1 Value Assessment of Development-Stage Assets Pharmaceutical Products, Medical Devices, and Related Intellectual Property Frank S. Castellana, M.D., Eng.Sc.D.

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Presentation transcript:

1 Value Assessment of Development-Stage Assets Pharmaceutical Products, Medical Devices, and Related Intellectual Property Frank S. Castellana, M.D., Eng.Sc.D. Knollwood Partners, LLC

2 Objectives Demonstrate how one can determine the risk adjusted value of pharmaceutical and medical device assets from a Product (or Licensing Transaction) Income Statement and a deterministic risk model of the product development and commercialization process –Review key features of the development and commercialization process for pharmaceutical products and medical devices –Discuss in detail the FDA regulated clinical evaluation phases of the development program –Present a risk model which is derived from our understanding of the development process and the probability of success associated with each of its stages –Demonstrate how the risk model can be integrated into the Product Income Statement (or Licensing Transaction Income Statement) to determine a risk-adjusted Net Present Value (NPV) of future cash flows associated with product sales Rationale: Understand the impact of development risk on product value Ensure the optimal allocation of available resources – Portfolio Management Provide an unbiased approach to licensing and portfolio transactions

The Medical Product Development Process

4 The Product Development Continuum Pharmaceutical Medical Device Product Development Product Commercialization Customer Need Commercial Opportunity Activities - Costs - Timelines RiskValue Time

5 Product Discovery New Product Opportunity Market Analysis Clinical and Technology Assessments Target Product Profile Projected Product Sales Development Plan Risk Model Manufacturing Plan Risk Adjusted Product Value Projected Clinical Performance Medical and Market Assessments Risk Adjusted Product Income Statement Valuation Development Strategy and Planning Market Model Risk Adjusted Licensing Income Statement Risk Adjusted Deal Value Three Integrated Phases of the Product Development and Commercialization Process Portfolio Management EP

6 Product Discovery New Product Opportunity Projected Product Sales Development Plan Risk Model Manufacturing Plan Risk Adjusted Product Value Projected Clinical Performance Risk Adjusted Product P&L Valuation Development Strategy and Planning Risk Adjusted Licensing P&L Risk Adjusted Deal Value Portfolio Management Market Analysis Market Model Medical and Market Assessments Clinical and Technology Assessments Target Product Profile Medical Assessment Target Product Profile EP

7 Therapeutic targets Clinical performance - safety / efficacy Cost of therapy – direct / indirect Impact on disease management Reimbursement environment Therapeutic targets Anticipated performance Anticipated cost of therapy Marketed Products Assessment Competitive Pipeline Assessment Safety Metrics Efficacy Metrics Pharmacokinetics Convenience Metrics Direct Product Cost Indirect Cost Impact Target Product Profile Minimum / Desired Performance Characteristics Required for Clinical and Market Success Medical Assessment Target Product Profile Preclinical Clinical Commercial E EP

8 Product Discovery New Product Opportunity Projected Product Sales Development Plan Risk Model Manufacturing Plan Risk Adjusted Product Value Projected Clinical Performance Risk Adjusted Product P&L Valuation Development Strategy and Planning Risk Adjusted Licensing P&L Risk Adjusted Deal Value Portfolio Management Market Analysis Market Model Medical and Market Assessments Clinical and Technology Assessments Target Product Profile Market Analysis Market Model EP

9 Market Analysis Market Model Patient dynamics Therapeutic categories Marketed products Sales and Share dynamics Pipeline products Therapeutic categories Product sales and market share Pricing Competitive dynamics Reimbursement Disease incidence Disease prevalence Percent diagnosed Percent treated Percent compliant Therapeutic targets Products in development by stage Anticipated performance Anticipated cost of therapy Projected regulatory filing and launch dates Projected sales and market share Marketed Products Assessment Patient Demographics Competitive Pipeline Assessment Market Model E

10 Development Plan Projected Clinical Performance Development Strategy and Planning Target Product Profile Product Discovery New Product Opportunity Projected Product Sales Risk Model Manufacturing Plan Risk Adjusted Product Value Risk Adjusted Product P&L Valuation Risk Adjusted Licensing P&L Risk Adjusted Deal Value Portfolio Management Market Analysis Market Model Medical and Market Assessments Clinical and Technology Assessments Product Discovery New Product Opportunity EP

11 Measure Performance vs the Target Product Profile New Product Opportunity Projected Clinical Performance Target Product Profile Development Strategy and Planning Projected performance characteristics do not meet minimum criteria for clinical and commercial success Projected performance characteristics meet or exceed minimum criteria for clinical and commercial success YES NO Projected Product Sales

12 For minimum profile For desired Profile Projected Clinical Performance Projected Sales and Share Safety Efficacy Dosing Pharmacokinetics Convenience Cost of therapy Preclinical Studies and Animal Model Results Market Model Projected Sales and Market Share Target Product Profile Projected Clinical Performance E EP

13 The Regulated Preclinical / Clinical Development Program

14 Clinical Development of Pharmaceuticals and Medical Devices Regulated by the US Food and Drug Administration (FDA) Key Elements: - Preclinical Development - IND Regulatory Filing - Phase I Clinical Trials Healthy Volunteers - Phase II Clinical Trials Patient Volunteers - Phase III Clinical Trials Patient Volunteers - NDA Regulatory Filing - FDA Advisory Panel Meeting - NDA Regulatory Approval - Product Launch - Phase IV Post Marketing Studies (safety, efficacy, comparative performance)

