Jon Pilcher presented at the Bio International Convention in San...

Jon Pilcher presented at the Bio International Convention in San Diego earlier this month. This annual convention is described as the largest and most comprehensive event for biotechnology, with over 20,000 participants and over 50,000 partnering meetings held.

I noticed that, prior to the convention, an advanced business development workshop was being held. The focus of the workshop was on all key aspects of transactions in the biopharma industry and included lectures from experienced dealmakers, reviews of deal structuring models, dissections of actual deals and a mock negotiation scenario using an actual valuation and deal structuring model. One of the instructors for the workshop was Joe Dillon.

The name rang a bell to me and might also to others who were part of this forum six years ago. At the time, I posted a link to a powerpoint presentation by Dillon that explained some of the intricacies of how biotech valuations are calculated and how deals are structured (unfortunately, the link in the 2018 post no longer works, but if you’re interested in the Dillon presentation, I've provided a PDF link at the end). TripAces subsequently contacted Dillon with a question and posted his reply to this forum. This was in March 2018, prior to the trofinetide licensing deal with Acadia being announced, when we were all stewing over whether Neuren would partner prior to Phase 3 in Rett or choose to go it alone (some things never change!)

While re-reading Dillon’s presentation (the finer details of rNPV, WACC and Monte Carlo Simulations are still well beyond the grasp of my limited brain), I pondered on his comments about scarcity value – “whomever has the gold rules!”

Scarcity, he reasonably argued, adds value. He set out a list of attributes that make a drug asset so rare, it becomes "gold". Naturally, I couldn’t resist using Dillon's list of attributes to run the ruler over Neuren!


Near-term launch

Ok, NNZ-2591 isn’t about to launch this year, but it is a late-stage asset due to enter Phase 3 next year. Manufacturing of commercial-grade NNZ-2591 in preparation has already commenced. The Phase 3 trial should take approximately 2 years to complete, as opposed to the 4 years+ seen in many other Phase 3 trials. In addition, if the trial is successful, priority review status will shorten the time NNZ-2591 spends in regulatory review.


Safe and efficacious (minimal baggage)

NNZ-2591 has demonstrated an excellent safety profile to date and it’s clear that its tolerability profile is superior to that of trofinetide. Non-clinical toxicity studies have also already been successfully completed.

With respect to route of administration, the oral dosing of NNZ-2591 is lower-risk and more patient-friendly than the lumbar puncture used in  potentially competing therapies.

In addition, the Phase 2 trials reported to date (PMS and PHS), though open label and in small patient populations, have each demonstrated both statistical and clinically significant improvement in multiple disease symptoms.

Strong and consistent results in multiple preclinical studies and successful FDA approval in the related drug of trofinetide provide further confidence that NNZ-2591 is efficacious.


Peak revenues >$500MM, bonus points if >$1B

Most analysts predict peak revenues for trofinetide in the US alone at >$500m. If one assumes similar pricing to trofinetide and probable higher persistency rates, the combined patient populations of PMS and PHS in the US alone suggest peak sales for NNZ-2591 at > US$1bn.


Manageable development costs and risk

While Phase 3 trials are never cheap, the need for just one Phase 3 trial and relatively short duration and low patient numbers means that development costs in orphan indications are typically lower than for other drugs. Another potential benefit of orphan drugs is reduced regulatory risk as the FDA exercises considerably more flexibility for rare disease drugs to treat serious disorders where there are no approved therapies.


Strong IP position and longevity

NNZ-2591 is protected by both orphan designation (7 years market exclusivity in the US, 10 year exclusivity in EU) and patents. There are multiple patents filed to cover NNZ-2591. Expiry date for the process patent for NNZ-2591 is late 2041.


“Specialty” areas with pricing and reimbursement comfort

First-to-market drugs in orphan indications where there are no approved therapies command high prices. It has been suggested that US pricing of NNZ-2591 would likely reflect that of trofinetide (average of US$350,000 p.a.). In addition, as reimbursement for NNZ-2591 would almost exclusively come from Medicaid and private health insurance, rather than Medicare, it should not be subjected to US Inflation reduction Act (IRA) pricing negotiation.


Gaps - Several Pharmas are forecasting “gaps” that occur simultaneously

Which areas pharma is chasing, what its patent situation is, what its cash position is, etc., can change with time, so I’ve turned to some more recent articles to find information on the current situation.

International commercial law firm, Herbert Smith Freehills, expects the pharma deal-making environment over the next year to be favourable. It observes that big pharma is sitting on record levels of dry powder (estimated at US$1.3 trillion). Areas of clinical differentiation that it sees large biopharma looking at include neuroscience and rare diseases. It notes that, with the priority being to add to the top line as well as recent high clinical trial failure rates, pharma will put a much greater focus on later-stage, approved and/or commercialised assets. Neuren currently has two later-stage assets (and potentially a third, subject to AS trial results next month) as well as an income stream from recently-approved trofinetide in Rett syndrome.

Pharma intelligence company, Evaluate Pharma, recently reviewed whether orphan drugs still remain attractive to pharma and concluded that rare diseases now occupy an established position within pharmaceutical companies’ portfolios: as a strategic priority, a mature therapeutic category, and a competitive necessity. Evaluate notes that the IRA could potentially have an outsized (negative) effect for orphan drugs but, as I already observed, reimbursement for Neuren’s orphan drugs should not be impacted by the IRA. Evaluate notes that a renaissance of R&D in previously overlooked therapeutic categories is being observed by industry commentators. In the area of rare disease, consensus forecasts are already seeing a shift away from oncology towards novel opportunities such as in in CNS.


Feed the Beast - Portfolios must “turn” due to aging products and shorter periods of market domination

Within the industry, many are warning of a “2030 patent cliff” which may be one of the biggest ever seen in the market. Between now and then, more than 200 drug products, many of them blockbusters, with more than US$200bn in annual revenue, are at risk.

Megamerger as a solution to patent cliff has been previously used, but now appears to be out of favour with pharma. It is suggested that the hunt for pipeline-replenishing products will either be in big pharma’s own laboratories or in those of smaller biotechs. However, Arda Ural, health sciences markets leader at the consultancy EY, warns that in biotech, “ there may not be enough assets out there. It’s going to be a fight for established assets, of which there aren’t that many.”

Jefferies’ analyst, Michael Yee notes that we may potentially be entering an era of fewer blockbusters and a lot more smaller products. He believes that pharma might look to take advantage from either development platforms that can generate multiple new medicines or in drugs that have promise across multiple indications.

Scarcity value?

I think it’s fair to say that both Neuren and NNZ-2591 qualify as "gold"!