Framework for Technology Framework for Technology AssessmentAssessment

Life Science Entrepreneurship Certificate ProgramRice University

Jason E. Moore, M.S., M.B.A.Vice President, PLx Pharma Inc.

PLx Pharma Inc.

Overview & ApproachOverview & Approach

• Quantitative and qualitative assessments of potential product leads– The technology itself– Path-to-marketPath to market– Intellectual property– Regulatory issues– Competition and market – Product pricing– Inventor and institution

• Perspectives– Entrepreneur or start-up company licensing professional– Development-stage company product portfolio managers– Big company technology assessment

• Emphasis on life science company key areas• Emphasis on life science company key areas• Technology focused, with an emphasis on therapeutic products…• Not “How to Evaluate a Business Plan”

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FundamentalsFundamentalsStating the ObviousStating the Obvious

• The technology should lead to a useful, commercially valuable product

• The technology/product should be adequately protected and other IP• The technology/product should be adequately protected and other IP must not block the path to commercialization

• There must be a clear business model/strategy that can be formulated for generating a profit from the technology’sformulated for generating a profit from the technology s commercialization

• The technology should address a need in a large and growing marketTh h ld b ffi i t l it i th th t k t d• There should be sufficient clarity concerning the path to market and the regulatory environment

• Every technology is unique• Life science product development is development research, is very

complex, and is defined by its many uncertainties and assumptions• Evaluating early-stage technologies is difficult

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Due DiligenceDue DiligenceEstablishing an ApproachEstablishing an Approach

• Conducting Due Diligence– Have and use a thorough framework for

technology assessment "There is an increasing concern that in modern

h f l fi di– Be thorough and systematic– Ask for, and expect, access to all data

(with CDA)Look at source data when possible

research, false findings may be the …vast majority of

published research claims. A new claim about a research finding is more likely to be

false than true."

– Look at source data, when possible– Critically evaluate all claims and data,

including published articles– Use experts routinely; don’t rely only on your own

intellect or scientific knowledge• Caveat emptor

– “I have the cure for cancer.”“Thi ill b th k t i [l th 10] !”– “This will be on the market in [less than 10] years!”

– “There is no competition.”– Institution has no interest in the technology/inventor is the only owner

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Due DiligenceDue DiligenceEstablishing an ApproachEstablishing an Approach

• Assess – The technology itself (the scientific basis and its applications)– Intellectual propertyte ectua p ope ty– Path-to-market– Commercial opportunity/valuation– Licensing deal structure/economics– Feasibility and “other”

• Complete assessment within a global framework (eg, SWOT)– Strengths – Opportunities

W k Th t /Ri k– Weaknesses – Threats/Risks• Understand the psychology of inventor and investor

– Group think – Wishful thinking – Need to Believe!• Define licensing criteria prospectively* (aka know your strategy)• Define licensing criteria prospectively (aka, know your strategy)

– Time-to-market – Deal terms (up-fronts, royalty rates, etc.)– Therapeutic area – Relative aggregate risk– Valuation or annual sales target

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Technology AssessmentTechnology AssessmentWhat is it?What is it?

• What is it? • How well characterized is it/can it be?

C l bi l i l– Complex biologicals…• How are its effects measured (in vitro, in vivo)? • Are there useful animal models to evaluate early efficacy?

– The ability to translate basic findings into disease cures often relies on animal models that serve as surrogates of the human condition

– Many diseases lack validated animal models, hampering translational progressprogress

• What is the amount and quality of the discovery science?• How novel is the technology?

– Patentable– Regulatory and commercial analogies– Regulatory and market risks

PLx Pharma Inc.

Technology AssessmentTechnology AssessmentHow is it to be used? How is it to be used?

• How will it be used in the marketplace?– Who are the real users of (market for) the technology (patients,

physicians caregivers)?physicians, caregivers)?– What indications, therapeutic areas are addressed with the technology– On what basis will the product compete?

• What is the standard of care for the given indication/use?• What is the standard of care for the given indication/use?– Critical to understand the SOC…

• Degree of unmet medical need• Market size and dynamicsMarket size and dynamics• Likely comparator in pivotal clinical trials• Implications for a marketed product (displaces others, used in combination?)

