Pullan's Pieces #153
Pullan's Pieces #153
October 2019
BD News and Analysis for  Biotech and Pharma
Dear --FNAME--,

Wow, busy times. 

  • Deals:  We helped with another Phase 3 deal, a ready for Phase 2 deal, a preclinical deal and more in the works! 

  • BioEurope and the BD Academy coming up.   



1. Why not split indications?
2.   Cancer Vaccines infographic
3. Jessica:  Orphan drugs and the cost of commercialization.  
 4.  Trevor:  Trade War and China Licensing and Financing

Why not split indications?
When a biotech does a licensing deal, they want to be assured the asset value is maximized.  And the partner may not be interested in all the indications.  Can the biotech keep the indications, perhaps to partner them to someone else?  

That is indication splitting, different parties getting rights to develop and commercialize the same drug in different indications or fields.   

Why is indication splitting generally seen as a problem?  J&J and Amgen fought for years over whose sales were whose for erythropoietin.  

Tracking which sales belong to which indication is hard.  
Prescriptions are written for a patient and not tied tied to diagnosis at the prescription level.  In the US and some other countries, IQVIA (IMS) and certain other data mining companies work to link prescriptions to sales and diagnoses.  Pharmacies are the primary source of prescribing data but pharmacy benefit managers and wholesalers also sell patients’ prescription records without patient names but including the date, medication name, dose, and directions. Prescribers are identified by number converted to names by IMS purchasing records from the American Medical Association. IMS then can match diagnoses to specific prescriptions sold through their sources at pharmacies etc.  

Pharmaceutical companies use the information to shape their sales force efforts, but it can also be used to track which sales should be attributed to which indication and thus which company should get the sales, if there is indication splitting.  However, with incomplete tracking and patients who have multiple diagnosis, dispute seems inevitable.  

Drugs are used off-label.  
A physician in the US and certain other countries can use a drug for any use.   Off-label use is a use or patient population which is not approved by the FDA.  But it can be a standard of care, long established or a modest stretch from the label.  
Off-label use is common, with 21% of prescriptions for commonly used medicines found to be off-label (Radley et al, 2006).  It is common in under-studied patient populations such as pediatrics and in oncology.   
Pricing is not specific to an indication.  
The price that the market can bear can vary considerable from indication to indication.  A new drug for cancer might cost $150,000 per year while a new drug for ophthalmology might cost $30,000 per year.  If you were to indication split, the cheaper form would likely be used for the more expensive indication, eroding sales for one partner.  
Different doses, formulations (and sometimes molecules) are substituted for each other. 
Price differences can drive substitution of a cheap form even when it is packaged as different dose or has a different formulation.  Substitution can even effect a  different molecule.  One of the classic examples has been the substitution of Avastin for Lucentis in Age-related macular degeneration. Both drugs target VEGF and were developed by Genentech.   Avastin was developed for cancer and the price per unit was considerably higher than for Lucentis.  Lucentis was approved in 2006 but Avastin has never been approved for AMD but has been found to be effective in a comparative clinical trial.  
Safety is not specific to an indication.  
Even if there is NO substitution, a partner may be concerned about the same drug in another companies control.  Clinical or even preclinical safety data for one indication may hurt the drug's prospects in another indication.    
​​​​​​​When can you indication split?  
Indication splitting may be acceptable when the split is for a distinct route of administration to a distinct compartment.  So intra-ocular might be separable from oral and from topical.  But the most common answer from big pharma might be NO INDICATION SPLITTING.  
Cancer Vaccines Infographic
Jessica:     Orphan drugs and the costs of commercialization

Last month we concluded a 2-part series on the financial impact of regulatory designations and found that some of them do correlate with higher value strategic partnerships.  Furthermore, we opined that the benefits of the orphan designation may enable smaller <than big Pharma> entities to commercialize products without a pharma partner.  Is there evidence to suggest this?

Breakdown of Partner Status for Marketed Drugs with Orphan Designation:


Global Data Oct 4, 2019

At first blush, there isn’t much of a difference, but if we dig into the therapies some interesting trends emerge.  Also, remember that only marketed drugs to address orphan diseases, not all marketed drugs, were evaluated. 

The red text shows either Antibody Drug Conjugates (marked with an *) or the Bispecific T cell Engager (BiTE) (marked with **).  

Antibody-Based Therapies

It seems that the split between partnered and unpartnered drugs is fairly even between innovator drugs and biosimilars.  What is different is that within the partnered innovator drugs is where we find some complex therapies.  These are the ADCs (*) and BiTEs (**).  Because these therapies bring together multiple technologies and can include mixed modalities (eg ADCs include biologics and small molecules) it is likely that partnering is needed to gain access to IP, expertise, or both, in order to see these drugs through development.

