Reduced internal R&D productivity, patent expirations and stagnant global economic growth have caused pharma executives to initiate substantive restructuring within their businesses. In pursuit of assets to fill pipeline gaps and reshape portfolios, they’ve entered a period of heightened deal-making. Data from Deloitte Recap show that the overall number of licensing deals increased by 30% from Q1 2012 to Q1 2013, with a definitive increase in deals involving assets in early-stage development (discovery, lead/preclinical and Phase I).1
Understandably, executives seek to optimize return on investment. Yet contrary to current deal terms that often link milestone payments to clinical achievements, the asset’s value is ultimately tied to market access and reimbursement. Although essential, clinical success and regulatory approval are no longer sufficient to guarantee marketplace success. Thorough deal assessment entails looking beyond these factors to the probability, timing and sustainability of market access, which are crucial to assessing licensing and acquisitions.
Deals for assets in early-stage development provide buyers with the broadest opportunity to create a compelling market access value proposition. For late-stage assets, the value proposition, or lack thereof, may be substantially fixed. Regardless, all types of deals, particularly joint ventures, bring their own set of challenges for optimizing market access. Within the context of licensing and acquisitions, a systematic approach to appraising the market access potential includes evaluating two key areas: The asset’s potential and the deal’s governance and terms.
Assessing Market Access Potential
In the first quarter of both 2012 and 2013, approximately 80% of all disclosed licensing deals occurred between discovery and Phase II clinical trial stages.1 While early development involves more unknowns, the fluidity of developmental elements for pre-Phase III assets presents potential benefits to prospective buyers, namely the opportunity to shape the clinical development plan to optimize the value proposition and pricing and reimbursement potential.
When considering in-licensing opportunities of these early-stage-development assets, it is important to look forward as both the competitive and market access environments will undoubtedly change during the period between early development and launch. Key issues to consider include:
1. Funding Source at the Time of Launch
While in-licensing an innovative asset may be compelling, it is important to determine who will pay for the marketed product at the time of launch. Innovations may cross traditional reimbursement budgets, or be funded by different stakeholders across global markets with self-funding or cost-shifting in some therapy areas and regions. Key funding considerations include:
- Which budget, e.g., medical or pharmacy, will fund reimbursement?
- Will this innovation address remaining unmet needs so willingness to fund reimbursement can be anticipated?
- Will reforms or legislation affect future funding?
2. Level of Innovation: Novel Therapies and Mechanisms of Action
Marginally differentiated therapies are of no interest to payers. However, truly novel therapies pose their own challenges. Payers are interested in innovation only when it translates into increased value, such as a new MOA that improves patient outcomes and reduces treatment costs. Ensuring the innovation translates into payer value is an important consideration when optimizing the development of a novel asset.
3. Maximizing Efficiency of Trial Design and Comparator Selection: Implications for Market Access
In early development, dealmakers often focus on reaching clinical milestones and securing regulatory approval. Yet deal optimization is measured in terms of sales revenues and volumes, which rely on obtaining optimal market access. Alignment between clinical achievements and market access considerations is critical for success.
When designing clinical trials, the acquirer must understand the impact of certain decisions on the asset’s pricing and market access potential. Using placebo-controlled trial designs may increase the likelihood of reaching clinical milestones but could significantly decrease market access and optimal pricing potential as payers and health technology assessment (HTA) guidelines may require active trial comparators and head-to-head data against the standard of care at launch. Furthermore, clinical trial inclusion criteria often become the reimbursement eligibility criteria imposed by payers. Therefore, it is necessary to check alignment between the forecast assumptions driving the deal and the likely number of patients eligible to receive treatment reimbursement.
4. Optimizing Price Potential
Comparator selection establishes pricing potential. Therefore, one must evaluate not only whether the comparator will be the standard of care at the time of launch but also whether it will retain its branded price or lose exclusivity prior to the new asset’s launch. If the future standard of care will be generic at launch time, the acquirer should expect decreased pricing potential. Comparative data against a generic product sets generic price expectations. Biosimilars also will alter price expectations in their therapeutic areas.
