More Global Health Business News (No. 6)

Auritec Pharmaceuticals is a very-low-profile drug delivery company in Pasadena, CA, and is part of a group of academic institutions that recently received a $20 million NIH grant to develop a vaginal ring for microbicide and anti-viral drug delivery (FierceDrugDelivery article). Auritec did not issue a press release on the grant, to be given over five years, but it is co-located with the grant’s lead institution, the Oak Crest Institute of Science, whose press release noted the program will test the delivery of up to five drugs in combination, an important goal for achieving compliance-independent HIV control and treatment (Oak Crest press release).

As I noted in a previous newsletter, GlaxoSmithKline (GSK) is leading a crash program to develop an Ebola vaccine.   Earlier this month, GSK published the results of a study in primates that showed the candidate vaccine was effective in preventing infection but that a booster shot was needed for longer (greater than ten months) protection (FierceVaccines article). It is expected that the NIH will start trials of the experimental vaccine, acquired by GSK when it purchased the biotech company, Okairos, for $325 million, this month.

Also on the Ebola front, the Bill and Melinda Gates Foundation is putting $50 million into immediate efforts to control the outbreak and into grants for drug, vaccine, and diagnostic development. The Foundation’s press release noted that $12 million was being distributed to the WHO, CDC, and UNICEF and the remainder was to-be-granted.

In the “still-not-getting-any-good-press” category, Gilead Sciences, Inc., reported completion of the licensing of rights to manufacture and sell its blockbuster anti-hepatitis C drug, Solvadi (sofosbuvir), to seven Indian generic drug manufacturers (Gilead press release in FiercePharma).   Gilead anticipates these agreements will bring low-cost sofosbuvir to 100 million patients (54% of the world’s total) in 91 countries (Gilead HCV Fact Sheet). As I noted in my blog posts, Gilead’s generic licensing program could be an effective model for other pharma companies wanting (needing) to increase access to their products.

I first wrote about Vaxxas, a Cambridge, MA-based vaccine delivery company, when it started back in November 2012 (“Vax Patch”) and have occasionally checked for progress, of which there has been none, at least made public. That changed last week when the company announced it had received funding from WHO for a pre-clinical and pre-manufacturing project aimed at applying its Nanopatch delivery technology to the polio vaccine (Vaxxas press release). Vaxxas has one commercial partner, Merck, and I expect/hope its BD team’s efforts pay off soon.

Also, I wrote about the Japanese Global Health Innovative Technology Fund in May 2013 (“GHIT Ready”) and posited that its award criteria were biased against smaller, more innovative companies, its awards were too small to have a real impact, and its bureaucracy extensive and inexperienced in product development. The Fund announced its second round of grants last week; $15+ million will go to seven preclinical or early clinical projects for drugs or vaccines for dengue, malaria, or Chagas. The recipients were the usual suspects- established academic and research groups with the occasional corporate partner- but no innovative, low-overhead, and hungry start-ups.

 

Tossed from the Balcony

Last week, it was announced that the world’s first investment fund dedicated to global health product development had completed raising money and was ready to start investing.  In a press release, the aptly-named Global Health Investment Fund (GHIF) stated that $94 million had been committed by twelve foundations, government agencies, and companies to be invested in organizations that have products in clinical development and nearing commercial use (new drugs, vaccines, diagnostics, and child-friendly formulations of existing products are mentioned) or that are expanding manufacturing capacity (GHIF press release).  Although the release did not specify the types of investee organizations, in an interview JP Morgan Chase’s head of corporate responsibility said the primary investees will be the not-for-profit product development programs (PDPs) and then “pharmaceutical companies, emerging biotech companies, academia and developing world manufacturers of innovations that fall outside of the current PDP pipeline” (One.org article).  The fund-raising has been in the works for almost two years led by the Bill and Melinda Gates Foundation which is using a chunk of its “program-related investment” program money as I noted in a post last January, “Nothing Ventured”.

