Title: Value Assessment of Development-Stage Assets Pharmaceutical Products, Medical Devices, and Related Intellectual Property
1Value Assessment of Development-Stage
AssetsPharmaceutical Products, Medical Devices,
and Related Intellectual Property
Frank S. Castellana, M.D., Eng.Sc.D. Knollwood
Partners, LLC
2Objectives
- 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
3The Medical Product Development Process
4The Product Development Continuum
Customer Need
Activities - Costs - Timelines
Pharmaceutical Medical Device
Product Development
Product Commercialization
Risk
Value
Commercial Opportunity
Time
5Three Integrated Phases of the Product
Development and Commercialization Process
Medical and Market Assessments
Valuation
Development
Strategy and Planning
Product Discovery
New Product Opportunity
Clinical and Technology Assessments
Target Product Profile
Development Plan
Risk Model
EP
EP
Manufacturing Plan
Risk Adjusted Product Income Statement
Projected Clinical Performance
Risk Adjusted Licensing Income Statement
Market Analysis
Projected Product Sales
Risk Adjusted Product Value
Market Model
Risk Adjusted Deal Value
EP
Portfolio Management
6Medical Assessment Target Product Profile
Valuation
Development
Strategy and Planning
Medical and Market Assessments
Product Discovery
New Product Opportunity
Development Plan
Risk Model
Clinical and Technology Assessments
Target Product Profile
EP
EP
Manufacturing Plan
Risk Adjusted Product PL
Projected Clinical Performance
Risk Adjusted Licensing PL
Projected Product Sales
Risk Adjusted Product Value
Risk Adjusted Deal Value
Market Analysis
Market Model
EP
Portfolio Management
7Medical Assessment Target Product Profile
Marketed Products Assessment
Therapeutic targets Clinical performance - safety
/ efficacy Cost of therapy direct /
indirect Impact on disease management Reimbursemen
t environment
EP
Safety Metrics Efficacy Metrics Pharmacokinetics C
onvenience Metrics Direct Product Cost Indirect
Cost Impact
Competitive Pipeline Assessment
Target Product Profile
Preclinical Clinical Commercial
E
Therapeutic targets Anticipated
performance Anticipated cost of therapy
Minimum / Desired Performance Characteristics
Required for Clinical and Market Success
8Market Analysis Market Model
Valuation
Development
Strategy and Planning
Medical and Market Assessments
Product Discovery
New Product Opportunity
Development Plan
Risk Model
Clinical and Technology Assessments
Target Product Profile
EP
EP
Manufacturing Plan
Risk Adjusted Product PL
Projected Clinical Performance
Risk Adjusted Licensing PL
Projected Product Sales
Risk Adjusted Product Value
Risk Adjusted Deal Value
Market Analysis
Market Model
EP
Portfolio Management
9Market Analysis Market Model
Therapeutic categories Product sales and market
share Pricing Competitive dynamics Reimbursement
Marketed Products Assessment
Patient Demographics
Patient dynamics Therapeutic categories Marketed
products Sales and Share dynamics Pipeline
products
Market Model
E
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
Competitive Pipeline Assessment
10Product Discovery New Product Opportunity
Development
Strategy and Planning
Valuation
Medical and Market Assessments
Development Plan
Target Product Profile
Product Discovery
New Product Opportunity
Risk Model
Clinical and Technology Assessments
EP
EP
Manufacturing Plan
Risk Adjusted Product PL
Projected Clinical Performance
Risk Adjusted Licensing PL
Projected Product Sales
Risk Adjusted Product Value
Risk Adjusted Deal Value
Market Analysis
Market Model
EP
Portfolio Management
11Measure Performance vs the Target Product Profile
Projected performance characteristics do not meet
minimum criteria for clinical and commercial
success
NO
Target Product Profile
New Product Opportunity
Projected Clinical Performance
Development Strategy and
Planning
YES
Projected Product Sales
Projected performance characteristics meet or
exceed minimum criteria for clinical and
commercial success
12Projected Clinical Performance Projected
Sales and Share
Market Model
EP
E
Preclinical Studies and Animal Model Results
Projected Sales and Market Share
Projected Clinical Performance
For minimum profile For desired Profile
Safety Efficacy Dosing Pharmacokinetics Convenienc
e Cost of therapy
Target Product Profile
13The Regulated Preclinical / Clinical Development
Program
14Clinical 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 - 20-100 Healthy
Volunteers - Phase II Clinical Trials - 100-500 Patient
Volunteers - Phase III Clinical Trials - 1000-5000 Patient
Volunteers - NDA Regulatory Filing
- FDA Advisory Panel Meeting
- NDA Regulatory Approval
- Product Launch
