Beyond borders: biotechnology industry report 2013

Focusing on new endpoints

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Focusing on new endpoints, by James Healy, MD, PhD, General Partner , Sofinnova Ventures

James Healy, MD, PhD, General Partner , Sofinnova Ventures

Venture capitalists have historically focused on optimizing clinical and regulatory success rates. Over the last five years, the scope of our diligence has broadened. At Sofinnova, we now increasingly include reimbursement analysis as a key component in our diligence process before making investments. We ask questions not just about how safe and efficacious a new product might be for patients, but also about whether it will lead to favorable economic outcomes for health care systems. As investors, we believe that both clinical and economic benefits are required to maximize returns.

Europe is ahead of the US in this area. As a firm that has actively invested in Europe and funded companies such as Actelion Pharmaceuticals, InterMune, Movetis and PregLem that were successful at getting product approvals in Europe, we have an informed view on how payers in key markets such as the UK, Germany and France approach these issues.

The US is now moving in Europe’s direction. Under the Affordable Care Act, for example, much of reimbursement is going to be pay-for-performance. Many adverse outcomes — hospital readmissions within a specified period, hospital-acquired injuries such as pressure ulcers, complications from surgeries such as catheter-associated infections and more — will no longer be reimbursed.

Adding endpoints

As part of the diligence we conduct when making an investment, we often survey broad sets of relevant physicians. More importantly, we look at how companies can demonstrate that the products being developed will benefit payer systems by decreasing the overall cost of care.

This requires understanding treatment protocols — how are patients currently managed and how might a new, innovative product change that? What portion of care is currently delivered in an outpatient vs. inpatient setting? How do pharmaceuticals increase or decrease those expenses? Could a new therapy reduce surgeries, decrease hospitalizations or prevent readmissions?

Measures such as these are the new data sets and endpoints that companies and investors need to focus on. Unlike clinical endpoints, they may not be required by regulatory bodies, but they are very important for increasingly influential payer systems.

Subtracting costs

A number of our portfolio companies have succeeded by focusing on clinical and economic benefit. For instance, Switzerland-based PregLem recently received approval for Esmya, a new drug for the treatment of women with fibroids. The company’s Phase III studies demonstrated that, by de-bulking tumors and decreasing bleeding, Esmya may eventually help avoid or delay surgeries — thereby reducing the cost of care while also increasing patient benefit.

Meanwhile, two US portfolio companies demonstrated that their drugs have the potential to decrease hospital admissions. Hyperion Therapeutics’ clinical trial in patients with hepatic encephalopathy (HE) demonstrated that patients on the active drug had significantly fewer HE events and trends, demonstrating fewer HE hospitalizations and fewer total HE hospital days. Durata Therapeutics has a long-acting, injectable antibiotic that could reduce the need to admit patients to the hospital and require less frequent home health care drug infusion.

New skills

Succeeding in this evolving landscape requires different skill sets. The best management teams understand the need to gather these payer-centric endpoints and other economic data early in a product’s development. This might require them to add reimbursement experts, for example, much earlier in a company’s development than they might have in the past, which could be achieved by hiring a full-time, in-house reimbursement expert or by contracting the work to specific vendors. It might also require companies to add board members that have a payer background or other expertise in the reimbursement arena.

The big picture

The US spends nearly $2.7 trillion on health care, and pharmaceuticals represent about 10% of that total. With costs under pressure, payers will increasingly want evidence that every incremental dollar spent on pharmaceuticals generates commensurate savings in the remaining 90% of health care spending.

More than ever, established and emerging drug development companies need to focus on the new endpoints — reductions in hospitalization time, lowered utilization of diagnostics, decreased outpatient visits and more — that will ultimately determine success in this changing business climate.