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Bio Tech Venture Investing – Novel Drug Discovery Versus Repurposing and Reformulation

Vladimir's LST System

I recently reviewed a white paper by David Thomas, CFA and Chad Wessel of Bio Industry Analysis entitled Venture Funding of Therapeutic Innovation A Comprehensive Look at a Decade of Venture Funding of Drug R&D, published in February 2015. In this excellent paper they covered a number of different topics and trends, but for this article, I would like to focus on one. They point out that over the past ten years, nearly 80% of venture capital for therapeutics went toward "novel drug R&D" as opposed to improvements on existing drugs (e.g., new formulations, repurposing, drug delivery, etc.

The percentage of de novo investments compared to repurposing or reformulations would not surprise me if the group the study was analyzing was the venture arm of large pharma. However, this is astounding to me when you think of the financial rigor normally associated with the venture community. De novo drug discovery is simply a bad bet. Here are the latest metrics - $1.7 billion cost, 12 to 15 years, 1 in 10,000 compounds makes it and only 1 in 3 compounds that are commercialized recover their original investment.

Compare that with the far superior metrics for repositioning. Because your universe of drug candidates is drugs already treating another disease in humans, you eliminate or greatly reduce the safety and toxicity component of the trial process. Since the drugs are already known you eliminate the 4.5 years and $674 million on average for the discovery process. Now if you can identify the best candidates with precision and supply the companion diagnostics for safety, toxicity, efficacy and patient stratification you can remove several years and hundreds of $ millions compared to de novo.

There has got to be a reason that big pharma and this universe of very savvy investors have largely ignored this seemingly superior bet. In hearing the objections in the marketplace, my conclusion is that they are operating under four misperceptions.

1. We can only get method of use patents and that is not sufficient to provide us the period of exclusivity commensurate with this sizable investment. A: We can argue the composition of matter versus the method of use patent protection issue until the cows come home, but let's just let the numbers do the talking: 1/4 of the total drug marketplace is comprised of repurposed drugs. Examples of Repurposed Blockbusters -include:

-Tecfidera (Biogen) - Multiple Sclerosis $2.91 Billion (2014)

-Rituxan (Biogen ) - Rheumatoid Arthritis $1.2 Billion (2013)

-Viagra (Pfizer) - Erectile Dysfunction $2.05 Billion (2008)

2. Generics prescribed off-label will limit our pricing power and our market share potential. A: this is simply not supported by the facts. A simple reformulation of a repositioned drug will make it immune to off-label prescribing. In the many examples of successful repositioned drugs, the availability of a generic has had very limited impact on its pricing or market share for the new indication. The pricing mechanisms in the market do not distinguish between a de novo drug and a repositioned drug.

3. It costs "about the same" to take a repurposed drug through the commercialization process as it does a de novo discovery. As shown above, you simply eliminate much of the process (discovery, tox). Also the FDA has recently approved the use of remote monitoring in running clinical trials especially when it involves a repurposed drug. Estimates are as high as an 80% reduction in clinical trials cost by fully implementing this approach. The more precision you can provide in the areas of companion diagnostics for toxicity, efficacy, and patient stratification, the faster and cheaper you can bring a repurposed drug to market.

4. The approaches used in drug repositioning do not provide enough precision and systematic repeatability in order for us to invest in this strategy. This was true until the introduction of a technique called high throughput knowledge screening. It is a Big Data play on researching the research pioneered by a company called CureHunter. By adding this final puzzle piece to the other advantages of repositioning, it makes the investment thesis for repositioning even more compelling.

The market is just beginning to embrace this considerable risk/reward advantage, but it is not the giant pharmaceutical or bio tech companies (although Celgene repositions their new drugs while still in the clinical trials process for the original indication). Rather it is the smaller nimble bio techs that develop a repurposed candidate, form a drug/disease specific subsidiary, move the drug through phase 1 and limited phase 2 trials, and then sell the subsidiary to a large pharmaceutical or bio tech company. It will probably take a series of small company successes before the big players start to pursue this strategy in earnest. Once that gate opens we will see a resounding level of drug pipeline growth, more rapid drug introduction, more favorable pricing and choices for the patients.

Vladimir's LST System

Source by Dave Kauppi

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