New Ways to Pay for Low-Priority Drug Trials

Companies cannot afford to conduct trials for every asset in their early-stage pipelines - unless they team up with new investors



The last decade has seen many pharmaceutical companies successfully expand their research and development operations, resulting in robust pipelines of promising new therapies in the early stages. However, with the cost of the clinical trial process for a drug today as high as $115m, drug makers must deal with the reality that they do not have the resources to develop every asset in their overflowing pipelines in a timely manner.

Without the capital to invest, many promising but lower-priority therapies are sitting on a shelf, potentially losing companies billions each year in lost revenues. Delayed clinical trials result in delayed registration and patient access, plus shortened patent lives.

While the impact and scale of this problem varies from company to company and across geographies and therapeutic areas, companies are employing a variety of strategies and approaches to limit their losses. Trial acceleration (for example, by moving sites or using simplifying trial design), limited operationalization and co-development deals with third parties are tactics to ensure promising new therapies are developed and approved along a profitable timeline.

Yet, none of these approaches address the primary challenge – running more clinical trials with fewer resources.

A new way forward
For many forward-thinking companies, the answer to the conundrum of funding clinical trials for lower-priority drugs, is simple – partnerships.

Working with clinical research organizations, universities and patient advocacy organizations, drug makers can find investors who can provide the capital and share the risk in getting promising new therapies through development and regulatory to market.

One company has done just that, reducing its risk and investment by seeking partners for a series of new respiratory therapies. A thorough review of its portfolio identified 33 dormant clinical trials across six therapeutic areas; yet, the cost of conducting these trials was estimated at $480 million. Without the resources to invest, the company selected three promising compounds in different indications and developed a clinical trial roadmap, which was also translated into a high-level financial model to help potential investors understand the value of the therapies if brought to market.

With a price tag of $120 million to run the trials, the drug maker used financial modelling to agree a valuation of the asset based on the value of the new compounds and indications, and the probability of the trial’s success. The outcome was an estimated increase in value of $500 million over three years, a valuation that was effective in attracting investors.

The opportunity was especially attractive for investors familiar with the industry, as it compared very favorably to the return on investment in big biopharma, although with a different risk profile. Armed with such an attractive proposition, the drug maker secured investment for a series of trials soon to be underway.

Below are five steps that other drug makers can follow to fund low-priority drug trials:

1. Identify clinical trials

When reviewing their portfolio of de-prioritized new therapies, drug makers must make tough choices about which clinical trials will attract external investors and be profitable once in market.

Trials need to be relevant and complementary. The relevance of a trial is influenced by its potential impact on market demand, which will predict the value of the development asset if trials are successful. Trials need to be complementary – in geography, indication, trial duration, patients, etc. – to realize operational advantages, even if they in the same therapy area. One attractive offer for investors is ‘packaging’ several trials in the same therapy area together to reduce upfront costs.

Remember, a real transfer of risk from biopharma company to other parties is required to help the drug maker develop its assets without adding development costs to its bottom line. A clinical trial with a 95 percent probability of success would not satisfy this requirement, as it would just be a financing arrangement camouflaged as an investment.

2. Find partners for funding and execution

A successful partnership will bring together the biopharma’s science and data, the CRO’s trial operation capability and capacity, and the investors’ funds, along with their knowledge of structuring and exiting these types of transactions.

Finding the right CRO will depend on location, track record and expertise in the relevant therapy area. Finding the right investors takes careful targeting and multiple approaches. These could be venture capitalists specializing in biopharma, non-profit organizations and patient groups with a focus on a specific therapy area, and other types of investors with interest in the specific disease area or public health issue.

3. Develop an operating model and structure

Once partners are committed to the project, the next step is to develop a legal structure and financing arrangement – for example, the new entity could be a joint venture or special-purpose entity established solely to operationalize and manage the execution of the trials, with governance by representatives from all of the partners.

Setting clear goals for each partner and carrying out a full risk assessment are critical to setting the new organization on a strong foundation. The risk assessment must include thorough due diligence and a clear exit strategy that ensures all partners are clear of the outcomes and their role in delivering the final goals.

4. Operationalize and execute

As the new organization’s focus will be on the development of the selected potential therapies, it is essential that processes and roles are established upfront to ensure efficient and effective operations. Consider the following questions in four areas:

1. Technical– Have you established a protocol that can deliver the clinical data required to support an increase in product value?
2. Commercial– Has the new compound or treatment in question been valued accurately? Does the potential revenue make the investment proposition worthwhile for all parties?
3. Operational– Are the trials in question designed in such a way they can be executed efficiently and on time, to deliver the necessary cost savings? Are the proposed trials operationally complementary?
4. Cultural– Have all partners come together to develop shared norms and agreed ways of working that will ensure successful progress and a clear exit once the investment value has been realized?

5. Exit  

After all trials are complete, the partnership must have a clear, well-established process for closing out the trials, realizing value for each partner in line with the contract, and effectively dispersing or disposing of accrued assets. 

An embarrassment of riches

Today, the pharmaceutical industry faces many challenges, one of which is an embarrassment of riches in development assets. Taking a new approach to investment partnerships will enable biopharma companies to continue to develop those assets in an economically attractive way, with benefits for patients, investors, CROs and, of course, biopharma companies.

Ben van der Schaaf is Principal at Arthur D. Little

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