Four Essential Steps to Successful Biopharma Partnering By Gautam Aggarwal, Triangle Insights Group Toll-free USA 800.380.7652 Worldwide +1.408.717.4955 www.sharevault.com ShareVault is a registered trademark of Pandesa Corporation dba ShareVault
Background. Given the rapid pace of innovation in today s Life Science industry it has become more important than ever for biotech companies to align themselves with strategic partners in order to advance their most promising drug candidates toward market readiness. But successful BioPharma partnerships don t happen by chance, and negotiating an out-licensing deal can be complex especially when the company is also focusing on progressing the clinical portfolio. At Triangle Insights Group, we routinely work with Life Science companies to develop overall corporate strategy and optimize the commercialization of their assets. In the course of our consultancy we often see Life Science management teams asking the following questions: How early should we begin planning for partnering? How do we determine the appropriate value of our product? How do we ensure that the potential deal is aligned with the corporate strategy? What is the best way to present our company or asset to potential in-licensors? How can we organize and present all the documents to potential partners in order for them to make an informed decision? Yes, the partnering or licensing process can be daunting, but the process can be simplified by focusing on four key steps that we believe are critical to preparing for partnering and eventually having a successful transaction. 1. 2. 3. 4. Value Determination Alignment of Expectations 7 Essential Steps for Partnering Using a Virtual Data Room 2
1 Value Determination. Determining the value of your product and understanding how a potential partner might perceive value is critical to the partnering process. We often work with management teams that are focused on developing assets and have very strong clinical backgrounds, but may not have as much expertise in understanding the commercial aspects of the product. Their focus, which is appropriate, is ensuring that the product they re developing is strong, clinically valuable, and that it makes it through all the hurdles of preclinical and clinical testing. But ensuring that you have the appropriate level of understanding about commercial value and market dynamics becomes critical when entering into conversations with potential partners. Most people, when selling a car, will first look up the Blue Book value of the vehicle. Unfortunately, there is no Blue Book for molecules. So, how do you determine value for your asset? At Triangle Insights Group we generally suggest that companies begin by looking at four key areas: What is the current market size and how is the market size anticipated to evolve over the next ten or twenty years within the relevant segments of the treated patient population? Begin by asking yourself the following questions: 1. 2. 3. 4. Market Size Competitive Research and TPP Market Research Forecasting (Revenue and NPV) Market Size What is the disease epidemiology? What are the key patient segments? What share of diagnosed patients are being treated? What unit volume and sales does the market currently sustain? What are the trends, segments, level of generics, etc.? Where does this information come from? How do you as a company evaluate market size and what are some of the typical mistakes that are made? Market sizing starts with an understanding of the disease epidemiology, which answers the question: What are the segments within the disease that are the most 3
relevant? But disease epidemiology by itself is not enough. It s important to understand the prevalence or incidence of the disease and to convert that understanding into treated patients and eventually potential prescriptions. The sources that are typically used for doing this kind of analysis include: Government sources, such as the National Health and Nutrition Examinations Survey (NHANES), Other surveys conducted by the Centers for Disease Control (CDC), such as physician and hospital-based surveys, and Resources from the National Cancer Institute such as the Surveillance, Epidemiology and End Results Program (SEER). But often, smaller companies will first turn to academic articles that speak to prevalence, or third-party syndicated reports that often cover specific markets. Finally, looking at analyst reports for products that may be in the same competitive basket can give some insight into what others are thinking about market size. But even with these resources market size can sometimes be challenging to determine. As an example, let s look at lupus. The epidemiology for lupus is quite varied; different sources may report vastly different numbers. Statistics for people who have the disease can range from anywhere between 100,000 to 1 million. When Benlysta, a monoclonal antibody used to treat systemic lupus, initially came to market, it was expected that GSK and Human Genome Sciences would realize north of 2 million dollars in peak revenue for the product. But partially because the disease s epidemiology was not well understood, Benlysta has fallen well short of those initial expectations. When determining market size it s important to remember that not all patients are created equal; not everyone who has the disease will be treated and only a fraction of treated patients may be relevant to your market. So, in addition to epidemiology, an understanding of market size should be determined by also examining units and volume. Information sources here include: EvaluatePharma Other syndicated reports (e.g. Data Monitor, Decision Resources, Business Insights) Other analyst reports 4
