Just for fun, I took the latest DDD metrics shown in the
graphic below (courtesy of S.M. Paul's analysis $1.78 billion and 13.5 years)
and translated that into an Internal Rate of Return calculation which
theoretically will remove emotion and focus our analysis on the rigorous
framework that most of industry uses to allocate capital. I also ran the
same model against the metrics for a repurposed drug.
To perform the analysis I used the cost and time metrics
shown above and made the following assumptions:
1. We did, in fact, end up with a blockbuster drug, producing
$1 billion in revenue in years 15 to 24 (the period of exclusivity for
the intellectual capital). Note: this is a very generous benefit of the doubt
position to assume that a blockbuster drug emerges.
2. The repositioned drug was a reasonably successful
product, producing annual revenues of $300 million for its period of
exclusivity, beginning in year 7 and continuing on through year 24.
3. The metrics we used for the repositioned drug were 6
years and $320 million in cost based on the compounds already existing and
already approved for toxicity and safety.
What I found really surprised me. The IRR for the de novo
process was 14% and the IRR for the repurposed process was 37% or 2.64 times
the return of a de novo success. If I do a net present value analysis and
I enter a 30% cost of capital (appropriate risk adjusted rate for a venture
capital investment), the NPV is actually negative. I might have been surprised,
but industry executives have realized this for some time now which may explain
why they are doing everything possible to outsource the risk associated with
this process from universities' technology transfer offices to NCATS.
Weekly a new deal is announced of a small bio tech being
acquired with a pre-Stage 3 clinical trials drug at what seems like an
incredible valuation. But if you look at where it gets the buyer in the process
and compare that to the costs they would have incurred internally, the
investment does not look out of line. It is too bad that their comparative
metric is such an easy target to beat.
In studying the portfolios of the major large pharmaceutical
companies' venture arms, I found a robust amount of investing in what I call
the word jumble of new drug opportunity. You remember that game where you
randomly put together a noun, verb, subject, and adverb and come up with some
amusing sentences. Well I did that with the descriptions of the
investments that are being supported:
new class of||| exquisitely selectively
target||| siRNA (DsiRNA) molecules |||
ALRN-6924||| orphan ophthalmologic conditions ||| Phase
1b/2 ||| today announced the completion of a $45 million
Series A financing
novel technology||| potent
inhibitors||| calcium release-activated calcium (CRAC) channel|||
OC459 ||| moderate-to-severe plaque psoriasis ||| Phase
2 ||| announced the successful completion of an oversubscribed $43
million Series B financing
breakthrough||| selectively regulating
translation||| Cadherin 11, a surface protein||| CM2489
||| lymphoma and other malignancies||| pre-clinical|||
Completion of $17 million Series A Financing
I am having a little fun here, but this does not fill me
with a lot of confidence that these are high probability bets on bringing new
effective treatments to markets in the near future and at a reasonable cost.
With our clear advantage in time, cost, and risk, why hasn't big pharma embraced the repurposing approach as another tool in replenishing their drug pipelines? What am I missing?
With our clear advantage in time, cost, and risk, why hasn't big pharma embraced the repurposing approach as another tool in replenishing their drug pipelines? What am I missing?
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