From the GHIF website and poking about elsewhere, I learned the full list of fund partners (below) and that the fund will be managed by London-based Lion’s Head Global Partners which will identify and structure the deals (LHGP).  The fund will provide mezzanine financing (as in a floor added to an existing building), a type of funding that is typically used by established companies to grow and is in the form of a loan that gives the lender rights to ownership/equity if the loan is not fulfilled (Investopedia terms).  As for the return on investment, the GHIF investors apparently will receive a minimum of a 2 percent return plus 80% of the returns greater than 2%, according to Impact IQ post from last September (Impact IQ post), not the more lucrative venture capital returns of hundreds of percent.  The investors will also be protected from loss in that Gates Foundation and Sida of Sweden will guarantee 60% of the fund’s capital; 20% of invested capital will be fully covered and 50% of the rest (GHIF About).  I did not see an estimate of the time frame for yielding returns, but I am guessing, if everything goes right (unlikely), a first product may complete trials, be approved and launched, and generate revenues in 6-8 years.

I’m in the dark on several other points.  It is not clear on how many investments will be made in a year and how much each will be.  The GHIF noted the fund has identified more than 200 new products in development “including drugs and vaccines against the full spectrum of global diseases including cholera, diarrhea, HIV, malaria, and TB, as well as products for improving global nutrition and family planning.”  I would think there are many more opportunities since this number is 1.5% of the 14,570 or so projects underway throughout the world, according to the 2012 G-Finder database.  At $94 million the GHIF is a bit light for a life sciences investment fund.  Current early- to mid-stage life science investment funds are in the $200 to 400 million range (e.g., the recent announcements for Wellington Partners and Frazier) and typically invest at least $12 million into four start-ups annually (Timmerman Xconomy).  For the GHIF, because a Phase III trial costs about $20 million (based on the mean cost per patient of $10,000 and an average of 2000 patients (CISCRP Facts), a single investment in an organization with a late-stage drug development program may be $10-20 million.  I’m guessing the GHIF will be able to handle 2-3 investments of this size over two years, a more modest rate of investment than that of VC firms.  Its also not clear if the GHIF investment is intended to cover the other costs associated with getting a product to market such as the cost of regulatory filings and tooling up manufacturing and distribution.  Theoretically some or all of these costs will be borne by a commercial partner who may also pay upfronts which may or may not be considered returns on investment.  As an example of the type of project it will invest in, the GHIF cited the meningitis vaccine, MenAfriVac.  This product was brought to market by the Meningitis Vaccine Project, a PDP, at a cost of $50 million and a price of $0.05 per dose with the Serum Institute of India as a commercial partner (my post, “Watch Out Big Pharma?”, and Meningitis Vaccine Project).

It is also not clear how investment decisions will be made.  I see several key parameters that need to be weighed:  the potential impact the product will have on global health, the scientific/technical risk, the likelihood of regulatory approval (if sought), the availability of alternatives on the market or in development, and the involvement of a partner that will actually put the product into commerce and use.  The GHIF did note one criterion to be considered, those products with public health applications in both developed and emerging markets.  In contrast, one of the more successful VC firms and locally-based Third Rock Ventures uses three criteria according to a recent interview in Nature and a Fierce Biotech story:  “Projects must be no more than three years away from clinical trials; companies must be able to replicate their key findings without spikes in toxicity; and Third Rock doesn’t pull the trigger unless it’s sure Big Pharma isn’t going to step in and compete.”  Of course, Third Rock funds early stage companies and is looking for a higher return on investment like 5x in 5 years.

I also wondered if GHIF will be bringing more than money to the party.  Successful investors are involved in their investments (some times too much).  Will GHIF bring in experts in clinical design, take seats on boards, promote specific commercial partners, advise on where to run tests, seek approvals, launch products?  More importantly, will it be able make tough decisions on when to reinvest (a typical result) or when to write-off an investment (a distinct possibility)?  Looking at the management structure of the GHIF (GHIF Leadership) and the added complication of working through a fund manager, I’m concerned that its size and complexity will prevent rapid and effective decision-making.  But then, I’m glad the GHIF is up and running and look forward to the lessons to be learned through its efforts.