• What scientific evidence indicates the technology could actually be gy yused as asserted? – Let data provide the primary voice

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Technology AssessmentTechnology AssessmentIntellectual PropertyIntellectual Property

• Most often, the real product is the intellectual property (and not the pill, injectable, or device)

– The IP is typically the heart of any major transaction in the pharmaceutical, biotechnology, and medical device industries

– The strength of the IP can significantly affect the terms and value of any transactions (or whether it will occur at all)

• What is the nature and extent of the intellectual property protection? What p p y pjurisdictions filed?

– Composition of matter– Utility patent

• The most useful patents in biopharma are those that cover the composition of an effective drug and its application to treating particular diseases

• Exclusivity• Exclusivity– Ownership: Assignments and licenses, encumbrances;

you want to see a clear chain of ownership– Claims analysis: Coverage and validity (eg, will the patent

PLx Pharma Inc. claims cover the product for which FDA approval is sought?)

Technology AssessmentTechnology AssessmentIntellectual PropertyIntellectual Property

• Patent analyses– Freedom to operate (FTO) : Formal legal analysis to answer the key question:

“Will any aspect of development or commercialization infringe the patent of a y p p g pthird party?”

– “Opinions of Counsel”• Note Patent (20 years +/- PTO adjustments) and Non-Patent (FDA) exclusivity

N P t t l i it• Non-Patent exclusivity• 7 years – orphan indications• 5 years – new chemical entity (NCE)• 3 years – new indications/formulations3 years new indications/formulations• 6 months – pediatric indications

• What effective patent life remains for key patents?• Hatch-Waxman: “Drug Price Competition and Patent Term Restoration Act”• Beware provisional patents• What non-patent IP exists, and is it effectively transferrable?

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Technology AssessmentTechnology AssessmentWhat developmental stage is it?What developmental stage is it?

Innovation/ Validation/ Pre-Clinical Clinical MarketDiscovery Prototypes Models Trials

• What evidence is there that there is a “product”? • Has an attempt been made to “product-ize” the technology?

– Formulated?Formulated?– Prototype exist? – Tested in animal models or in

clinical trials? – “Proof of concept”

• Regulatory status and communications

Drug Substance (API) Drug Product

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Drug Substance (API) Drug Product

Technology AssessmentTechnology AssessmentWhat is the path to market? What is the path to market?

• What non-clinical studies will be required (GLP)

– Deviations from the “standard k ”?package”?

– Validated animal models? – What do non-clinical studies

reveal about safety issues that ymay be present in humans

– Law of combinatorial risk: safety issues rarely “go away”

CMC Issues• Knowing the general framework is

• CMC Issues– Drug substance vs. drug product– CMC Framework

• Identity

only the beginning• Critical to understand the nature and

size of both nonclinical and clinical studies that will be required y

• Strength• Quality• Purity• Potency

studies that will be required• CMC is the iceberg beneath the surface• What special challenges does this

technology present?

PLx Pharma Inc. – GMP Standards– Continued…

technology present?

Technology AssessmentTechnology AssessmentWhat is the path to market? What is the path to market?

• CMC Issues (cont)– What are the key technical

issues?

• Applicability of regulatory mechanisms for accelerated development

– Is the product “difficult to formulate”?

– What evidence for product stability is there? What conditions?

development– Subpart E– Subpart H/Accelerated Approval– Fast-track Designationis there? What conditions?

– What do you know about COG? – Can (must) the API be formulated

for the desired route of

– Orphan Drug Designation– Special Protocol Assessments– Priority Review

administration?– Myriad technology-specific issues

• Clinical studiesN b f t i l

• Beware of overly aggressive/ optimistic assertions of accelerated development

– Number of trials– Size of trials (target enrollment)– Understanding “pivotal” clinical

trials

• Substantial evidence and the two-trial rule (AWCCT)

• A note about biomarkers

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Additional InformationAdditional InformationD d Bi l i A l ThDrug and Biologic Approvals: The Complete Guide for Small Businesses —FDA Financial Assistance and Incentives

B F k J S i ki d K t R K tBy Frank J. Sasinowski, and Kurt R. Karst, Hyman, Phelps & McNamara, P.C.

