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Partnering to fund clinical trials: A new model for pharma

21 April 2017  •  Author(s): Ben van der Schaaf, Principal at Arthur D. Little

The US Department of Health and Human Services estimates suggest the cost of the clinical trial process today is upwards of $100 million, and that does not even take into account the marketing and distribution investment necessary for a pharmaceutical company to ensure new life enhancing therapies reach patients’ hands. The rising costs of drug development mean that despite building a robust pipeline of early stage compounds and indications, drug makers with robust R&D pipelines are losing billions each year in potential revenue as promising new therapies sit on the shelf waiting for their patent to expire.

clinical trials

There is a new way for drug makers to claw back some of these costs, and widen the number of new therapies that go through to the development and clinical trial stage. In a word – partnerships. Working with CROs, universities, and patient advocacy organisations, innovative drug makers can find investors who see their intellectual property as a valuable asset, and are willing to provide the capital and share the risk involved in getting a promising new therapy through the development stage, regulatory approvals, and launched to market.

Drug makers interested in partnering to fund lower priority drug trials can follow these five steps to assess the viability of this option and launch their new partnerships.

1. Identify clinical trials

When reviewing their portfolio of de-prioritised new therapies, drug makers must make tough choices about which clinical trials will attract external investors and be profitable once in market. Trials need to be relevant and complementary. The relevance of a trial is based on its potential market demand, and will predict the value of the development asset if trials are successful and it is approved by regulators.

Packaging a number of trials for new drugs in the same therapy area is an attractive offer for investors, and will reduce upfront costs. Even trials in the same therapy area need to be complementary – in the form of geography, indication, trial duration, patients, etc – to realise these operational advantages and identify the right CRO to execute them.

Remember, a real transfer of risk is required for the partnership to help the drug maker develop its assets without adding development costs to its bottom line. However, that means that actual risk needs to transfer from the biopharma company to other parties. A clinical trial with a 95% probability of success would not satisfy this requirement, as it would just be a financing arrangement camouflaged as an investment.

2. Find partners for funding and execution

A successful partnership will bring together the biopharma’s science and data; the CRO’s trial operation capability and capacity; and the investors’ funds, along with their knowledge of structuring and exiting these types of transactions. Finding the right CRO will be based on their location, track record, and expertise in the relevant therapy area.

clinical trials

Finding the right investors takes careful targeting and multiple approaches. These could be venture capitalists specialising in biopharma, non-profit organisations and patient groups with a focus on a specific therapy area, and other types of investors with interest in the specific disease area or public health issue.

3. Develop an operating model and structure

Once partners are committed to the project, the next step is to develop a legal structure and financing arrangement. The new entity could be a joint venture or special-purpose entity, established solely to operationalise and manage the execution of the included trials, with governance by representatives from all of the partners. Setting clear goals for each partner and carrying out a full risk assessment are critical to setting the new organisation on a strong foundation. The risk assessment must include thorough due diligence and a clear exit strategy that ensures all partners are clear of the outcomes and their role in delivering the final goals.

4. Operationalise and execute

Over the next two to four year the new organisation will be working toward completing development on the selected potential therapies. This will require establishing processes and roles upfront to ensure efficient and effective operations. Consider the following four areas before operations begin:

  • Technical – have you established a protocol that can deliver the clinical data required to support an increase in product value?
  • The commercial value of the trial – is the market assessment valid, and is there real revenue potential for the drug coming out of it?
  • Operational – are the trials in question designed in such a way they can be executed efficiently and on time, to deliver the necessary cost savings? Are the proposed trials operationally complementary?
  • Cultural – have all partners come together to develop shared norms and agreed ways of working that will ensure successful progress and a clear exit once the investment value has been realised?

5. Exit

After all trials are complete, the partnership must have a clear, well-established process for closing out of the relevant trials, realising value for each partner in line with the contract, and effectively dispersing or disposing of accrued assets. 

clinical trials

The pharmaceutical industry has a successful track record of working in partnership at the drug discovery and marketing and distribution stages. Developing these new partnerships to fund clinical trials and get lifesaving therapies to market is a natural next step for many drug makers, and will result is improved value creation for companies and improved quality of life of patients. 

 

 

Ben van der Schaaf is a principal with Arthur D. Little, based in New York City. He is an advisor to the global pharmaceutical industry in the area of drug development, focusing on development operations internal and external, post-merger integration, alliance management and innovative partnering and operating models.

 

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