- Phase IV Post Marketing Studies (safety,
efficacy, comparative performance)
15Clinical Development Process and Critical Path
16Development Plan Drivers
Regulatory Requirements Reimbursement Environment
Timelines
Preclinical Program Process Development Clinical
Program Regulatory Strategy Manufacturing
Strategy Life Cycle Management
Development Plan
E
New Product Opportunity
Cost
Target Product Profile
17The Risk Model
18Risk Model
Valuation
Development
Strategy and Planning
Medical and Market Assessments
Development Plan
Product Discovery
New Product Opportunity
Target Product Profile
Risk Model
Clinical and Technology Assessments
EP
EP
Risk Adjusted Product PL
Manufacturing Plan
Risk Adjusted Licensing PL
Projected Clinical Performance
Projected Product Sales
Risk Adjusted Product Value
Risk Adjusted Deal Value
Market Analysis
Market Model
EP
Portfolio Management
19Risk Model
- 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 PL - 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 PL (to
determine Risk Adjusted Operating Income) - Risk free cost of money is used to calculate Net
Present Values
20Clinical Development Process Activities,
Timelines and Probability of Success
21Risk Model
22Risk Model
23Risk Model Risk Adjusted Product Income
Statement
Valuation
Development
Strategy and Planning
Medical and Market Assessments
Development Plan
Product Discovery
New Product Opportunity
Target Product Profile
Risk Model
Clinical and Technology Assessments
EP
EP
Risk Adjusted Product PL
Manufacturing Plan
Risk Adjusted Licensing PL
Projected Clinical Performance
Risk Adjusted Product Value
Projected Product Sales
Risk Adjusted Deal Value
Market Analysis
Market Model
EP
Portfolio Management
24Risk Model Risk Adjusted Product Income
Statement
Fixed Expense
Development expense Fixed sales expense Fixed
marketing expense Manufacturing expense GA
allocation
EP
Risk Adjusted Product Income Statement
Product Income Statement
Projected Sales and Gross Margin
Risk Model (Development and Sales Achievement)
E
Operating Cash Flow Net Present Value
Direct Product Expense
Advertising Promotion Sales Force
25Risk Model Risk Adjusted Licensing
Transaction Income Statement
Valuation
Development
Strategy and Planning
Medical and Market Assessments
Development Plan
Product Discovery
New Product Opportunity
Target Product Profile
Risk Model
Clinical and Technology Assessments
EP
EP
Risk Adjusted Product PL
Manufacturing Plan
Risk Adjusted Licensing PL
Projected Clinical Performance
Risk Adjusted Deal Value
Risk Adjusted Product Value
Projected Product Sales
Market Analysis
Market Model
EP
Portfolio Management
26Risk Model Risk Adjusted Licensing
Transaction Income Statement
Upfront Payment
Licensing Deal Structure
Risk Adjusted Milestone Payments
Risk Adjusted Deal Specific Payments
Royalty on Net Sales
Risk Adjusted Licensing Income Statement
E
Risk Adjusted Product PL
Risk Adjusted Sales
Risk Adjusted Development Expense to Deal Signing
27Risk Adjusted PL Risk Adjusted Value
Valuation
Development
Strategy and Planning
Medical and Market Assessments
Development Plan
Product Discovery
New Product Opportunity
Target Product Profile
Risk Model
Clinical and Technology Assessments
EP
EP
Risk Adjusted Product PL
Manufacturing Plan
Risk Adjusted Licensing PL
Projected Clinical Performance
Projected Product Sales
Risk Adjusted Product Value
Market Analysis
Market Model
Risk Adjusted Deal Value
EP
Portfolio Management
28Risk Adjusted Product / Licensing Income
Statement Risk Adjusted Value
Risk Adjusted Operating Income
Risk Adjusted Product Income Statement
Risk Adjusted Product Value
NPV
Risk Free Cost of Money
Risk Adjusted Licensing Income
Risk Adjusted Licensing Income Statement
Risk Adjusted Deal Transaction Value
NPV
29Valuation Model Required Input and Data Sources
Required Input Data Source
Projected Sales Market Model / Analog Products
Anticipated Gross Margin Manufacturing Strategy
Development Critical Path Agency Requirements / Predicate Compounds
Development Expense (including CAPX) Development Plan (as above)
Other Fixed Expense Industry Averages (for product class)
Direct Product Expense Industry Averages (for product class)
Risk Model Parameters Scientific Staff / Advisory Board Due Diligence
Licensing Transaction Deal Terms Deal Comparables Analysis
PL Requirements
30Portfolio Management Value as a Function of Key
Development Milestones
CGR
Investment
Return
Management
Portfolio Value
Year 1 Year 2 Year 3 Year 4 Year 5
Product 1
Product 2
Product 3
Technology
Other Assets
Preclinical
Phase I
Phase II
Phase III
Phase II
Phase III
NDA
Phase I
Preclinical
Phase I
Phase II
Asset Portfolio
31Thank you