15 Clinical Development Process and Critical Path

16 Development Plan Drivers Preclinical Program Process Development Clinical Program Regulatory Strategy Manufacturing Strategy Life Cycle Management Regulatory Requirements Reimbursement Environment Timelines Cost New Product Opportunity Target Product Profile Development Plan E

17 The Risk Model

18 Development Plan Risk Adjusted Product P&L Valuation Risk Adjusted Licensing P&L Manufacturing Plan Projected Clinical Performance Product Discovery Development Strategy and Planning New Product Opportunity Target Product Profile Projected Product Sales Risk Model Risk Adjusted Product Value Risk Adjusted Deal Value Portfolio Management Market Analysis Market Model Medical and Market Assessments Clinical and Technology Assessments Risk Model EP

19 Overview –A deterministic (vs stochastic) approach designed to account for our understanding of the development process and the risk associated with each of its stages –An approach that permits the determination of Product (and/or Licensing Transaction) value as a function of stage of development, and Incremental benefits associated with incremental investment Methodology –Modular representation of all or part of the Development Process starting with the Preclinical Program and ending with achievement of the Expected P&L –Probability of success assigned to each Development Module based on the analysis of available data Industry averages adjusted for available data Expert panels / SAB where appropriate –Overall probabilities calculated at each stage of development for: The likelihood of reaching each successive stage (to determine Risk Adjusted Development Expense), and The likelihood of achieving the Expected P&L (to determine Risk Adjusted Operating Income) –Risk free cost of money is used to calculate Net Present Values Risk Model

20 Clinical Development Process Activities, Timelines and Probability of Success

21 Risk Model

22 Risk Model

23 Valuation Risk Adjusted Licensing P&L Risk Adjusted Product Value Development Plan Risk Adjusted Product P&L Manufacturing Plan Projected Clinical Performance Product Discovery Development Strategy and Planning New Product Opportunity Target Product Profile Projected Product Sales Risk Model Risk Adjusted Deal Value Portfolio Management Market Analysis Market Model Medical and Market Assessments Clinical and Technology Assessments Risk Model Risk Adjusted Product Income Statement EP

24 Risk Model Risk Adjusted Product Income Statement Operating Cash Flow Net Present Value Development expense Fixed sales expense Fixed marketing expense Manufacturing expense G&A allocation Advertising Promotion Sales Force Product Income Statement Fixed Expense Direct Product Expense Projected Sales and Gross Margin Risk Model (Development and Sales Achievement) Risk Adjusted Product Income Statement E EP

25 Valuation Risk Adjusted Product P&L Risk Adjusted Deal Value Risk Adjusted Licensing P&L Risk Adjusted Product Value Development Plan Manufacturing Plan Projected Clinical Performance Product Discovery Development Strategy and Planning New Product Opportunity Target Product Profile Projected Product Sales Risk Model Portfolio Management Market Analysis Market Model Medical and Market Assessments Clinical and Technology Assessments Risk Model Risk Adjusted Licensing Transaction Income Statement EP

26 Risk Adjusted Sales Risk Adjusted Development Expense to Deal Signing Licensing Deal Structure Risk Adjusted Deal Specific Payments Royalty on Net Sales Risk Adjusted Milestone Payments Upfront Payment Risk Adjusted Licensing Income Statement Risk Adjusted Product P&L Risk Model Risk Adjusted Licensing Transaction Income Statement E

27 Projected Product Sales Risk Adjusted Licensing P&L Portfolio Management Valuation Risk Adjusted Product P&L Risk Adjusted Product Value Development Plan Manufacturing Plan Projected Clinical Performance Product Discovery Development Strategy and Planning New Product Opportunity Target Product Profile Risk Model Market Analysis Market Model Medical and Market Assessments Clinical and Technology Assessments Risk Adjusted P&L Risk Adjusted Value Risk Adjusted Deal Value EP

28 Risk Adjusted Product / Licensing Income Statement Risk Adjusted Value Risk Adjusted Operating Income Risk Free Cost of Money NPV Risk Adjusted Product Income Statement Risk Adjusted Product Value Risk Adjusted Licensing Income Risk Adjusted Licensing Income Statement Risk Adjusted Deal Transaction Value NPV

29 Valuation Model – Required Input and Data Sources Required InputData Source Projected SalesMarket Model / Analog Products Anticipated Gross MarginManufacturing Strategy Development Critical PathAgency Requirements / Predicate Compounds Development Expense (including CAPX)Development Plan (as above) Other Fixed ExpenseIndustry Averages (for product class) Direct Product ExpenseIndustry Averages (for product class) Risk Model ParametersScientific Staff / Advisory Board – Due Diligence Licensing Transaction Deal TermsDeal Comparables Analysis P&L Requirements

30 Year 1Year 2Year 3Year 4Year 5 Product 1 Product 2 Product 3 Technology Other Assets Portfolio Value Portfolio Management Value as a Function of Key Development Milestones Preclinical Phase IIPhase IIINDA Phase IPhase II Phase IPhase II Phase III Phase I CGRInvestmentReturnManagement Asset Portfolio

31 Thank you