Taking a Commercial Approach to
Drug Development
Target Product Profile Development
And
New Product Strategic Planning For Early Stage
Pharmas and Drug Development Cos.

Pharma/Biotech New Product Strategic Planning
Understand the market environment
Develop therapies to meet unmet medical and realized market needs
Start with the end in mind
– Develop target product profile (TPP) to realize unique value proposition
– Understand financial valuations of TPP over product life cycle
– Factor in risk
– Build plan for Exit strategy
Create a drug development plan to reach TPP
Effectively utilize advisory board and primary research to
develop/support assumptions
Estimate risks and outlicensing valuations
Demonstrate investment value opportunities to support strategic
decision making and fund raising support
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Goal: Develop Target Product Profile
Hypothesis
Blueprint for valuations and future planning
Frequently “gut-checked” throughout drug development
Indication
Efficacy
Safety/Tolerability
Convenience
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Strategic Planning Approach – How TPP Fits In
Market Mapping/Prioritization
Define Success
Develop Target Product Profile
Clinical Manufacturing &
Development formulation
Strategy Strategy
(not covered in this presentation)
Financial Projections
Exit strategy
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Example
Market Mapping – Define market and map out market landscape
8 0 0 ,0 0 0
Acute
59,633
70 0 ,0 0 0
Un-
diagnosed
Undiagnosed
6 0 0 ,0 0 0 Patients
Target Chronic
Condition(s) 332,936
50 0 ,0 0 0 Patient
Patients
Prevalence
4 0 0 ,0 0 0
Chronic
61,147
3 0 0 ,0 0 0
Symptomatic
Patients “High Risk”
Diagnosed
Diagnosed Patients
2 0 0 ,0 0 0
and
Asymptomatic
In Health
1 0 ,0 0 0
0 Care
Symptomatic
“Low Risk”
Patients Asymptomatic
0
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Example
Evaluate SOC* and unmet needs – Determine Target segments
“Satisfied”
“Unsatisfied” with therapy
with therapy
High Risk,
Symptomatic
“Unsatisfied”
with therapy
“Satisfied”
Patients
with therapy
High Risk, “Satisfied”
Asym ptom ati with therapy
c
“Unsatisfied”
with therapy
Low Risk,
Sym ptom atic
Low Risk,
“Unsatisfied”
Asym ptom ati “Satisfied”
with therapy
c with therapy
Diagnosed Pts *SOC= standards of care
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Example
Understand Key Market Drivers and Barriers to Prescribing For Each Segment
Primary Drivers
Primary Drivers Primary Barriers
Primary Barriers
Stricter guidelines calling for lower Concern over cost/managed care
BP in high risk patients reimbursement challenges
Want greater ability to control HBP Push to use generics
No longer acceptable for high risk Prior authorizations and insurance
patients to have “borderline” HTN claim rejections for use of newer high
Want greater reduction in the rate of priced antihypertensive drug as initial
end organ failure (brain, kidney, therapy
heart, eyes) in all patients Skeptical of data showing differences in
Want easy to take, well-tolerated efficacy within RI class
therapy Entrenched prescribing habits
Need to see compelling clinical data Comfortable with existing
before switching to any new antihypertensive products and
products regimens
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Evaluate Current and Future Competitor Landscape
Strengths/ Exp. Launch Date/
Weaknesses/ Future Anticipated
Class Indication Compelling Unmet Needs Impact date of generic
Advantage on Mkt entry
Product
1
Product
2
Current Product
Competitors 3
Product
4
Product
5
Product
6
Product
Compounds in 7
Dev. (Future
Competitors Product
8
Product
9
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Define your unique value proposition for each target market segment
• Identify Imp/Diff features and benefits that are sustainable and can drive
behavioral change leading to initial product trial and usage
• Postulate unique value proposition for product based on hypothesized
Imp/Diff features and benefits
• Create target product profile to highlight important differences
• Target product profile (TPP) should drive clinical development plan to
demonstrate unique value proposition
Not Different Different
Convenience
Efficacy Greater target
Important Oral Rx
organ protection
Unimportant
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Prioritize Segments For Clinical and Commercial Development
Evaluate and prioritize individual segments
using the following eligibility tests:
Does the segment have adequate size to reach
financial targets with modest product market
Total Addressable penetration?
market
Can patients be easily identified and targeted?