Prescribing volume data from IMS or Symphony Health Smaller companies with limited budgets may not be able to afford some of these resources, however, they may be able to get some of this same data from analyst reports or other sources that may not require the same level of investment. However the data is obtained, when entering the partnering process, it s important to understand as comprehensively as possible how many patients are being treated and the market share you can expect to obtain. Another key aspect of determining value is understanding what the competition looks like. What is the clinical profile and positioning of both commercialized and emerging competitive products? What is the anticipated profile and differentiation for your product? Competitive Research and TPP (Target Product Profiling) It s critical to ensure that companies understand what their product is going to be competing against, not just for products that are already on the market, but also for products that may be in development. We recommend that companies complete an analysis of how their product compares to those products in terms of efficacy, tolerability, convenience or other features that will differentiate your product from the competition. How much better will your product be when compared to other products? It s also important to evaluate any potential shortcomings that may affect competitive performance in the market. Information sources for Competitive Research and Target Product Profiling include: Commercialized products: Sources such as EvaluatePharma, Drugs@FDA, and package inserts Pipeline products: Sources such as clinicaltrials. gov, PharmaProjects and BioMedTracker Conversations with Key Opinion Leaders (KOLs) in the field, who often help to evaluate value in comparison to competition 5
Regarding that last bullet point, let s take a look at Provenge. When Provenge was in development it was considered a game changer, something that would confer significant value to prostate cancer patients. But Dendreon, the maker of Provenge, failed to fully examine what was happening in the rest of the market. In addition to the complexity and price of the product, there was competition from competing oral products that were much easier to use and had relatively good efficacy. In 2011 product revenues significantly lagged expectations. Typical Competitive Research and Target Product Profiling (TPP) Mistakes: Being too optimistic (only focusing on the positive characteristics or expecting an overly optimistic scenario) Having narrowly defined TPP rather than considering all characteristics that may be important to prescribers, payers and patients Not closing the loop on commercial strategy and product development. After evaluating the commercial value of a product, take what you ve learned and incorporate those learnings back into the product development plan. Ignoring emerging products that may enter the market Market Research and TPP Testing Market research should be conducted in populations that prescribe, pay for, or use the product patients, physicians and payers in order to understand what value could be realized. It s important to develop a target product profile very early in the development process. Once that target product profile is developed, market research can be conducted to determine how the product could perform in the target market. Understanding how the target product profile fits specific needs can inform the entire development process (the loop ) and may influence a change in endpoints. During market research it s important to determine the level of receptivity that relevant prescribers would ascribe to the target product profile. What level of utilization is anticipated based on the product s anticipated performance? 6
To answer that question, further ask yourself: Who are the stakeholders that will influence product adoption? What feedback do these stakeholders have regarding product characteristics (positive and negative)? How does the product fit within the treatment paradigm? Information sources for Market Research and TPP Testing: The sources that will most inform market research will be ones that provide prescriber level data, such as: IMS Health Wolters Kluwer Health Symphony Health Solutions Questions to answer include: Is the product a primary care product or a specialty product? How many physicians will be prescribing the product once it reaches the market? What are other products in the market and how have they been adopted by different physician specialties? What pricing has been used for those products? From a market research perspective, qualitative market research discussions, whether they be focus groups, in-person discussions, or interviews, can also be informative. Also, when a product gets closer to market, look at quantitative market research; you may want to conduct Internet surveys with relevant stakeholders (physicians, payers and patients). IMS/Symphony Health data regarding current prescriber mix, product performance (share) and pricing Treatment guidelines (specialty guidelines, syndicated research, guidelines.gov, payer coverage and tiering Product performance (package inserts, academic literature, FDA approval packages) Typical Market Research & TPP Testing Mistakes: Not focusing on market research until too late Relying only on KOLs for feedback (KOLs can be overly optimistic) Not thinking about pricing comprehensively ( free market pricing vs. payerimposed controls & alternate products) Not being able to bridge from market research stated realized to anticipated performance prescribing. 7