 

* Investors: Bill & Melinda Gates Foundation, Grand Challenges Canada, KfW Bankengruppe, the Children’s Investment Fund Foundation, the Swedish International Development Cooperation Agency (Sida), the International Finance Corporation, Glaxosmithkline, Merck, The Pfizer Foundation, Storebrand and JP Morgan Chase’s Social Finance

 

Crossing My Desk Again

In checking my list of subjects for this week’s post, I saw a few of recent news items that I thought are relevant to the business of global health and worthy of noting.  Here is what caught my attention:

Big Pharma’s Report Card

Two weeks ago, the Access to Medicines Foundation issued its biannual Index, a well-balanced overview and ranking of the efforts of twenty of the largest pharmaceutical companies in how they are meeting the world’s need for affordable and needed drugs and vaccines (Access to Meds).  The Foundation rates a company on seven factors (management, public policy, R and D, pricing, patents, capability, and donations) and writes up a thorough summary of the activities of each.  While all ranking systems are susceptible to hidden biases, the Foundation’s methodology seems to me to be comprehensive in that it is developed with input by a wide range of experts in global health and is reviewed and adjusted frequently (Methodology).  Some of the highlights of the 2012 Index are:  all the companies are improving with some creating departments with access responsibility, are making their goals and processes more transparent, and have products and pipelines that are meeting a greater number of needs.  GlaxoSmithKline is still at the top with Johnson & Johnson and Sanofi improving to take the number two and three spots, respectively, surpassing two of the previous leaders, Merck and Gilead.  Most useful for me are the individual company reports that provide details of a company’s global health R and D activities and therefore indicate partnering opportunities (e.g., Novo Nordisk report).

Best Sellers

Did you ever wonder what are the world’s best drugs, at least in terms of the usefulness, safety, and affordability?  Eric Palmer of the newsletter, FiercePharma, recently used data from IMS Health, the leading firm for tracking pharmaceutical sales, to compile a list of the twenty top-selling generic drugs, noting “Some of the meds on the list are not prescription drugs but everyday over-the-counter products that are safe, effective, cheap, easy to make, easy to transport, and easy to store and so likely to show up everywhere in the world” (FP special report).  First on the list is pain-reliever, antipyretic paracetamol (acetominophen) at $6 billion in 2011 sales, apparently now favored over aspirin (no. 8) as the drug in the “take two and call in the morning” bromide.  At number two at $3 billion in sales is ethinyl estradiol, used in most contraceptive formulations (Wikipedia article) which are clearly popular through out the world.  Not surprisingly, two on the list are anti-cholesterol drugs (atorvastatin and simvastatin) and two are antibiotics (amoxicillin and clavulanic acid), all selling at $1.5 billion or more each.  Rounding out the twenty are an anti-acid (omeprazole), blood pressure controller (amlodipine), an opioid (fentanyl), anti-inflammatory (diclofenac), and anti-diabetic (metformin), also all selling at more that $1.5 billion each year.  One take-home lesson is that the market is working in creating cheap and (mostly) effective drugs for a wide range of aliments.  The take-home  for global health is that these are the drugs that should be considered essential by all public health agencies and there are business opportunities in improving their use (better diagnostics, compliance tools, formulations) and availability (distribution and sales).

Biggest Investor in Private Health Care in the Developing World

If you manage a life sciences company in an emerging economy country and need funding, skip the local bank and try the International Finance Corporation, a division of the World Bank that evidently has invested $450 million in life sciences companies over the past 10 years (IFC life science investment).  In addition to investing in established companies such as drug manufacturers, hospital and diagnostic chains, and drug distributors, the IFC invests in “innovative companies aiming to increase product access through research and development or new product development using a viable and sustainable business mode” and “private equity funds investing in early- or later-stage development projects where there are technical risks, but where success could lead to significant development impact in the fight against diseases” (IFC Approach).  Sounds good but the IFC investments are primarily as debt or equity, meaning the investee needs to have some assets and/or revenue to qualify, and I could find few details on how to apply and terms.  There are two business contacts listed though.  I also found a guide put out by the IFC that may be helpful for startups looking to sell into emerging market health care systems and needing to know the bumps (IFC Guide).

