By Thomas Butler, MSc, MBA and Ramses Erdtmann
So long to the days of finding a new use for an old generic in a small patient population and charging a 600% premium, or commercializing drugs with little to no efficacy (or running over-powered clinical trials in order to achieve statistical significance for that matter). The days of holding on to aging pipelines and enjoying hefty annual net-price increases are also over. But why is that a bad thing?
When did novel drug discovery become passé? When did R&D departments turn from innovation generator to business development validator? Drug discovery and drug development was founded on the notion that through rigorous scientific research and clinical experimentation, we could solve the world’s deadliest diseases. And the newly discovered solutions to such diseases are meant to have a profound impact on society, not just in the United States, but around the world.
Every time I see a Hilary Clinton, a Bernie Sanders, or now a Donald Trump tweet about drug pricing my response is dramatically different than what is exhibited across the pharma and biotech market. I see a changing political landscape as a road back to supporting true innovation. Let’s not focus primarily on profit maximization but on the survival of mankind and the resolution of human suffering, the real goals that motivate us scientists and the rest of the workforce in the biopharmaceutical industry.
Today, we have most of the necessary framework already in place. We just need a few minor adjustments and some actual enforcement of existing policies that are currently being over-stepped. The corner stone of drug development policy is the Hatch-Waxman Act, which gives drug manufacturers 14 years of exclusivity for their marketed drug. The kicker here is the clock starts when the drug is approved so long as you can prove that you conducted the appropriate clinical trials continuously, with a few exceptions. This is ample time to recoup any development costs associated with the R&D efforts as well as build a very profitable business to support future research. The problem is, biopharmaceutical firms have used various patent prosecution techniques to extend the patent life beyond the 14 years. Not only does this extend the amount of time the drug is listed at a higher price, it also disincentives Pharma from pursuing innovation. Why would anyone engage in the 8-year clinical drug development journey, spending hundreds of millions of dollars on clinical trials, with only a 12% chance of approval (from IND filing to FDA approval) when you could essentially do nothing, just expand your legal team, and sit on your currently approved products, growing the business by at least 6-8% per year through price increases? No brainer, right?! Well, that needs to end, drug exclusivity is limited for a good reason, now we just need proper enforcement.
Despite the current environment of profit maximization, biopharmaceutical innovation is still alive and well. That is, if you stick to the ideals of drug discovery and development. I listed a few of them in the beginning of this article. Perfect examples of this in 2016 were Tesaro (TSRO), CoLucid (CLCD), and Akaogen (AKAO). All three companies exhibited true innovation, producing stunning clinical data on the back of ground breaking science. Shares of each firm have more than tripled (+300%) from the production of validated clinical data.
Focus your investments on innovation, it will always payoff. All three companies represent the type of biotech firm that we continue to research for future investments here at Point Sur Investors.
With 2016 now in the books, I am excited to see how the policy landscape unfolds in 2017 and it’s potential to support innovation once again. Perhaps this could lead to an increase in calculated risk-taking on profound science that supports new medicine to make a significant improvement for the betterment of patients around the world.
At Point Sur Investors, we are solely focused on biopharmaceutical investments. We started this fund to help with the innovation of patient friendly therapies that significantly improve the standard of care. We are a long only fund, we avoid rumors and speculations. Our work is data driven. We believe that over time valuable innovation in this field will lead to significant value appreciation. We are experts in this field, as we contributed to create and operate one of the most successful biotech companies, Pharmacyclics Inc. (formerly PCYC). We know what a successful biotech company looks like and how it operates. We know what it takes to develop a novel mechanism of action from the first drug design through clinical and regulatory success into a commercial launch. We have a strong network of functional experts to help evaluate but also support the portfolio companies on their path to clinical or commercial success.
For more information, please visit www.pointsurinvestors.com
Thomas Butler, MSc, MBA
Founder and Co-Managing Member
Prior to forming the General Partner, from June 2013 through October 2015, Tom managed Investor Relations at Pharmacyclics Inc., where he helped grow the company from a market cap of $6.74B to over $21B, which included the execution of one of the largest biotech acquisitions to date. Prior to Pharmacyclics, Inc., Tom spent 6 years as a medicinal chemist at Gilead Sciences Inc. engaging in novel drug design and drug development for HCV polymerase and protease inhibitors. Tom holds an M.B.A. from the University of California Los Angeles (2012) and a Master's degree in Organic Chemistry from the University of California Santa Barbara (2007). As a research scientist, Thomas Butler has been awarded numerous patents in the U.S. and internationally, as well as published in top academic journals such as the American Chemical Society Journal of Medicinal Chemistry.
Founder and Co-Managing Member
Ramses most recently served as the Executive Vice President of Corporate Affairs for Pharmacyclics, Inc. At Pharmacyclics, he helped grow the company from approximately 40 employees with a market cap of $40M in 2009 to 650 employees and a market cap of $21B in 2015, when it merged with AbbVie, Inc. Ramses was involved in the operational expansion of the company and oversaw various departments during the growth phase including Finance, HR, Legal, Communications, IR, Facilities, Events, and IT. Prior to joining Pharmacyclics, Inc., Ramses managed assets for US high net-worth equity investors and large European closed-end funds. In addition to co-founding several companies and serving on boards of directors, Ramses has also worked with Robert W. Duggan & Associates, providing analysis and due diligence that led to investments in several companies, including Pharmacyclics, Inc. Ramses began his career at Commerzbank AG in Germany, where he was an investment banker and portfolio manager for international clients. He earned the Diplom Kaufmann degree with distinction in Finance and Banking from the Westfaelische Wilhelms Universität of Muenster, Germany.
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