Forecasting Revenue and Net Present Value (NPV) The final step of value determination is forecasting revenue. How big is the market? What is the expected revenue, cost (development and commercialization) and risk-adjusted NPV for the product? How many reps will be needed? What type of marketing budget will be required? Ask yourself what share of the overall value could be realized (anticipated upfront payments, milestone payments, and royalties). All of this thinking should be taking place when the product is in its earliest stages of development, not just when the product is in Phase 2 or Phase 3. Revenue: What is the anticipated trajectory and Peak Year Sales (PYS)? Costs: What is the cost (R&D and commercialization) that will be required to support the profile and performance? NPV: What are the appropriate estimates for the discount rate, risk, taxes, and cash flow for the product? Value Share: What share of the net value does the originator typically retain? What deal structures could be envisioned? Information sources for forecasting revenue: Forecasting can be done from an epidemiology perspective or from a prescription model perspective. Consider whether your model is a chronic model or a model only for acute patients. Some companies think all patients will be treated when in reality the only patients who should be part of the forecasting model are the ones that are new every year rather than the patients who have had the disease for ten years. From a cost perspective there are benchmarks from Subject Matter Experts (SMEs), analog companies, CRO s (for R&D related budgets) and industry standards that can help understand costs (number of reps needed, marketing budgets, R&D costs). Typically discount rates today are in the 10 to 12 percent range. Larger companies might be closer to 10 percent and smaller companies might be closer to 11 to 12 percent depending on where the cash flow is coming from. 8
Typical Forecasting Revenue Mistakes: Mixing discount rates and risk-adjustment keep them separate Using too high of a discount rate Not adjusting for risk appropriately Using a prevalence model for an incident disease Being too afraid to call your kid ugly understanding what could go wrong Not triangulating between epidemiology and TRx models not every patient that exists might get treated Having overtly optimistic expectation for deal share 2 Alignment of Expectations. Aligning expectations is an internal process that balances board and other stakeholder expectations versus potential partner expectations. Once internal expectations are aligned, however, it s important to understand that potential partners may have different expectations. There may be an internal assumption that the value of the deal might be between 80 and 100 million dollars, but during conversations with partners it might be discovered that they have a more pessimistic, or even optimistic, perception of deal value. For instance, if the partner already has a sales force established for the target market and you do not, their cost to commercialize the product will be much less than yours and that can result in placing more value on the asset than you might have. Value perspective might also be influenced by the partner s perception of risk, which might differ from the internal perception, or they might assume a discount rate that differs from what has been agreed on internally. There are good deals and bad deals. It s important to be aligned internally on what defines a good deal and what defines a bad one. What are the key components or must haves for the deal? What are those components that would be nice to have, but are not essential to getting the deal done? When deal expectations are aligned internally there s a greater chance of achieving what you want. Also critical to align on is deal timing. The partnering process can easily take 6-18 months, so it s important to have discussions early and have internal 9
alignment about how long a deal might take. And lastly, aligning on deal structure. Management may have different perspectives from a potential partner regarding how a deal is structured. For instance, what share of the value will the company get up front vs. payments for milestones and a future royalty structure? During negotiations it s important for management to be aligned on what they expect the specifics of the deal structure to be and to present a cohesive message to the partner. 3 Partnering: 7 Essential Steps for Success. 1. Identify Potential Partners Early 2. Attend Major Industry Conferences and Use Partnering Booths 3. Initiate Discussions Early 4. Tell Your Story Effectively & Customize it to Potential Partners 5. Have a Data Room Ready to Go 6. Provide Substantive Updates When Things Change and Reconnect at Conferences 7. No Means No For Now (Things can change) 4 Use a Virtual Data Room. VDR Functionality Access: Access levels in a virtual data room should be customized based on the stage of diligence for the particular partner. During the early stages of diligence you may only want the potential partner to have access to a limited number of files. As diligence progresses, and the seriousness of the partner is demonstrated, more access can be granted. It s also possible that different groups within the same company might be granted different levels of access to the data room. Printing: Most data rooms have the capability to allow or disallow printing on a document-bydocument basis. When printing is enabled ensure that appropriate watermarks are added. 10
