Megafund versus Megalosaurus: Funding Drug Development

This new 10-minute TEDMED talk is getting quite a bit of attention:


 (if embedded video does not work, try the TED site itself.)

In it, Roger Stein claims to have created an approach to advancing drugs through clinical trials that will "fundamentally change the way research for cancer and lots of other things gets done".

Because the costs of bringing a drug to market are so high, time from discovery to marketing is so long, and the chances of success of any individual drug are so grim, betting on any individual drug is foolish, according to Stein. Instead, risks for a large number of potential assets should be pooled, with the eventual winners paying for the losers.

To do this, Stein proposes what he calls a "megafund" - a large collection of assets (candidate therapies). Through some modeling and simulations, Stein suggests some of the qualities of an ideal megafund: it would need in the neighborhood of $3-15 billion to acquire and manage 80-150 drugs. A fund of this size and with these assets would be able to provide an equity yield of about 12%, which would be "right in the investment sweet spot of pension funds and 401(k) plans".

Here's what I find striking about those numbers: let's compare Stein's Megafund to everyone's favorite Megalosaurus, the old-fashioned Big Pharma dinosaur sometimes known as Pfizer:

	Megafund (Stein)	Megalosaurus (Pfizer)
Funding	$3-15 billion	$9 billion estimated 2013 R&D spend
Assets	80-150	81 (in pipeline, plus many more in preclinical)
Return on Equity	12% (estimated)	9.2% (last 10 years) to 13.2% (last 5)

Since Pfizer's a dinosaur, it can't possibly compete with
the sleek, modern Megafund, right? Right?

These numbers look remarkably similar. Pfizer - and a number of its peers - are spending Megafund-sized budget each year to shepherd through a Megafund-sized number of compounds. (Note many of Pfizer's peers have substantially fewer drugs in their published pipelines, but they own many times more compounds - the pipeline is just the drugs what they've elected to file an IND on.)

What am I missing here? I understand that a fund is not a company, and there may be some benefits to decoupling asset management decisions from actual operations, but this won't be a tremendous gain, and would presumably be at least partially offset by increased transaction costs (Megafund has to source, contract, manage, and audit vendors to design and run all its trials, after all, and I don't know why I'd think it could do that any more cheaply than Big Pharma can). And having a giant drug pipeline's go/no go decisions made by "financial engineers" rather than pharma industry folks would seem like a scenario that's only really seen as an upgrade by the financial engineers themselves.

A tweet from V.S. Schulz pointed me to a post on Derek Lowe's In the Pipeline blog. which lead to a link to this paper by Stein and 2 others in Nature Biotechnology from a year and a half ago. The authors spend most of their time differentiating themselves from other structures in the technical, financial details rather than explaining why megafund would work better at finding new drugs. However, they definitely think this is qualitatively different from existing pharma companies, and offer a couple reasons. First,

[D]ebt financing can be structured to be more “patient” than private or public equity by specifying longer maturities; 10- to 20-year maturities are not atypical for corporate bonds. ... Such long horizons contrast sharply with the considerably shorter horizons of venture capitalists, and the even shorter quarterly earnings cycle and intra-daily price fluctuations faced by public companies.

I'm not sure where this line of though is coming from. Certainly all big pharma companies' plans extend decades into the future - there may be quarterly earnings reports to file, but that's a force exerted far more on sales and marketing teams than on drug development. The financing of pharmaceutical development is already extremely long term.

Even in the venture-backed world, Stein and team are wrong if they believe there is pervasive pressure to magically deliver drugs in record time. Investors and biotech management are both keenly aware of the tradeoffs between speed and regulatory success. Even this week's came-from-nowhere Cinderella story, Intercept Pharmaceuticals, was founded with venture money over a decade ago - these "longer maturities" are standard issue in biotech. We aren't making iPhone apps here, guys.

Second,

Although big pharma companies are central to the later stages of drug development and the marketing and distributing of approved drugs, they do not currently play as active a role at the riskier preclinical and early stages of development

Again, I'm unsure why this is supposed to be so. Of Pfizer's 81 pipeline compounds, 55 are in Phase 1 or 2 - a ratio that's pretty heavy on early, risky project, and that's not too different from industry as a whole. Pfizer does not publish data on the number of compounds it currently has undergoing preclinical testing, but there's no clear reason I can think of to assume it's a small number.

So, is Megafund truly a revolutionary idea, or is it basically a mathematical deck-chair-rearrangement for the "efficiencies of scale" behemoths we've already got?

[Image: the world's first known dino, Megalosaurus, via Wikipedia.]

Can a Form Letter from FDA "Blow Your Mind"?

Adam Feuerstein appears to be a generally astute observer of the biotech scene. As a finance writer, he's accosted daily with egregiously hyped claims from small drug companies and their investors, and I think he tends to do an excellent job of spotting cases where breathless excitement is unaccompanied by substantive information.

However, Feuerstein's healthy skepticism seems to have abandoned him last year in the case of a biotech called Sarepta Therapeutics, who released some highly promising - but also incredibly limited - data on their treatment for Duchenne muscular dystrophy. After a disappointing interaction with the FDA, Sarepta's stock dropped, and Feuerstein appeared to realize that he'd lost some objectivity on the topic.

However, with the new year comes new optimism, and Feuerstein seems to be back to squinting hard at tea leaves - this time in the case of a form letter from the FDA.