Cell-Based Therapies
The number of these therapies that have been marketed to address orphan diseases is small, but even with this small sample set a similar trend emerges.  All of the products are autologous cell-based therapies which are selected, expanded ex vivo, and returned to the patient.  The unpartnered products are all pure cell therapies while all of the partnered products are modified cells; also known as ex vivo gene therapies.  As in the observation with the antibody-based therapies, the complex therapies likely require (or are at a significant advantage with) partnership in order be successful.



Antibody Drug Conjugate



Linker (Peptide)

Toxin (HPAPI; Small molecule)

Bi-Specific T-Cell Engager



T-cell Engager (Peptide)

Ex Vivo Gene Therapy

Autologous Cell Therapy

Viral Vector*

*The marketed Ex Vivo Gene Therapies are all viral modified

Complex Therapies

We are extrapolating from our experiment that the more complex therapies (ADCs, BiTEs, and ex vivo gene therapies) are more likely to be partnered because they are likely to require access to several bits of IP and related expertise.  However, they are also likely to be more costly than their vanilla counterparts (Disclaimer: vanilla therapies can be very effective, and I love vanilla ice cream).  Manufacturing is a large contribution to the extended costs, as these products often require individual components to be manufactured separately and brought together.  The synthesis of the components can also contribute to manufacturing costs.  Furthermore, the unique needs for highly potent active pharmaceutical ingredients (HPAPI) for ADCs or the extensive release testing of viral vectors for Ex Vivo Gene Therapies can add to manufacturing cost and timelines.  The message here is that in addition to partnering for access to IP and expertise, partnering for access to funds and/or manufacturing capabilities for expensive manufacturing campaigns may also be advantageous for complex therapies.

Cost of Commercialization

How can a non-pharma entity afford to commercialize their product without a partner?  Well, how much does it cost to launch a drug?  The Tufts Center for the Study of Drug Development posted a study report in 2017 that claims that the cost of drug development is estimated to be $2.6B and a counter study in JAMA penned by two researchers claimed that the cost is closer to $648M.  The Cost of Developing Drugs is Insane.  That Paper that Says Otherwise is Insanely Bad.  The point of dispute here is the R&D costs and whether or not the cost of failed candidates can be included as the overall cost of successfully bringing a particular drug to market.  A worthy discussion topic in and of itself, but that is not the focus here.  Sure, the R&D, process optimization and clinical trials are all quite costly. 

Here though, let’s talk about the costs of launch-specific activities:

  • Premarket Authorization Inspection (PAI) – The FDA will thoroughly interrogate the product manufacturing process and facilities in order to determine that the manufacturer (either self, or CMO) can demonstrate control of the process.  A recent summary of the process of PAI readiness can be found here.  Briefly, PAI readiness can take 1-2 years and a significant amount of effort by the sponsor and manufacturer (if using CMO).  After Gintuit® (Organogenesis) was approved by the FDA in 2012 then CEO Jeff McKay gave a presentation at a conference about the PAI readiness and he had concluded that the process took 1 year and approximately $1M.

  • Prescription Drug User Fee Act (PDUFA) – An act of Congress (first passed in 1992) allowing FDA to collect fees to support activities germane to the approval process. The argument at the time was the delays in getting drugs approved and to market could cost sponsors approximately $10M/mo for each month of delay which was likely calculated as a combination of lost revenue and lost time on patent.  In exchange for the fee paid by the sponsor typically at the time of BLA filing, it also enables (but does not guarantee) alignment of the approval process to a timeline.  For FY2020 the fees range from $1.5 - 3M depending on the situation.  One perk of orphan designation (as summarized last month) is that the PDUFA fee is waived.  Therefore, for the drugs with orphan designation this is a significant savings in the launch process.

  • Sales and Marketing – A recent study assessing the marketing costs associated with launching oncology drugs suggests that the investment in marketing launch (launch year) should be commensurate with the estimated peak sales citing approximately $9M for a drug with estimated peak sales of less than $750M and $54M for a drug with estimated peak sales of $750M to $2B.  Typically, for sales support, partnership is ideal in order to leverage an marketing engine and established sales force…however is traditional pharmaceutical sales support commonly used these days?  Thinking again about addressing orphan diseases, the addressable market is significantly less and presumably the sales and marketing needs would, correspondingly, be less.  Furthermore, and especially with respect to the more complex therapies, these therapies are likely administered by specialists which are likely to be concentrated in a smaller number of hospital centers.  Therefore, sales and marketing efforts (and associated costs) could be streamlined and focused to those sites.