Downloading: A data room will also allow or disallow for downloading of documents. Some data rooms have the additional functionality of being able to virtually shred documents after they ve been downloaded. Additional Functionality: Other features to look for in a data room include the ability to see which files and pages have been viewed, by whom, and for how long as well as customized reporting tools. 1.0 Corporate Overview 2.0 Investment Overview 3.0 Commercial Strategy 4.0 Pre-Clinical Program 5.0 Clinical Program 6.0 Regulatory 7.0 Intellectual Property 8.0 Manufacturing Recommended Data Room Structure The Corporate Overview folder will contain information on the overall company and its focus as well as providing details on the executive team, advisory boards, and corporate structure. The number of files in this folder will depend on the size of the company as well as the intended deal structure. For example, a corporate transaction will have significantly more files within this section compared to a product-level transaction. 1.0 Corporate Overview 1.1 Corporate Presentation 1.2 Executive Team 1.3 Advisory Board 1.4 Corporate Structure 2.0 Investment Overview 3.0 Commercial Strategy 4.0 Pre-Clinical Program 5.0 Clinical Program 6.0 Regulatory 7.0 Intellectual Property 8.0 Manufacturing 11
The Investment Overview folder will contain information that will be accessibility staged for the different levels of the diligence process. It might contain a non-confidential deck, a confidential deck, and possibly a folder containing Q&A responses customized for a particular company. 1.0 Corporate Overview 2.0 Investment Overview 2.1 Non-Confidential Introduction 2.2 Confidential Introduction 2.3 Q&A Responses 3.0 Commercial Strategy 4.0 Pre-Clinical Program 5.0 Clinical Program 6.0 Regulatory 7.0 Intellectual Property 8.0 Manufacturing 1.0 Corporate Overview 2.0 Investment Overview 3.0 Commercial Strategy 3.1 Commercial Overview 3.2 Market Research 3.3 Competitive Analysis 3.4 Commercial Forecasts 4.0 Pre-Clinical Program The Commercial Strategy folder will contain an overview folder followed by more detailed information about the company s commercial strategy including market research that s been conducted, competitive analysis and commercial forecasts. Most partners will expect some level of market analysis, especially as a product nears the market. 5.0 Clinical Program 6.0 Regulatory 7.0 Intellectual Property 8.0 Manufacturing 12
The Pre-Clinical Program folder will have an overview folder, as well as folders containing completed studies, on-going studies and planned studies. The overview folder should contain a description of all studies, timing and status. The specific folders should contain completed reports (or draft reports) of all studies. Published manuscripts should also be included. 1.0 Corporate Overview 2.0 Investment Overview 3.0 Commercial Strategy 4.0 Pre-Clinical Program 4.1 Program Overview 4.2 Completed Studies 4.3 On-Going Studies 4.4 Planned Studies 5.0 Clinical Program 6.0 Regulatory 7.0 Intellectual Property 8.0 Manufacturing 1.0 Corporate Overview 2.0 Investment Overview 3.0 Commercial Strategy 4.0 Pre-Clinical Program 5.0 Clinical Program 4.1 Program Overview 4.2 Completed Studies 4.3 On-Going Studies 4.4 Planned Studies The Clinical Program folder will be very similar to the Pre-Clinical folder starting with a program overview folder then progressing to completed studies, on-going studies and planned studies. The Overview folder should contain a description of all studies, timing and status. The specific folders should contain completed reports (or draft reports) of all studies. Published manuscripts should also be included. 6.0 Regulatory 7.0 Intellectual Property 8.0 Manufacturing 13
The Regulatory folder will contain a folder for Investigator s Brochure (IB), a folder for IND as well as a folder for sequentially placed regulatory conversations that may have taken place. The regulatory folder should contain the latest documents and an archive of historical regulatory documents. 1.0 Corporate Overview 2.0 Investment Overview 3.0 Commercial Strategy 4.0 Pre-Clinical Program 5.0 Clinical Program 6.0 Regulatory 6.1 IB 6.2 IND 6.3 Regulatory Conversions 6.4 Other (e.g., Orphan, Quality, SOPs) 7.0 Intellectual Property 8.0 Manufacturing 1.0 Corporate Overview 2.0 Investment Overview 3.0 Commercial Strategy 4.0 Pre-Clinical Program The Intellectual Property folder will contain patent estate, granted patents, pending patents and other legal documents that may be of relevance. 5.0 Clinical Program 6.0 Regulatory 7.0 Intellectual Property 7.1 Patent Estate 7.2 Granted Patents 7.3 Pending Patents 7.4 Other Legal 8.0 Manufacturing 14
The Manufacturing folder might contain a folder containing a facility overview, CMO/CDO contracts, process and process validation data, as well as other policies and procedures, inspection documentation and certificates. Specific manufacturing data is not normally shared until late in the due diligence process. 1.0 Corporate Overview 2.0 Investment Overview 3.0 Commercial Strategy 4.0 Pre-Clinical Program 5.0 Clinical Program 6.0 Regulatory 7.0 Intellectual Property 8.0 Manufacturing 8.1 Facility Overview 8.2 CMO/CDO Contracts 8.3 Process/Process Validation 8.4 Other (e.g., Policies & Procedures, Inspections/Certificates) Conclusion. BioPharma partnering and out-licensing can be daunting, but it doesn t have to be prohibitively so. The key to successful biopharma partnering is being prepared well in advance of negotiations, determining the appropriate value of the asset, being internally aligned on both deal value and deal structure, and then presenting due diligence materials in a well-organized data room for partner review. For more information on what to look for in a virtual data room download ShareVault s free white paper, The 7 Habits of Highly Effective Data Rooms. 15