Revenge of the Microbes II

This past spring I wrote a post about the increase in the volume in public, governmental, medical, and industrial voices on the challenge of microbial resistance to the current drug arsenal (“Revenge of the Microbes,” 4/21/11).  As is pretty well known, the rates of occurrence of multi-drug resistant infections by microbes (aka “super bugs” that have evolved resistance to first-, second-, and now third-line antibiotics) has doubled over the past few years (Moellering 2010 and  Guardian article) with the potential result that we in the developed world (despite our clean water and lots of medical infrastructure) may find our infections untreatable and limb- and life-threatening.  I drew a parallel between the panic and call for new antibiotics with the need for new drugs for the many other “uneconomical” infectious diseases out there in the rest of the world.

So I noted the announcement last week of an “action plan” from the Commission to the European Parliament, which I learned is the executive branch of the European Union, to tackle anti-microbial resistance, a plan that had the endorsement of the European big pharma trade group, the European Federation of Pharmaceutical Industries and Associations (EFPIA) and GlaxoSmithKline (Fierce Biotech story and Reuters story).  Hoping to find a novel initiative that would connect the over-abundance of publicly-supported biomedical research and the drug discovery and development expertise of companies and with substantial financial incentives to encourage companies to trade off some profit margin for societal benefit, I read the Action Plan (Plan) and was disappointed.  The Plan is to be implemented over five years (I guess that’s bureaucracy in action) and has twelve aims, ten that deal with regulation of anti-microbial use, monitoring, policy, and education and two of which address R (mostly) and D for new drugs.  The R and D centerpiece is a new program to be added into existing EU public-private collaboration, the Innovative Medicines Initiative (IMI) which started in 2006 and is jointly funded by 1 billion euros in cash from the EU and 1 billion euros in-kind support from the EFPIA (IMI).  The problem is that the IMI primarily funds a wide variety of research projects into tools and models for drug R and D, and not drug discovery or development (IMI Scientific Research Agenda).  The authors of the Action Plan may have recognized this problem since they call for “unprecedented collaborative research and development efforts,” “unprecedented open sharing of knowledge,” and “an overarching framework agreement with the industry, defining objectives, commitments, priorities, principles and modes of action for public-private collaboration in a longer term perspective.”  But then to make the task even harder, the new drug program of the IMI effort will also address speeding up drug approval and “the establishment of adequate market and pricing conditions for new antibiotics,” which are important but policy, not R and D, objectives.

So if the Commission asks me (unlikely) what their Antimicrobial Resistance Action Plan should include, what are my ideas?  Here’s a quick sketch:

  • expand the program to include any/all infectious microbes, not just those that may afflict the wealthy world, since the early stage of anti-infective drug discovery is about (anti-) biological activity and the ultimate target organisms aren’t known;
  • push the “open sharing of knowledge” obligation as late as possible in the process, e.g., through Phase I to allow for better valuation of the opportunities by potential licensees;
  • require IP owners to register products in all markets or, alternatively, license by indication, geography, and market (insured, self-pay, and public) at affordable, even no-cost, terms (see my post on non-exclusive licensing, “Starting Uphill,” 1/27/11);
  • fund a wide range of unconventional, non-small drug approaches, like mRNA interference and therapeutic vaccines;
  • award grants that start small but increase with progress and with matching by potential licensees;
  • include start-ups and growth-stage companies;
  • require minimum resource commitments based on the size of the participant and grant awarded;
  • require participants to grant mutually non-exclusive licenses (or sign on to a mutual non-assert agreement) for all IP except specific drug product composition and synthesis;
  • build a database of low-cost discovery and development tools and vendors; and
  • require participants to “re-fund” grants when a product’s sales reach a threshold.

As for the financial incentives, there seem to be several out there that have been discussed and implemented to fund and incentivize “unattractive” products:  advanced market commitments by governments wanting to create emergency stockpiles, tax credits, and regulatory vouchers (see Kettler presentation).