2000/160 pages/soft coverISBN: 1 885259 68 9ISBN: 1-885259-68-9Available at FDLI: http://www.fdli.org/pubs

Regularly updated information about federally and privately supported

• Finding labels for approved drug products finding generic drug products for a brand name drug product

NLM resource for published literature

clinical research in human volunteers

• Finding all drugs with a specific active ingredient

• Viewing the approval history of a drug • More…

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Assessing the CompetitionAssessing the Competition

• Therapeutic products compete on a number of basic dimensions, which combine to dictate pricing, reimbursement and market positionposition– *Safety/Efficacy profile– Ease of use (eg, route of administration, dose regimen)– Some measure of “Value” (eg selling price reductions in hospital days– Some measure of Value (eg, selling price, reductions in hospital days,

lost work days) and/or “Quality of Life”– A note about CMS…

• Three areas of focus What would constitute aThree areas of focus– Currently marketed competitive products

• Standard of care• First-line treatment

clinically meaningful improvement over the

standard of care?

• Second and subsequent treatment– Pipeline competition– Market and market dynamics

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Resources for Assessing Resources for Assessing Competition and MarketsCompetition and Marketspp

• Marketed Product Competition– Safety and efficacy; PDR®,

package insert

• Market Dynamics– Key products and companies– (Molecular) Targets andpackage insert

– Pricing: Thompson Red BookTM

• Pipeline Competition

(Molecular) Targets and technologies

– Total market size and key brands– Share changes by quarter

• Pipeline Competition– News

• MedAd News• BioCentury

– Key patent expirations– Unmet needs of patients,

physicians, caregivers– Payor and FDA dynamicsy

• BIO SmartBrief • Venture Wire

– Information PortalsK l d E

Payor and FDA dynamics

• Information Sources– *Clinical thought leaders– IMS Health and others’ reports• KnowledgeExpress

• Nerac

– Scientific Publications and Meetings

p– Conference proceedings (industry,

scientific)– FDA

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Assessing Technology ValueAssessing Technology Value• Estimating the value of early-stage technologies is notoriously difficult• Approaches

– Top downTop down• Estimates of market size, market share of key products, penetration/share of your

product for a given time period (year)• By Analogy: comparison of sales for similar product in similar clinical setting

Bottom up: build a financial (NPV) model which estimates future cash flows for a– Bottom up: build a financial (NPV) model, which estimates future cash flows for a given product (by indication); includes

• Manufacturing costs Sales, general and administrative costs• Selling price per unit Penetration/uptake rate

S l l Di t d ( t l ) f f t• Sales volume Discounted (present value) of future revenues

• Pharma uses– Basic NPV models– Real Option Analyses

Real Options Analysis…

Real Option Analyses– Monte Carlo simulations with NPV models– Decision Tree Analyses

…captures the effects of uncertainty and change inherent in many projects. Unlike discounted cash flow analysis, it recognizes active project management and the learning that occurs during development research.

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that occurs during development research.

• Decision Tree Analysis– Accounts for development risk– Maps development path schematically,

Decision Tree Analysis for aDrug Development Program

p p p yassigns probabilities to categorical outcomes

– Allows discounting of NPV, based on development risk

– Valuable complement to commercial revenue discounting

– Excellent for comparison of relative risks/value between products (portfolio management

• Monte Carlo Simulation with (NPV) Revenue Model

– Accounts for commercial risk (eg, selling price COGS uptake rates)