Q&A Q: How can TPP be defined prior to the first in human (FIH) study when often the exact indications are not known that early? A: It does depend on if you know what indications you re going after. In cases where you know which indications you re pursuing it s easier to think about what the target product profile is. If it is a pre first in human and there are a range of possible indications we recommend thinking about the most likely indications that are novel and would have commercial value. Ask yourself what it would take to succeed within that indication. In that case a target product profile might not be recommended for what your product may provide, but rather having a perspective on what already exists. Q: What are specific sources for benchmark deal share values? A: There are no publicly available data points in terms of overall deal value. From the public perspective, we recommend looking at other transactions and for public disclosures. Typically you ll get disclosures on at least two fronts. One is an upfront. You also may get disclosure on the mega, blockbuster values where all the milestones are realized. So some of that data does provide guidance. But in addition to that, generally speaking, if you have a product in Phase 3 you are looking at anywhere from 35 to 50 percent of the overall value that should be realized by you. If you are somewhere in Phase 2 the value that you can realize might be in the 25 to 40 percent range. So, there are estimates, but it really depends on the therapeutic area, the indication, the level of de-risking and a lot of other factors that need to be considered. But unfortunately, there are no great data sources that will explicitly define value split expectations. Q: How detailed should clinical data be for a data room SAS, data sets, raw data for re-analysis? A: Ultimately raw SAS reports may need to be there for later stages of diligence but are probably not required for the initial stages of diligence. You probably need to provide the main draft of the clinical study report and a detailed appendix tables may not need to be there (potentially handled with Q&A). This is where a data room becomes key to the process. Everything a partner may potentially want to see can be populated in the data room, but access to that information can be granted on a needto-know basis. Q: What are the typical risk adjustments you would use for Phases 1, 2 and 3? A: The answer to this really does depend on the therapeutic area you re in. In terms of public or academic sources we recommend DiMasi and BioMed Tracker. Both have published papers on typical risk rates based on large Pharma research. DiMasi 16
has published a couple of reports, one in 2001 and one more recently in the last two years. In addition to that, and probably more powerful, is BioMedTracker. BioMedTracker recently published a resource that provides perspective on probabilities of success by phase. They had a more robust look at all companies, not just large pharma companies. Q: If the product is for an unmet need with no approved products for TRx modeling what suggestions do you have for pressure testing revenue projections based solely on Epi data using sales of related products as surrogate for example. A: That s tough, but I would say to start off with Epi (how many people have this disease that have no effective treatment options), then next you may be able to use claims data, which is not easy to get to, but there are public sources which capture what codes have been reported by physicians when a patient shows up. So, even if there are no therapeutic options, there are sources for how often patients have been diagnosed with a particular disease. You can get that from public sources or from other sources such as Symphony Health or IMS as well. 17
About Gautam Aggarwal About ShareVault With thirteen years of pharmaceutical and consulting experience, Gautam focuses on providing strategic guidance to clients within life sciences organizations. He has provided strategic advice to a wide range of clients, spanning Top-5 pharmaceutical manufacturers, emerging biotechnology manufacturers, bio-pharmaceutical investors, and service providers to biopharmaceutical companies. Gautam s previous employers have included GlaxoSmithKline, Boston Consulting Group and Campbell Alliance. Gautam received his MBA from the Fuqua School of Business at Duke and holds an MS and a BS in Bio-Statistics from UNC-Chapel Hill. ShareVault is the industry leader in supplying intuitive, innovative virtual data rooms that provide a simple and secure way to share sensitive documents with third parties during the due diligence process. The on-demand platform is an innovative cloud-computing solution that enables its customers to manage critical time-sensitive and document-centric processes faster and more intuitively. ShareVault offers the highest degree of security and reliability combined with unparalleled speed, ease of use and functionality. Backed by the experience of billions of dollars in successful deal transactions, along with industry-leading customer support, ShareVault can be a critical tool in accelerating deal transaction times and increasing deal success rates. For more information, visit www.sharevault.com. 18