Beyond borders: biotechnology industry report 2013
If you build it, will it matter?
If you build it, will it matter?, by Ed Mathers, Partner, NEA
I’ve been in the biotechnology industry for about 30 years in a variety of capacities. Over that time, one thing has always been true: to succeed, a product needs to meet a clinical need. If it can do that, patients will benefit — and biotech companies and their investors and big pharma partners will win.
Over the last five years, however, the focus on demonstrating the economic value of product candidates has sharpened. Five years ago, if we were investing in an early-stage platform company, our primary concern would be demonstrating that the platform works and then thinking through potential applications.
Today, we don’t just ask, “Will it work?” We also ask, “Will it matter?” Because if a new product or platform doesn’t matter to payers and pharma companies, then it is unlikely to be paid for and we are unlikely to invest in it. Nowadays, the product must not only work clinically and provide some measurable benefit relative to the standard of care, it must also offer economic advantages in terms of impacting the overall cost of therapy.
For our later-stage investments, the imperative now is to demonstrate differential economic value. Beyond efficacy, we have to be able to show that our products are differentiated relative to the standard of care (particularly in a world where generics are becoming more prevalent) and that they improve quality of life and positively affect payers.
In response to this transformation of the industry investing mindset, our diligence processes have been forced to adapt as well. For our early-stage investments, we don’t just conduct scientific diligence — we also spend a lot of time talking to business development and commercial teams from pharmaceutical companies to ascertain whether a new product will matter to them. It is important to understand their needs and try to meet as many of them as we can.
The other area where we are doing more diligence — even prior to making early-stage investments — is in talking to private and public payers. As Medicare and Medicaid in the US adopt bundled payment systems, for instance, it has become critical to understand at an early stage how a product would fit within a bundle. How will it make a difference, both today and over time?
With later-stage investments, our due diligence includes assessing how a new product will differentiate itself relative to the market leading products (which could well be generic). This involves questions of clinical trial design, and it might require conducting head-to-head studies, which increases the risk of getting a result that is ambiguous or detrimental to a product’s success.
For later-stage companies, it has become increasingly important to get the right kinds of expertise to address these concerns. I see a lot more activity around engaging payer consultants, talking directly to payers, etc.
Big pharma’s expectations
These market differentiation issues have affected what pharma expects from biotech companies and the data packages our portfolio companies now seek to assemble. In addition to chemistry, manufacturing and control data, pharma partners also want to see what communications we have had with regulatory agencies such as the U.S. Food and Drug Administration. And they want to know what primary research we have done around the value of our product, by talking with key opinion leaders, payers and others.
In most cases, pharma companies do their own research on these value questions anyway, but it seems to help if we have spent some time and resources considering these questions as well.
Asking the right questions
For biotech companies and their investors, it is more crucial than ever to focus on demonstrating value. While early-stage companies may lack the resources — or need — to undertake head-to-head trials, it is never too early to start asking the right questions. Assuming our product works, will it matter — to patients, to payers and to health care systems at large?