Can high volume treaters be easily targeted?
In care for
condition
Will your product meet patient unmet needs?
Is unique value proposition in this patient segment
Not satisfied with sustainable given current and future competition?
current therapy
Will unique value proposition convince physicians to
use your product?
Have symptoms
compound can
treat Can clinical trials be easily designed with end points
to demonstrate unique value proposition ?
TPP needs to
be compelling Willing to
Can clinical trials be designed, approved, enrolled
for this group switch
and completed in a timely manner?
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Example
Develop Unique Value Proposition Hypothesis
Antihypertensive market is huge
– 65 million American adults have high blood pressure
– $55 billion spent annually in direct expenditures to treat HBP
– Antihypertensives are #1 prescribed class of drugs for Medicare Part D enrollees with 122 million
prescriptions in 2006
– 6 different classes of drugs and over 70 individual drugs on the market to treat hypertension
Yet still largely uncontrolled
– 60% of patients require 2 or more drugs to treat their hypertension
– Poor compliance remains a major factor exacerbating poor HTN control with existing therapies
– 70% of patients on therapy still do not have their BP under control (<140/90 mm Hg)
– Hospitalization rates for congestive heart failure continue to increase – 69% of CHF patients are
hypertensive
– Increasing trend in end stage renal disease – hypertension second only to diabetes as most
common antecedent for this condition
– Higher blood pressures lead to higher risk of death from heart disease or stroke – 77% of first
stroke patients have high blood pressure
For patients with uncontrolled HTN on initial antihypertensive regimens,
Product X provides an excellent “first switch” agent to add to a second
antihypertensive regimen to lower blood pressure while providing proven
protection against target organ damage that can cause heart failure, kidney
damage and strokes.
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Define Commercial Success
Efficacy, safety and convenience performance levels required to drive
target segment behavioral change to generate product adoption
Market environmental changes required to capitalize on market drivers
and overcome barriers to adoption
Pricing levels needed to meet NPV goals
Adoption and target patient penetration levels needed to meet NPV goals
Make assumptions on all the above
Need Market research and/or medical advisory board feedback to
validate assumptions!!
TPP needs to deliver on commercial success drivers!
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Historical Case Study
Prod X to prevent infections after Bone Marrow Transplantation
Problem: Allogeneic BMT patients, and in particular unrelated donor
BMT patients are at increased risk for life-threatening airborne
infections due to:
– Immunosuppression for 6 months with calcineurin inhibitors
– Treatment of acute Graft vs. Host Disease (aGvHD) with increased
immunosuppression (high dose steroids)
– Subsequent extended immunosuppression for more than 2 years
Solution: Prod X aerosol new product concept:
– Coats upper respiratory tract (trachea, big bronchi)
– Blocks and physically expels viruses / fungi
– Potential for use as prophylaxis against fungal and viral infections,
which have high mortality rate in this patient population
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Historical Case Study
Bone Marrow Transplantation Market Landscape
1998: Est. WW procedures 52,000
10-40% infection rate 5,200 - 20,800
mortality 2-8% 1,040 - 4,160
Overall mortality is about 40% (GVHD, Infection, Relapse)
Primary viral and fungal species implicated in morbidity and mortality
are:
– Virus: CMV, RSV, rhinovirus, Influenza, parainfluenza
– Fungi: Aspergillus fumigatus (mainly pulmonary); Candida sp.