For a successful, although overly-long, example of a public-private collaboration that succeeded in getting a drug for a neglected disease to market (almost), see my posting of last week about Ranbaxy’s new malaria drug (“A Long Strange Trip,” 11/18/11).  If there is an opportunity to influence and speed up the Action Plan, I’d like to know.  Happy Thanksgiving, y’all.

TB DD Needy

Last month the third annual Global Funding of Innovation for Neglected Diseases (“G-Finder”) report was released by Policy Cures, a grant-funded policy research operation in Sydney (G-Finder page).   Through a survey of more than 800 organizations, the G-Finder team compiles and sorts the amounts of money spent in the previous year (2009) on neglected disease research and product development to provide “governments, funders and civil society organisations with the information they need to make optimal research and development (R&D) policy and funding decisions for diseases of the developing world.”  While some advocacy groups use the report to argue that the overall amounts are too low (true but not the point) and some that the relative amounts are wrong (everyone has her/his cause), I am concerned that the data reflect a bias on the part of the funders toward the status quo (the funding basic research) at the expense of preclinical and clinical studies, i.e., funders are not optimizing their decisions to meet the goal getting effective and safe drugs into the people that need them.

For example, as noted in the report, tuberculosis (TB) is the disease receiving the third largest portion of the funding (17.6%), after HIV (36.7%) and malaria (18.6%), which is appropriate since, according to WHO, TB is highly contagious, infects one-third of the worlds’ population, and kills about 1.8 million people each year (Stop TB Fact Sheet).  The report also notes, of the $560 million in TB R&D, of 35.6% went to basic research and 51.5% into product discovery/invention and development (drugs, 32.1%, and preventative vaccines, 19.4%) (diagnostics and unspecified got the rest).  This seems like a healthy balance, but unfortunately the report doesn’t note where in the product development process the money was spent, how much at the early stages of discovering candidate drugs/vaccines and how much on turning those candidates into products (it looks to me as if the team collected data on preclinical vs. clinical research but these are not reported).  Ideally a drug development pipeline should look like a pyramid in terms of the number of candidate drugs (lots to start with that get winnowed down as the most promising move forward) and that what TB looks like, e.g., as in the pipeline described by the New Drugs for TB Working Group (NDTBWG chart).  But if the pipeline is scaled in dollars spent per stage, it should look like a tower at least, i.e., just as much money being spent on finding promising candidates as on testing and approval.  But that doesn’t seem to the be case, in fact, one may say the TB pipeline is plugged up.

In my closer look at the NDTBWG pipeline, I found six compounds at the preclinical stage, but also an apparent lack of investment in conducting the GLP (Good Laboratory Practices) tox and metabolism studies needed for approval and in having back-up compounds in case the lead compound drops out (good drug development practice).  My summary:

Drug Candidate Developer Entered GLP? Backup Compound?
Benzothiazinone NM4TB* No No
CPZEN45 Lilly TB Drug Discovery Program et al. No No
DC159a Japan Anti-tuberculosis Society, Daiichi-Sankyo Pharma No No
SQ609 Sequella No No
SQ641 Sequella No No
Q201 Quron Sciences No No

* NM4TB- New Medicines for TB, see below.

I also found that of the eight NMEs (new molecular entities or novel, new drugs) listed in human testing, only one, PA-824 by the TB Alliance that is in Phase I, seemed barely adequately funded at $5-10 M per year (my ballpark guessimate of the “average” clinical testing cost is $30-50 million per year).  Of the rest, one had an annual budget of $1-3 M, three less than $1 M, and three no data.  And six have pharma/biotech company involvement so you think that those programs would be adequately funded if diligence was important (and it should be).  Also there are no NMEs in Phase III.  At the base of the pyramid/start of the pipeline, one group, the TB Alliance (TB Alliance) is carrying most of the load being responsible for 6 of 14 hit-to-lead and 3 of 9 lead optimization drug discovery programs listed by the NDTBWG.  Although the NDTBWG doesn’t report how long these drug candidates have been in development (a helpful metric), I poked around and found that it has been ten years since one (SQ109) was identified in a NIH screening program (Sequella docs), a long time to get to Phase I.  Overall, the participation, funding, and diligence are not what I would expect from a healthy pipeline.