management

Value

selling price, COGS, uptake rates)– Allows one to describe the

“probabilistic input variables”– Provides descriptive statistics for

possible outcomes

Assumptions

Utility

possible outcomes2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

PL 2,389,696$ 13,857,855$ 22,476,229$ 32,410,723$ 35,052,197$ 37,908,951$ 40,998,530$ 35,471,928$ 30,690,312$ 26,553,258$ NHL 21,182,784$ 90,327,628$ 144,440,652$ 205,307,942$ 218,868,532$ 233,324,798$ 248,735,901$ 212,131,926$ HRMPC 54,751,049$ 107,147,803$ 157,266,188$ 205,179,953$ 200,768,584$ 196,452,060$ 192,228,340$ AML 1,759,672$ 15,224,564$ 24,698,527$ 35,615,577$ 38,722,059$ 42,087,834$ 45,734,217$ 39,747,414$ 34,536,274$ RCC 682,668$ 1,476,611$ 2,395,433$ 3,454,214$ 3,735,733$ 4,040,195$ 4,369,471$ 3,780,466$ H&N 3,813,594$ 7,934,564$ 12,381,490$ 17,173,952$ 17,866,062$ 18,586,064$ 19,335,083$ Total 2,389,696$ 15,617,527$ 59,566,245$ 207,478,132$ 332,586,226$ 455,040,844$ 528,044,534$ 537,205,784$ 538,581,222$ 488,565,347$

PV (Inflation) 2,320,093$ 14,721,017$ 57,831,306$ 195,568,038$ 322,899,249$ 428,919,638$ 512,664,596$ 506,367,974$ 522,894,390$ 460,519,697$

– Allows sensitivity analysisand fuller scenario analysis

– Better than point estimates

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( )PV (million) 2.32$ 14.72$ 57.83$ 195.57$ 322.90$ 428.92$ 512.66$ 506.37$ 522.89$ 460.52$

p

Additional ReadingAdditional ReadingIntroduction to Simulation and The New Math for Drug LicensingRisk Analysis (2nd Edition)

by James R. Evans, David L. Olson

2001/392 pages/hard cover

g g

by James Kalamas, Gary S. Pinkus, and Kevin Sachs

In: The McKinsey Quarterly2002 No 4 pp 9 122001/392 pages/hard cover

ISBN: 0130329282

The Real Power of Real Options

2002, No. 4, pp 9-12.

Scientific Management at Merck: An

by Keith J. Leslie and Max P. Michaels

In: The McKinsey Quarterly1993, No. 3, pp 97-108.Available at: www.mckinseyquarterly.com

Interview with CFO Judy Lewent

by Nancy A. Nichols

In: Harvard Business ReviewPub date: January 1, 1994yq y Pub date: January 1, 1994Available at: www.hbsp.harvard.edu

Real Options Analysis: Tools and Techniques for Valuing Strategic Investment and Decisions2 d Editi2nd Edition

by Johnathan Mun

2006/667 pages/hard coverISBN: 0471747483

PLx Pharma Inc.

ISBN: 0471747483

A Note on LicensingA Note on Licensing

• A key to evaluating technology value is analyzing the “deal”

• Framework for understanding the deal

Early-Stage Technologies: Valuation and Pricing

by Richard Razgaitss– Technology (nature, scope/”field of use”)– Term/duration– Exclusivity– Rights conferred, in what geographies

Deal economics (up fronts milestones

by Richard Razgaitss

1999/291 pages/hard coverISBN: 0471328561

– Deal economics (up-fronts, milestones, royalties, maintenance fees, etc.)

– Milestones– Reversionary rights– Transferability/change of control

Licensing Executives SocietyURL: www.usa-canada.les.org/

– Principal technology-specific risks– “Intangibles”

• What-if scenario modeling to clarify the implications of tradeoffs recommended

g

Les Nouvelles

Journal of Licensing Executives Society InternationalURL: www lesi org• Find and use key attorneys/

consultants for early deals

URL: www.lesi.org

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“Other”“Other”

• Inventor and institution– Company proximity to inventor considered by some to be the “single

most important factor” for (early-stage) technology successmost important factor for (early stage) technology success– Evaluate the inventor and the institution

• Bureaucracy• PersonalitiesPersonalities• Potential for access to facilities/sponsored research• Reputation, grant funding success

• Aggregate risks• Aggregate risks• Pass the smell test?• Unconventional approaches needed to “make it work” (eg, new surrogate

endpoint)endpoint)• “50% of the time…”

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It Does Happen…It Does Happen…

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Th k !!Thank you!!

Jason E. Moore, M.S., M.B.A.Jason E. Moore, M.S., M.B.A., ,, ,jason.moore@plxpharma.com713-842-1249

PLx Pharma Inc.