He claims that the contents of the letter will "blow your mind". To him, the key passage is:

We understand that you feel that eteplirsen is highly effective, and may be confused by what you have read or heard about FDA's actions on eteplirsen. Unfortunately, the information reported in the press or discussed in blogs does not necessarily reflect FDA's position. FDA has reached no conclusions about the possibility of using accelerated approval for any new drug for the treatment of Duchenne muscular dystrophy, and for eteplirsen in particular.

Feuerstein appears to think that the fact that FDA "has reached no conclusions" may mean that it may be "changing its mind". To which he adds: "Wow!"

Adam Feuerstein: This time,
too much froth, not enough coffee?

I'm not sure why he thinks that. As far as I can tell, the FDA will never reach a conclusion like this before its gone through the actual review process. After all, if FDA already knows the answer before the full review, what would the point of the review even be? It would seem a tremendous waste of agency resources. Not to mention how non-level the playing field would be if some companies were given early yes/no decisions while others had to go through a full review.

It seems fair to ask: is this a substantive change by FDA review teams, or would it be their standard response to any speculation about whether and how they would approve or reject a new drug submission? Can Feuerstein point to other cases where FDA has given a definitive yes or no on an application before the application was ever filed? I suspect not, but am open to seeing examples.

A more plausible theory for this letter is that the FDA is attempting a bit of damage control. It is not permitted to share anything specific it said or wrote to Sarepta about the drug, and has come under some serious criticism for “rejecting” Sarepta’s Accelerated Approval submission. The agency has been sensitive to the DMD community, even going so far as to have Janet Woodcock and Bob Temple meet with DMD parents and advocates last February. Sarepta has effectively positioned FDA as the reason for it’s delay in approval, but no letters have actually been published, so the conversation has been a bit one-sided. This letter appears to be an attempt at balancing perspectives a bit, although the FDA is still hamstrung by its restriction on relating any specific communications.

Ultimately, this is a form letter that contains no new information: FDA has reached no conclusions because FDA is not permitted to reach conclusions until it has completed a fair and thorough review, which won't happen until the drug is actually submitted for approval.

We talk about "transparency" in terms of releasing clinical trials data, but to me there is a great case to be made for increase regulatory transparency. The benefits to routine publication of most FDA correspondence and meeting results (including such things as Complete Response letters, explaining FDA's thinking when it rejects new applications) would actually go a long way towards improving public understanding of the drug review and approval process.

The Coming of the MOOCT?

Big online studies, in search of millions of participants.

Back in September, I enrolled in the Heath eHeart Study - an entirely online research study tracking cardiac health. (Think Framingham Heart, cast wider and shallower - less intensive follow-up, but spread out to the entire country.)

[In the spirit of full disclosure, I should note that I haven’t completed any follow-up activities on the Heath eHeart website yet. Yes, I am officially part of the research adherence problem…]

Yesterday, I learned of the Quantified Diet Project, an entirely online/mobile app-supported randomized trial of 10 different weight loss regimens. The intervention is short - only 4 weeks - but that’s probably substantially longer than most New Year diets manage to last, and should be just long enough to detect some early differences among the approaches.

I have been excited about the potential for online medical research for quite some time. For me, the real beginning was when PatientsLikeMe published the results of their online lithium for ALS research study - as I wrote at the time, I have never been so enthused about a negative trial before or since.

That was two and a half years ago, and there hasn't been a ton of activity since then outside of PatientsLikeMe (who have expanded and formalized their activities in the Open Research Exchange). So I’m eager to hear how these two new studies go. There are some interesting similarities and differences:

• Both are university/private collaborations, and both (perhaps unsurprisingly) are rooted in California: Heath eHeart is jointly run by UCSF and the American Heart Association, while Quantified Diet is run by app developer Lift with scientific support from a (unidentified?) team at Berkeley.
• Both are pushing for a million or more participants, dwarfing even very large traditional studies by orders of magnitude.
• Health eHeart is entirely observational, and researchers will have the ability to request its data to test their own hypotheses, whereas Quantified Diet is a controlled, randomized trial.

Data entry screen on Health eHeart

I really like the user interface for Heath eHeart - it’s extremely simple, with a logical flow to the sections. It clearly appears to be designed for older participants, and the extensive data intake is subdivided into a large number of subsections, each of which can typically be completed in 2-4 minutes.

I have not enrolled into the Quantified Diet, but it appears to have a strong social media presence. You can follow the Twitter conversation through the #quantdiet hashtag. The semantic web and linked data guru Kerstin Forsberg has already posted about joining, and I hope to hear more from her and from clinical trial social media expert Rahlyn Gossen, who’s also joined.

To me, probably the most intriguing technical feature of the QuantDiet study is its “voluntary randomization” design. Participants can self-select into the diet of their choice, or can choose to be randomly assigned by the application. It will be interesting to see whether any differences emerge between the participants who chose a particular arm and those who were randomized into that arm - how much does a person’s preference matter?

In an earlier tweet I asked, “is this a MOOCT?” - short for Massive Open Online Clinical Trial. I don’t know if that’s the best name for it, and l’d love to hear other suggestions. By any other name, however, these are still great initiatives and I look forward to seeing them thrive in the coming years.

The implications for pharmaceutical and medical device companies is still unclear. Pfizer's jump into world of "virtual trials" was a major bust, and widely second-guessed. I believe there is definitely a role and a path forward here, and these big efforts may teach us a lot about how patients want to be engaged online.