I’m not the only one who has expressed concern about the basic/development funding imbalance as shown in G-Finder.  A Lancet editor noted, “Public funders might, understandably, want to invest in their own academic institutes and universities as their national economies try to recover from the global financial crisis. But basic research is being done whether it is needed or not; for many neglected diseases product development is a more urgent priority.” (Lancet commentary).  And in the director’s summary accompanying this year’s G-Finder, Mary Moran noted that the share of funding going to PDPs, which are grant-funded programs aimed at finding and developing drugs for neglected disease, dropped from 26 to 23% of all funding and that the overall increase in funding was welcome but only if it is aimed at creating new medicines and vaccines.  And to further the imbalance toward early-stage TB drug candidate discovery, an academically-based and -lead, European Union-funded consortium, More Medicines for TB, was launched this month (Pharmalive article).  MM4TB is the successor to NM4TB and is focused on screening compound libraries against new targets and doing lead optimization but apparently not preclinical and clinical testing (MM4TB).  Interestingly, the consortium has two big pharma company partners, Sanofi-Aventis and AstraZeneca, which will provide libraries and expertise, but apparently will not conduct the (more expensive) later-stage studies.  Unfortunately, governments, foundations, and big companies seems to have an attraction to funding  new and shiny “basic research” and early-stage TB drug discovery programs (and probably those that are located in the funder’s own country or company) as opposed to putting money into the more boring testing and approval stages.  But without adequate funding of the latter, the TB drug pipeline will remain sluggish.

Creditworthy

Last week, the team at the Center for Global Health R and D Policy Assessment (CGHRDPA), a subsidiary of the Results for Development Institute (R4D) released another “consultation draft” on R and D policy for global health, this one entitled “Can a R&D Tax Credit Expand Investment in Product Development for Global Health?” (Tax Credit Assessment).  And although I am banging the same drum again, I’m offering a review.  My first quibble is that the author should be explicit about the difference between research and development, drop references to a “research gap” (page 3), and focus, as the draft’s title states, on the role of tax credits in product development for global health.  Hence, in the section on governmental polices aimed at “R&D” (starting on page 4), the author (Aarthi Rao) should distinguish the extent to which the policies are intended, and actually do, increase research or development or both.  Clearly, the grand-daddy of US research tax credit programs, dating from 1981 and described on page 5, is called the “Research and Experimentation” credit for a reason and, as it applies to pharmaceutical product development, is aimed at and limited to, preclinical research not development.

My next quibble is that the author is takes a side trip into the economics of R and D policy (page 7) without identifying the role of tax credits vs. other fiscal incentives.  I’m sure there are thousands of papers on this topic (e.g., those listed in Table 2), but I’d like to know which are relevant to stimulating product development.  Also I’d like to know which support the statement that “Firms are unlikely to use the standard industry R&D credit for goods with little to no market value unless a credit is large enough to make these products profitable.”  It seems to me that no amount of credit will make a product profitable; the question what level of tax credit is needed to yield a favorable return on R and D expenditures for the company not a single product.  I also think that the next section, starting on page 8 and describing a tax credit proposed by Genzyme that was the basis of a bill, HR 3156, in 2009, should follow the later description of existing tax credit programs for several reasons.  HR 3156 was proposed, not passed, likely reflects the best of current policies (one would hope), and may be a good case study of the current politics around federal policies aimed at non-clinical neglected disease research.  Also it would be interesting to know more about Genzyme’s objectives, for example, for limiting the credit to preclinical research (so companies would not to be pressured to doing the more expensive clinical research?), since the tax credit incentive will need to align with the beneficiaries’ (companies’) objectives to be used.