Risk factors for post BMT infectious complications
– GVH Disease, Toxicity of chemotherapy, Steroid therapy for immuno-suppression, Antibiotics
(overgrowth of opportunistic fungi), Ganciclovir therapy (late stage CMV and/or fungal
infections), donor age, underlying disease morbidity
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Historical Case Study
Target Market and Commercial Success Criteria
Target market – Preventing Aspergillus fumigatus fungal infections in
allogeneic post BMT patients
– Biggest post BMT infection concern
– Incidence: 5-10% in allogeneic BMT patients, 30% in unrelated allogeneic
BMT patients
– mortality: 70-90%
– Current Competition:
• Amphotericin B, Itraconazole - modest efficacy against Aspergillus
• issues: nephrotoxicity, Cyt.P450 3A4 inhibition
– Future Competitive Landscape:
• New class of antifungals on the rise: echinocandins (e.g. Cancidas
[Merck]) effective and less toxic.
• Will be strongest competition, but resistance can develop with
overuse as prophylaxis.
Commercial Success Criteria - Activity against Aspergillus with
lower levels of resistance development than new antifungal class of
antibiotics
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Historical Case Study
Product X Product Profiling/ Gap Analysis
• Key unmet need and physician concern: Aspergillus infection
prevention in unrelated allogeneic post-BMT patients
• Need to demonstrate activity against Aspergillus for commercial
success
• Clinical development efforts need to focus on prevention of
Aspergillus infections and seek Aspergillus prophylaxis as a labeled
indication
Not Different Different
Aspergillus
Important prevention
Unimportant
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Historical Case Study
Prod X Aerosol Target Product Profile (TPP)
Indication Prevention of life-threatening Aspergillus and
Respiratory Virus Infections in allogeneic Bone
Marrow Transplant Recipients
Efficacy 1. Reduction of Aspergillus infections within the first 3
12 months after transplantation in unrelated donor graft
recipients by 50%
2. Reduction of Respiratory Virus infections in allogeneic
BMT patients with an aGvHD history requiring
continued high dose immunosuppression or cGvHD by
50% between month 3 and month 9 12 months after
Transplantation
Safety/Tolerability Acceptable tolerability. No additional inflammatory
activity within the Upper Respiratory Tract and lungs.
No increased coughing
Enveloped viruses and prion safety comparable to present
hyperimmunes. Non-enveloped viruses safety according
to PEI standard
Convenience Aerosol administration.
Low: 50 mg x 2 per day
Base: 50 mg x 3 per day
High: 50 mg x 5 per day
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Historical Case Study
TPP Drives Commercially Focused Clinical Development Strategy
Clinical phase
Phase I Primary: Safety
Secondary: Effect on Respiratory Virus Infections; Respiratory Bacterial
Infections, Effect on Aspergillus Infections
Timing: 1.1 yr Cost: $0.9 MM Patients: 30
Phase II Primary: Safety and Dose Finding
Secondary: Effect on Respiratory Virus Infections; Respiratory Bacterial
Infections, Effect on Aspergillus Infections
Timing: 1.1 yr Cost: $3.1 MM Patients: 60
Phase III Primary: reduction of aspergillus lung infections within 12 months post-
transplant from 30% to 15% (50% reduction) (unrelated allogeneic pts)
Secondary: Reduction of Respiratory Virus Infections; Reduction of Bacterial
Infections, Mortality Reduction
Timing: 3.25 yr Cost: $10.5 MM Patients: 240
Phase III Primary: reduction of RSV/parainfluenza/influenza lung infections 12 months
after transplant from 15% to 7.5% (50% reduction) (all allogeneic patients)
Secondary: Reduction of other respiratory virus infections (rhino, adeno),
reduction of aspergillus infections, reduction of bacterial (pneumococci,
hemophilus) infections, Mortality Reduction
Timing: 2.25 yr Cost: $26 MM Patients: 600
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Estimate Costs and Timelines for Clinical Trials
Drug Development Timeline and Risks
IND submission File NDA
Pre-Clinical
Testing Phase I Phase II Phase III NDA Review Total
Years 1.5 1.5 2 3.5 1.5 8.5
Expected Costs
($ millions) in 2007$ $2 $13.5 $28.3 $81.2 $2.5 $127
20 to 100 100 to 500 1,000 to 5,000
Test Population healthy subjects patients patients n/a n/a
Confirm
Evaluate effectiveness,
Determine efficacy, optimal monitor adverse
safety and dosing, side reactions from
Purpose dosage effects long-term use
n/a n/a
Sources:
Risks in new drug development: Approval success rates for investigational drugs ; Clin Pharmacol Ther 2001;69:297-307.
