinib, an immune modulator that enhances anti-tumour immunity. It is being trialled in combination of a number of IO agents owned by Big pharma.
Unfortunately for Biotech companies wanting to develop IO combinations the only approved checkpoint inhibitors are all owned and controlled by Pharma companies, meaning that they essentially have a monopoly over trials and future combinations. Additionally, these approved pharma owned IO agents already have pricing in place. Therefore, it is necessary for Biotechs to consider whether the combination price will achieve access at a level that is commercially viable to sustain a long-term business. If you are lucky enough as a Biotech to be one of the first to market with a combination therapy it might be that the relatively small percentage of the combination price you receive allows you to be successful in the short term. But then consider that Keytruda is included in 381 combination trials and Opdivo in 387. It is likely that whatever indication you are targeting the space is likely to become hyper-competitive and this could well result in significant long term revenue challenges
It is imperative to decide early in development if trials in combination with another IO agent is an optimal business decision even within a climate where excitement around these combinations is ever growing.
For Biotechs working in the gene therapy and/or orphan space it is vital to plan early to heighten the chances of long-term success. Although this generally true it is particularly critical for companies in this field. There is a need to carefully review their asset and pipeline strategy from an early development stage. It is important to review it with a specific perspective on potential future indications and trends in target markets. It may well be advisable to use consulting partners, like Cello Health to undertake deep scenario-based work to get a deeper understanding of the future challenges the business will face.
Understandably, (pre-commercial) Biotechs will often focus on driving revenue and building an organisational structure based on their primary indication. However, if long-term portfolio, market and indication sequencing plans are made earlier, then the Biotech has a stronger chance of successful commercialisation whilst minimizing the overall strategic, clinical and financial risk. At Cello Health, we support companies in thinking through these decisions, building asset and portfolio strategies, and building early commercial thinking before it’s too late. That said, too often, we still end up working with businesses who have become so focused on their primary indication and the science, that they have left the longer-term commercial thinking too late. Biotech executives should consider the benefits of scenario learning as a strategic test-bed for asset and portfolio evaluation; considering what they will need to deal with and what they will need to be good at in building a future-fit organisation – including where to build infrastructure and where to partner or outsource. By understanding the long-term revenue streams for their asset across a range of indications, each made up of small patient populations and discrete customer clusters (and considering their wider pipeline) it will help the company navigate future complexity to make confident, future-facing decisions.
Next week we will focus on a reimagining commercialisation and focus on the magnitude of cross functional capabilities necessary to successfully commercialise rare and orphan diseases and advanced, novel therapies.
The estimated average out-of-pocket cost per approved new compound is $1395 million (2013 dollars)... Adding an estimate of post-approval R&D costs increases the cost estimate to $2870 million (2013 dollars)