On pages 9-13 the author summarizes well four existing R and D tax credit programs and their utility:

  • the Research and Experimentation Tax Credit: “mixed value … due to its design” but moreover not relevant to most biotech/pharma companies (see below);
  • the Orphan Drug Credit:  “hailed as successful” and the author notes the need for a constituency for advocating;
  • the UK’s Vaccine Research Relief Programme:  not enough data to assess outcomes and utilization is low; and
  • last year’s Qualifying Therapeutic Discovery Research Project Tax Credit (TDP):  deserves a stronger review by the author since it was wildly popular.

The TCP was a refundable credit (essentially a grant for companies without tax liabilities) for small companies (fewer than 250 employees) and applied to a wide range of potential products.  It was reviewed and managed by the IRS so the application process was more about accounting than good science, but a survey by BIO, the biotech industry trade group, found (not surprisingly) that the TDP created jobs, advanced research, and kept companies in the US (BIO TDP survey).  It’s worth noting that since the money was capped ($1 billion) and the applicants many (5600), the average award was small ($250K) and most went to a “popular” disease target, cancer (26%), although infectious disease projects got a decent 12%.

My last criticism, as I have noted on the previous draft reports by Center, is the lack of input from the biotech/pharma industry.  The discussion of potential participation in a global health tax credit program on page 14 reflects this.  It seems to me that the reason big pharma is not interested in tax credits is that the credits are not relevant to their economics.  The top ten pharma companies spent about $67 billion on R and D in 2010 (Fierce Biotech article), a big number of which about half is spent on development, but have tax liability lower than the nominal 35% due to lots loopholes (the average may be as low as 5.6% according to Baker NYT editorial).  Huge expenses and low taxes do not a credit make.  For biotechs without profits, a nonrefundable credit is useless (unless made transferable), but a refundable (grant-equivalent) credit is helpful (c.f., the TDP).  For the mid-tier companies, a tax credit may be attractive but there are more attractive options, such as large infusions of nondilutive funding for small-market, but innovative, new products, e.g., Vertex receiving $75 million from the Cystic Fibrosis Foundation for treatments for the US’s 30,000 CF patients (Xconomy article).  As for other disincentives whose explication may benefit from an industry perspective, the author states “Firms may be unwilling to use a credit that requires them to share intellectual property as they may seek to maintain the exclusive rights to their intellectual property to reap profits” (page 14).  This may be the case, but how companies may be interested in sharing IP should be explored.  I noted the author lists five industry people from three companies as being consulted for this draft.

The author describes several specific design elements for a tax credit (pages 16-17) which is helpful but, without comparison to other alternatives, not useful.  For example, it is stated but not supported that “Direct funding to companies’ global health programs or their affiliated non‐profit research institutes could be as or more effective with less uncertainty about whether the program will be used or not” (page 17).  I think so but such a policy would open a big can of worms.  Clearly another draft is needed. On pages 18-19, the author lists five outstanding questions, three of which require a better understanding of the markets and business, so I hope more industry-types are consulted.  As for this draft, I agree with the author on what needs to be done:  “To better understand the potential of tax credits for serving these smaller markets [really big but low-margin markets], more research would have to be done to illuminate which products for global health have potentially profitable markets and to decipher whether firms have an interest in pursuing them.”  If the Center needs my help, they know where to reach me.

Starting Uphill

Start up companies face a tough go- converting a new technology into saleable products on minimal funding- and those aiming at products for global health have even a harder challenge by swimming against the conventional wisdom that a highly-priced, reimbursable product is the only way to profitability.  But one piece to solving the currently intractable problems in global health is the lever of technology underlying innovative, affordable products.  For all start-ups, time is money and the shorter time to a product prototype the more likely is revenue and survival, and to fund that prototype development stage most start-ups patch together funding from government (or very rarely, foundation) grants and private sources while trying to convince a major, established company that that wants access to the technology and/or the resulting products to foot the product development bill.  For the few early-stage companies in global health, the basic deal is to either convince the major company partner to sell the licensed products at discounted prices in pre-defined low income countries or, when the start-up has a technology platform for creating multiple products, grant the partner rights to only to high income countries.  In these deals, exclusive rights are “demanded’ by the partner so that it can control product development, exploit the most profitable markets, and maximize profits, all very reasonable.  However, I think that the exclusive licensing route has enough problems for global health product companies to warrant use of a nonexclusive licensing approach.  (If anyone has an example of the exclusive licensing strategy working for a global health company, please comment below).