The Drug Discovery, Development and Approval Process , PHRMA website
R&D Costs and Returns by Therapeutic Category ; Drug Information Journal, Vol 38, 2004.
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Understand Risks and Exit Strategy Considerations
Licensing most feasible exit strategy
Probability of FDA approval ≠ Expected Probability of commercial
success in all cases
High risk business – platform strategies and compounds with multiple
indication potential much more attractive to investors
In most cases, plan for outlicensing at early human proof of concept
stage
Prob of
Stage Time (Yrs) Success*
Pre-Clinical 2 40%
Phase I/IIa 2 65%
Phase IIb 2 44%
Phase III 3 65%
Approval 1 80%
Cum Total 10 6%
*Sources: DiMasi 2001, Kola 2004, Avance
* For Immunology drugs in development
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Construct Financial Projections
“You did a great job with your
forecast. The only thing I can
say about it with absolute
certainty is that it’s wrong.”
-- Words of wisdom I received early in my career
Do the best you can without the benefits of having
perfect information and a crystal ball!
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Example
Start by Tying Market Assumptions to Financial Assumptions
Use US Census population projections
6%
NHANES data used to estimate % population 5%
with HTN 4%
3%
85% of patients with HTN are on therapy 2%
1%
63% to 75% of patients >20 have uncontrolled 0%
HTN
18
19
20
21
22
23
24
25
26
27
20
20
20
20
20
20
20
20
20
20
Only Pts with uncontrolled HTN are candidates
for NewProd X
% Uncontrolled HTN Pts on PH-RI
5% Peak patient shares estimated for % of
uncontrolled pts on NewProd X
$2,000
3% Peak patient shares estimated for % of total
HTN treated patients on NewProd X
$1,000
80% Compliance rate
Pricing estimates based on current Tekturna $0
revenue/Rx + 10%
18
19
20
21
22
23
24
25
26
27
4% annual price inflation
20
20
20
20
20
20
20
20
20
20
Launch 2018 with 10 yrs of revenues US Revenue Forecast ($MM)
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Example
Create Pre and Post-Launch Financial CF Projections
Factor in probabilities of success and risk adjustments at each
milestone
Make financial projections for company and for any anticipated future
alliance or licensing partners who complete development and launch
product
2018 2020 2022 2024 2026 2028 2030 2032
Yr1 Yr3 Yr5 Yr7 Yr9 Yr11 Yr13 Yr15
Phase Launch Market Market Market Market Market Market Market
Revenues ($000s) $7,872 $97,444 $199,370 $244,342 $263,558 $259,352 $228,576 $185,988
G&A and R&D Expenses $5,376 $0 $0 $0 $0 $0 $0 $0
COGS $1,120 $13,870 $28,377 $34,778 $37,513 $36,914 $32,534 $26,472
Marketing and Sales $50,656 $53,741 $57,014 $60,486 $60,432 $56,860 $53,500 $50,338
Milestones $10,000
Royalties $472 $5,847 $11,962 $14,661 $15,814 $15,561 $13,715 $11,159
Expenses (for Licensee) $67,625 $73,457 $97,353 $109,925 $113,758 $109,336 $99,748 $87,970
PHARMA LICENSEE
Effective Tax Rate 0% 26% 26% 26% 26% 26% 26% 26%
Risk adjusted CF ($13,671) $5,488 $23,341 $30,755 $34,274 $34,324 $29,476 $22,427
Discount 53% 43% 35% 29% 23% 19% 15% 12%
Risk adjusted net DCF ($7,309) $1,762 $6,083 $6,505 $5,884 $4,783 $3,333 $2,058
rNPV
BIO-TEC
Effective Tax Rate 26% 26% 26% 26% 26% 26% 26% 26%
Risk Adjusted CF $2,396 $1,338 $2,737 $3,354 $3,618 $3,560 $3,138 $2,553
Discount 53% 43% 35% 29% 23% 19% 15% 12%
Risk Adjusted DCF $948 $430 $713 $710 $621 $496 $355 $234
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Example
