Beyond borders: biotechnology industry report 2013

Preparing for outcomes

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Preparing for outcomes, by Tao Fu, Head of Mergers & Acquisitions, Pharmaceuticals, Johnson & Johnson

Tao Fu, Head of Mergers & Acquisitions, Pharmaceuticals, Johnson & Johnson

The need to demonstrate value to payers is becoming increasingly important. The trend started in Europe where, over the last decade or so, pricing and reimbursement have become increasingly contingent on demonstrating economic value.

We are now seeing a similar shift in the US. Companies are still free to set prices in the American market, but if they can’t demonstrate significant economic value, they are not going to sell a lot of product. And we only expect this scrutiny to increase over time.

These considerations are therefore becoming central to our evaluation of business development opportunities. At Johnson & Johnson, we do extensive payer research for every significant business development project we manage, particularly those that are later-stage.

We certainly don’t expect smaller biotech companies, with their relatively limited resources, to conduct large payer studies. But we do expect them to thoroughly think through the incremental value their products will bring to medical practice and design their clinical development plans and target product profiles accordingly.

This involves evaluating how much additional value a product might generate over the standard of care — not just for current medical practice, but also with respect to norms five or 10 years in the future, when the product is launched. This might include, for instance, identifying products that might become generic in that time frame or new market entrants with different value propositions.

Is biotech prepared?

In the deals and negotiations we enter, I find that many biotech companies are somewhat unprepared with relevant information. Many companies remain much more focused on trying to earn a quick return by choosing an indication or study that can generate data fairly easily and inexpensively. The mainstream strategy appears to be to conduct a quick study in a small indication — with an eye to demonstrating proof of principle and quickly flipping the asset to big pharma — rather than to think through how a product will perform relative to the competition and standard of care when it’s launched.

Unfortunately, this strategy is unlikely to work, because it will not produce evidence aligned with what payers and big pharma buyers expect in today’s market. In the deals we look at, we sometimes find that the clinical trials were not properly designed at the outset.

For example, a company might conduct a Phase II trial comparing a new drug to an available marketed agent, whereas the best medical practice has already evolved to a new class of drug as the standard of care. In such cases, we cannot do a deal until the company goes back and conducts a new study to generate the right kind of data — resulting in additional expense and lost time.

Working together?

It will be important for biotech companies to find talent with the expertise to think through payer issues and design trials appropriately. However, such talent isn’t easy to come by. So big pharma companies could play a role here, by working with biotech companies early in the process and giving them input on their research design.

For example, at J&J, we have worked on option deals in which early-stage companies benefit from our experience in designing clinical trials while giving us an option to the program if the subsequent studies subsequently demonstrate clinical proof of concept and economic benefit.

Whether they get the expertise by attracting the right talent or by partnering with larger companies, it is absolutely critical that biotech companies focus, early, on asking the right questions and doing the killer experiments. There is little point in conducting studies or gathering data that are unpersuasive — all the more so at a time of limited resources.