I should first note that a nonexclusive licensing to multiple companies is probably not workable when the prototype is for a drug, given the large investment needed for product approval and the need for the licensee to control all aspects of the product development, approval, and sale to have a hope of a return on its sizeable investment in product testing and approval.  That being said, companies with platforms for discovering/creating drugs or vaccines or for delivering them or for diagnostics or for medical devices could license nonexclusively to multiple companies.  For global health companies, by  lowering the barrier to product development and creating competition among multiple licensees, they advance their goal of getting low cost products in use fast.

So in broad strokes, the advantages to pursuing a nonexclusive licensing strategy are:

  • products using or discovered using the licensed technology get to market faster than a single product developed under and exclusive arrangement;
  • multiple similar products generates competition and therefore leads to lowest costs and prices;
  • the licensor may pursue development of products that are specific to its interests (e.g., low-cost diagnostics for treatments for neglected diseases sold to public sector customers);
  • lower transaction costs (less complicated negotiations and licenses);
  • licensing to less wealthy, non multinational, companies; and
  • licenses may be modified to be IP only or include technology transfer or co-development depending on abilities and interests of the licensee.

Of course, there are disadvantages:

  • the revenue from the multiple licenses needs to come quickly (e.g., as up-fonts) and must be significant;
  • pricing needs to be well-thought out to be both attractive and non-negotiable (first-in should have the best pricing); and
  • transaction costs could be excessive.

Looking at the real world, while the large majority of licenses are exclusive, there are examples of successful nonexclusive licensing programs and nonexclusive licenses.  Two of the best known programs are for two core biotechnologies (and therefore may not be good examples):  the Cohen-Boyer gene engineering platform which was license broadly by Stanford University to start the biotech industry and the polymerase chain reaction (PCR) technology licensed to many companies by Roche, mostly for molecular diagnostics, starting in the 1990s.   And, of course, in the global health field, and also may be not a good example since the licensor is an established company, there is the nonexclusive licensing by Gilead Sciences of its antiviral, tenofovir, to several generics manufacturers (American article).

In the category of a smaller company licensing to a large company nonexclusively, I noted the German biotech MorphoSys recently closed a nonexclusive license and technology transfer agreement with Pfizer for a platform for gene and protein libraries (FierceBiotech article).  In the diagnostics industry, I found multiple examples:

  • Epigenomics to multiple companies for a cancer biomarker (Epigenomics);
  • Epoch (Nanogen) to Celera for its platform (Epoch);
  • Xceed Molecular to Gen-Probe for a microfluidics platform (Xceed);
  • Roche to Aligent for its “melting curve analysis” technology (Agilent);
  • Orion Genomics to Novartis Diagnostics for its MethylScreen platform (Orion); and
  • Pathways Diagnostics to Quest Diagnostics for “hetereoduplex tracking” technology (Pathways).

As I have noted in previous postings, there are relatively few early-stage companies that have products in development to address global health/neglected diseases.  But several of these are built on platforms that could be licensed nonexclusively to generate revenue for product development, e.g.,:

  • Aktiv-Dry LLC, nano-particle drug delivery (Aktiv-Dry);
  • Archivel farma SL, vaccine technology (Archivel);
  • Claros Diagnostics, microfluidics platform (Claros, Claros);
  • Diagnostics for All, diagnostics platform, (DFA);
  • Genocea Biociences, vaccine technology (Genocea and Pipeline);
  • GenPhar, vaccine technology (GenPhar);
  • Ionian Technologies, diagnostics platform (Ionian);
  • Rapid Biosensor Systems, diagnostics platform (RBS);
  • Xcellerex, biomanufacturing platform (Xcellerex).

The nonexclusive route is not conventional wisdom, but I think it is worth a try.