5. Prioritizing Indication Sequence to Maximize Value
When acquiring early-stage assets in select therapeutic areas, such as oncology, determining the appropriate launch sequence for multiple indications is essential to optimizing market access and price potential. Typically, price cannot be renegotiated upward. Therefore, the ability to first launch the asset in the indication with the highest potential price is critical to maximize value; the ability to do so must be evaluated by the acquirer.
These same considerations are critical for assets in late-stage development because fewer opportunities exist to adjust plans as development progresses. When evaluating assets in late-stage development, a series of additional questions will uncover whether market access value is being optimized in the trials:
- To what extent has the asset’s market access value proposition been optimized in respective markets/regions?
- Were the correct endpoints regarding economic values, patient-reported outcomes (PROs), included?
- Have utility measures been included to allow development of cost per quality-adjusted life year (QALY) models?
- Is medical resource use or health economic data being collected to support the development of a cost-effectiveness model?
- Are there plans to roll clinical trial patients into an observational research trial?
- Are additional studies needed to address gaps in the clinical data?
It is equally important to consider whether there is sufficient time before launch to fill data gaps that may hinder market access optimization.
Assessing Deal Terms and Partnering Opportunities
Thirty-one percent of deals in Q1 2013 were executed as joint ventures or licensing agreements.1 While all deals have unique challenges, joint ventures can pose hurdles to optimizing market access. When entering into joint ventures, market access, governance and resourcing are often overlooked or unduly discounted, which may lead to unnecessary complications as commercialization approaches.
Because both joint ventures and licensing agreements may vary by geography and indication, governance of decisions and actions is often complicated. Determining the roles and responsibilities of the partners before closing the deal is crucial. Key issues to consider, whether a joint venture partner or the seller of an asset, include:
1. Deal Terms: Governance Structure and Funding
Deal terms written for assets in early-stage development may discount factors critical to ensuring optimal market access strategy, preparedness and sustainability. Sustaining market access over time may require additional decisions and investments. To understand who makes decisions and funds initiatives, it is important to consider:
- Who is responsible for generating economic evidence and submitting reimbursement dossiers?
- Who is responsible for setting launch price? For which countries?
- Can health economic models and data be leveraged?
- Who is responsible for funding additional studies if needed, such as registries, observational research and real-world evidence?
- Is the partner equipped and willing to manage all matters related to reimbursement?
2. Assessing Partner Expertise and Resources
For joint ventures and out-licensing— while it is essential to conduct a thorough asset opportunity assessment regardless of the business situation or developmental stage—it is equally important to carefully evaluate the potential partner’s market access expertise and resourcing.
Optimizing timely market access at the target price requires expertise, planning and execution. Accelerating the timeline to commercialization and achieving premium pricing are essential for both partners, since peak sales revenue will be lost during each month of reimbursement delay. Before selecting a joint venture or out-licensing partner, the following key questions should be considered:
- What level of market access expertise in the therapeutic area and countries/regions does the partner offer?
- Is staffing and resourcing sufficient to develop and substantiate a market access strategy?
- Does the partner have local operating company market access expertise and staffing where negotiations will occur?
A deal’s success relies heavily on an effective global market access strategy, including reimbursement and pricing potential. As such, it is strategically important to understand market access potential when assessing licensing and acquisition deals. A deal focused on clinical milestones and regulatory approval is unlikely to translate into marketplace success if clinical achievement is obtained at the expense of market access considerations. Without a solid global market access strategy, peak sales revenues are unlikely to be realized, due to reimbursement delay or restrictions preventing product access or failure to communicate the payer value proposition resulting in suboptimal pricing.
Whether in-licensing or out-licensing, the expertise and capabilities of the partner’s market access team are relevant. Deal terms will form the basis for governance and support optimal decision-making and incentives. Critical to building a successful partnership, a clear understanding of responsibilities for decisions and funding throughout the asset’s development cycle is required.
1. Deloitte Recap LLC Quarterly Biopharma Deals Update – First Quarter 2013, April 2013