This is a guest post from Susan K Finston, President of Finston Consulting. Do you have a response to Susan’s post? Respond in the comments section below.
When I started working for PhRMA nearly 15 years ago, the mantra was “Fail early, Fail cheap.”
Given the exponentially increased cost of advancing compounds pre-clinical into clinical research and through pivotal Phase II and larger Phase III trials, it makes sense for companies to investigate as many compounds as possible through early stage pre-clinical research and then cherry pick compounds for clinical trials based on a well-developed understanding of the compounds structure, toxicity and other key characteristics.
An R&D program that fails at the pre-clinical stage is far less costly than one that makes it through the Investigational New Drug (IND) application and into clinical trials, only to tank due to lack of efficacy or safety. So why are Bio-Pharma companies taking the opposite tack – investing huge sums in late-stage compounds for R&D programs, with faltering results in late clinical stage trials?
Why are companies no longer ‘failing early’?
The same factors driving bio-pharma M&A strategy motivate companies to acquire late-stage research assets to fill depleted pipelines.
And cash-rich bio-pharma companies competing for a limited pool of late stage programs, bidding up the cost of acquisition (perhaps at times also hindering full due diligence).
In theory, these assets are lower-risk than early stage programs because they have reached the clinical trial stage. In practice, this has resulted in 30% failure rates at the Phase III clinical trial stage, with a further 50% attrition rate between the clinic and the marketplace, where “peak sales projection is more art than science, and the art often looks rather comical in retrospect.” In sum, only about one third of launched drugs make back their R&D costs.
Good in theory, bad in practice …
It may be time to recognize that in terms of net-present value, later-stage compounds are not lower-risk than pre-clinical programs factoring in Phase III trial costs, likelihood of failure at Phase III (or before launch), and more realistic revenue projections, into valuation of late-stage assets.
Given the foregoing, taking a case-by-case approach to acquisition of R&D programs at earlier stages of development would reduce overall risk, providing better long-run returns.
Failure is always going to be with us. With ever increasing complexity and cost of human clinical trials, Bio Pharma would be better off taking the long view and at least failing earlier in the process at a fraction of the cost!
About the author:
President of Finston Consulting LLC since 2005, Susan works with innovative biotechnology and other clients ranging from start-up to Fortune-100, providing support for legal, transactional, policy and “doing business” issues. Susan has extensive background and special expertise relating to intellectual property and knowledge-economy issues in advanced developing countries including India and South Asia, Latin America and the Middle East North Africa (MENA) region. She also works with governments, s and NGOs on capacity building and related educational programs through BayhDole25. Together with biotechnology pioneer Ananda Chakrabarty, she also is co-founder of Amrita Therapeutics Ltd., an emerging biopharmaceutical company based in India with cancer peptide drugs entering in vivo research. Previous experience includes 11 years in the U.S Foreign Service with overseas tours in London, Tel Aviv, and Manila and at the Department of State in Washington DC. For more information on latest presentations and publications please visit finstonconsulting.com.