  • Post commercialization studies:

  • Clinical - Not necessary in every case, but sometimes nice to have for generating marketing data for establishing value proposition against competitive therapy.  For drugs with Accelerated Approval designation, in which a surrogate endpoint was used for the clinical trials post launch data collection is required.  So, what is the cost?  These studies are likely going to involve patients so, likely similar to clinical trial costs.

  • Manufacturing – To introduce manufacturing changes post-launch, comparability studies will need to be executed to implement the manufacturing changes.  This will likely require the manufacture of several GMP batches that will need to be used for the study and it is not certain that any of the material could ultimately be sold to re-coup cost.

There’s no “I” in Team

Certainly, the benefits of launching solo are evident; to the victor go the spoils.  However, launching a commercial campaign is not for the faint of heart.   Large sums of money and teams of experienced professionals certainly help.  One truth seems self-evident, in order to bring any drug to market, some pharma influence is helpful.  This can be achieved either by hiring/contracting former pharma talent (expertise) or by partnering with a pharmaceutical company (money and expertise), or both.  Whether a company chooses to partner or not, a team of professionals and a significant investment will be needed. 


Global Data Deals Searches – 23 Sept 2019
The Orphan Designation can bring considerable value to an asset compared to similar technologies without the designation, in deal value and in other forms.  For many developers the Orphan Designation allows sponsors to test the proof of concept for a treatment regime in a “lower cost” path to market which may enable them to leverage the learnings to address broader markets.  An attractive strategy, for instance, for the lead product candidate from a platform technology.  Furthermore, the waived PDUFA fees, tax incentives, and market exclusivity enable sponsors to commercialize the designated therapies themselves.  Essentially, this can lead to a viable commercialization strategy that is not dependent on partnership with big pharma. 
Trevor:  "Trade War" and China Licensing vs Financing

As the Trade War seems to wind its way to an interim truce – the so-called Phase 1 deal – we’ve been keeping our heads down, working on deals for clients and hoping that the tensions don’t flare up into un-manageable proportion. 

And so far that appears to be the case.  We have not seen, in our own practice anyway, an impact to licensing activities.  We have been privileged to be deeply involved with US-China cross border deals this year and none of them have been held up by the current political stalemate.  More importantly, the regulations enacted through CFIUS (Committee on Foreign Investment in the United States) have not been seen as limiting continued partnering activities through licensing.  This is good.  On the investment side, however, things seem to be tightening up.

The US Treasury recently released new guidance on how CFIUS is empowered to regulate foreign direct investment in US companies.  Now, CFIUS can restrict investments (direct or indirect) that do not constitute a controlling stake:

FIRRMA expands CFIUS’s jurisdiction beyond transactions that could result in foreign control of a U.S. business to also include a non-controlling investment, direct or indirect, by a foreign person that affords the foreign person: 

  • access to any material nonpublic technical information in the possession of the U.S. business;
  • membership or observer rights on the board of directors or equivalent governing body of the U.S. business or the right to nominate an individual to a position on the board of directors or equivalent governing body; or
  • any involvement, other than through voting of shares, in substantive decisionmaking of the U.S. business regarding—
    • the use, develpment, acquisition, safekeeping, or release of sensitive personal data of U.S. citizens maintained or collected by the U.S. business;
    • the use, develpment, acquisition, or release of critical technologies; or
    • the management, peration, manufacture, or supply of critical infrastructure.  

And the data seems to suggest that this having an effect.  The Rhodium Group does a fabulous job with their ongoing US-China Investment Project and they show that outbound investment from China has slowed quite considerably.  In the Health and Biotech Industry, transactions were down two thirds in the first half of 2019 as compared to 2018 and down fifty percent from the same period in 2016.


As it relates specifically to venture capital, the regulatory environment appears to have had the intended effect as the number of transactions completed by state-sponsored VCs has been screeching to a halt.    
Whether the expanded CFIUS authority will cause a similar slowdown in the overall venture capital climate (including private China VC players) will play out soon enough.  But, whether regulatory or more of a macro-economic concern, in this figure of overall Chinese VC investment (not just state-owned), it looks like the brakes are being applied.
www.Pullan Consulting.com

Pullan Consulting (www.PullanConsulting) provides advice and execution for biotech partnering and fund raising, with outreach to partners and investors, help with shaping of presentations, evaluations and market analysis, preliminary valuations and deal models, and negotiations from deal prep to term sheets to final agreements. 
We have extensive scientific and financial experience, with many deals signed. 

Send us an email or set up a call if you want to explore how Pullan Consulting might be of help!

Linda Pullan                     Linda@pullanconsulting.com 
Trevor Thompson             Trevor @pullanconsulting.com 
Jessica Carmen               Jessica@pullanconsulting.com 
9360 W. Flamingo Road, Suite 110-554 Las Vegas, NV 89147