Thursday, May 17, 2007

The Value of Re-Cycling: $87 million?

The drug industry’s littered with examples of products that have started life in one indication and got to market in a totally different one—think of Viagra et al.

But most of these reinvention stories involve a fair bit of luck—the right scientists taking a chance and managing to get it past the bosses. Since then, Big Pharma’s R&D productivity issues have prompted the birth of a handful of systematic re-positioners like Aspreva or Melior.

Or like Gene Logic. This firm—originally a genomics database group—has stuck its neck out and put a number on the value of repositioning assets: $87 million. That’s to say, repositioning a failed Phase II compound in a new indication creates an asset worth $87 million more, in net present value terms, than an equivalent in-licensed drug. That’s almost a 30% increase, according to the company.

To find out exactly how they get to these numbers—there is rhyme and reason—you’ll have to wait for June’s IN VIVO. But it’s based around the notion that a re-positioned drug has an additional two-to-three years of patent life over its non-repositioned counterpart. Since there’s no “original” indication (the drug failed, right?), then once the compound’s composition of matter patent—typically seen as the strongest IP protection—expires, the method of use patent, filed later based on a novel indication in Phase II, still has bite. (Normally, when a drug’s composition of matter patents expire, generics can compete in the original indication that the drug was approved for, and in practice also compete off-label in other, unexpired indications.)

The arguments look reasonable. At least, they do to the five Big Pharma partners that Gene Logic has attracted in the last couple of years, including, earlier this month, Abbott Labs.

But are these partners really buying into Gene Logic’s economic model—which is, by the company’s own admission, without precedent and totally unproven—or do they simply figure that they’ve got nothing to lose? Gene Logic takes on all the early risk in identifying a new indication. There’s no cost to the larger partner unless and until Gene Logic finds a viable new indication for the compound—in which case it will owe milestones (estimated at $60-$100 million per compound) and, potentially, royalties. There’s no automatic opt-in for Gene Logic—it can only take rights to repositioned compounds if the pharma partner explicitly rejects them.

Effectively, Gene Logic’s had to bend over backwards to persuade Big Pharma to hand over shelved assets---everyone knows this isn’t a favorite pastime. They’ve had to remove all the hurdles and pitfalls.

The tactic has worked, thus far. But Gene Logic won’t be able to afford this deal-structure for long. Either they won’t find new indications, in which case they’ll go bust (or change strategy again). Or they will, but that will push up development costs, so they’ll have to get more from their partners.

So if you’re a Big Pharma with stuff on the shelves, move fast.

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