Cash flow projections provide early estimate of licensing value
License deal at start of phase IIb Milestones/Upfronts
Phase I Phase II Phase III NDA Approval Royalties
DCF $5,000 $5,000 $8,000 $10,000 6.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Year3 Year4 Year5 Year6 Year7 Year8 Year9 Year10 Yr1
Phase Phase I/IIa Phase I/IIa Phase IIb Phase IIb Phase III Phase III Phase III NDA Launch
Transition probability 100% 44% 100% 100% 65% 80% 100%
Probability 100% 100% 44% 44% 44% 29% 23%
Revenues ($000s) $0 $0 $0 $0 $0 $0 $7,872
G&A and R&D Expenses $4,386 $4,386 $12,200 $12,200 $12,200 $2,000 $5,376
COGS $0 $0 $0 $0 $0 $0 $1,120
Marketing and Sales $0 $0 $0 $0 $0 $25,328 $50,656
Milestones $5,000 $5,000 $8,000 $10,000
Royalties $472
Expenses (for Licensee) $9,386 $4,386 $17,200 $12,200 $12,200 $35,328 $67,625
PHARMA LICENSEE
Effective Tax Rate 0% 0% 0% 0% 0% 0% 0%
Risk adjusted CF ($9,386) ($4,386) ($7,568) ($5,368) ($5,368) ($10,104) ($13,671)
Discount 100% 90% 81% 73% 66% 59% 53%
Risk adjusted net DCF ($9,386) ($3,952) ($6,142) ($3,925) ($3,536) ($5,996) ($7,309)
(11% discount rate used)
rNPV $17,460
BIO-TEC
Effective Tax Rate 26% 0% 26% 0% 0% 26% 26%
Risk Adjusted CF $5,000 $0 $2,200 $0 $0 $2,288 $2,396
Discount 100% 90% 81% 73% 66% 59% 53%
Risk Adjusted DCF $3,700 $0 $1,321 $0 $0 $1,005 $948
(18% discount rate used)
Construct business
rNPV in 2012 $14,071 Value of license for US rights
Value share 45%
Total Milestone and Royalty
Payments ($000s): $202,029
Initial Valuation Assuming Outlicensing at start of Phase I/Iia
$4
plans and financial
Cash Flows
Prob
2008
100%
2009
100%
2010
40%
2011
40%
2012
26%
projections with
rCFs
Discount Rate:
PV Cash Flows
($775)
100%
($775)
($775)
85%
($657)
($340)
72%
($244)
($340)
61%
($207)
$3,658
52%
$1,887
potential licensing
Total Value rNPV ($000s) $4
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valuations in mind.
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Exit Strategy Considerations – “Typical” Deal Terms
Look for comparable deal terms to draw from
Develop strategic target outlicensing partner “short list”
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Summary
Understand your market environment
Develop therapies to meet unmet medical and realized
market needs
Start with the end in mind
– Develop target product profile to realize unique value proposition
– Understand financial valuations
– Factor in risk
– Anticipate exit strategy
Create a drug development plan to reach TPP
Estimate risks
Construct financial projections linking market assumptions
to financial assumptions
Develop partnering strategy and demonstrate investment
value opportunities to potential investors
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Pharmacision LLC Service Offerings
Strategic Planning
– Business strategy and plan development
– In/out-licensing commercial due diligence assessments/preparation
– Business partnering support
– New product planning
– New market and competitive landscape assessments
– Qualitative Market Research
– Market modeling
– Demand forecasting and financial NPV analyses
Marketing Initiatives
– Brand strategy and marketing plan development
– Positioning and message development
– Targeting strategy development
– Professional and patient advertising campaign development
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Contact Information
Pharmacision LLC
Thomas Marten
President
(734)895-3670
tmarten@pharmacision.com
www.pharmacision.com
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