As biotech investors, we are always focused on what drug/therapeutic will be a commercial success and whether that success is sustainable.
The latter part (sustainable success) is is particularly becoming more important as there is increasing scrutiny in pricing from the US government (the market that primarily serves as bedlam of innovation with high pricing) and explosion in biotech funding environment that now supports any promising science projects.
While expected return as an aggregate for the capital deployed in the market is significantly declining, there will be big innovations that will make it to the finish line and this will inevitably lead to more competition in 5-10 years. Obviously innovation cycle in biotech is MUCH MUCH slower than in tech given the much higher regulatory scrutiny as the industry deals with human lives directly.
How should we think about “commercial success” of a drug? Is it just hitting the revenue expectations? When we say blockbuster drug, we often set $1bn+ revenue. In today’s pricing environment, I believe successful drug is not just about revenue as an absolute measure – it should be more about what is the $ value the product creates and how much % of the value creation the product can capture – sharing the financial benefit with the society should be key metric for a successful drug.
I am mentioning this not because high drug price is bad (I actually believe in high drug price as long as it delivers value), but because sharing benefit with society is the more sustainable business. In financial terms, I would much rather have a drug that carries perhaps lower peak revenue (because it is charging less than it can), but has higher multiple (because it is more sustainable).
When we look at launch revenue for new drugs, there is sharp contrast between successful drugs and those that turn out to be duds. There is some element of “sexy” science for the success of the drug, but it is just a tool for development – key driver of successful launch is the drug’s potential to share the profit with the society (indirectly by reducing societal burden).
Success
Roche’s Hemlibra for Hemophilia A carries annual cost of over $400K – that is an eye-popping price, but it has had a massive success because it has significantly improved quality of life for patients AND reduced cost of care for existing hemophilia A patients (particularly for inhibitor patients who can cost upto $1mm ANNUALLY for the society).
Failure
However, me-too drugs or drugs that do not really show significant benefit for generic options did not show transparent or apparent cost saving to the society failed to deliver successful launch. For instance, Praluent – a therapy for hypercholesterolemia , had all the sexy science behind its back, including sexy publication on NEJM, but still failed to launch successfully – this led to questions on how they would need to recoup investment and aggressive cuts to the price post-launch.
Future
Gene therapy is very hot these days – and it is very certain that they will be priced very high as shown in Novartis’ Zolgensma. However, the prospect looks positive to me because they represent a modality that represents an improved version of Hemlibra – they are expected to deliver improved quality of life and significant reduction in on-going cost of disease management.
As an investor, I can’t stress enough about the importance of SUSTAINABLE PROFITABILITY I.E. LONG-TERM GREED. Value creation now is important, but there is bigger picture at stake here – sustainable cash flow provides for foundation of a platform that will build on its expertise.
Continued build-up of expertise leads to continued raising of the competitive bar – Alexion ($ALXN), Vertex ($VRTX) and Seagen ($SGEN) are great examples of companies whose management teams look a long-term approach to create sustainable cash flow stream to build out their industry leading development and commercial platform.
What defines a successful launch for you? Please let me know in the comment section below!
*not investment advice
