Drug Firms Face Value Questions

Discussion at the Biotechnology Industry Organization’s annual convention, held in Chicago last week, centered on the question of how drugmakers calculate the future value of products before they are commercialized. It’s a question made urgent as insurance companies and regulators begin to factor patient outcomes into decisions on drug approvals and reimbursement.

Small to midsized biotech companies are doing a poor job of demonstrating the value of products they are developing, argued Glen Giovannetti, head of the life sciences consulting business at Ernst & Young. This shortfall, he said, will affect their ability to raise capital, land lucrative deals with potential buyers, and receive reimbursement for approved drugs.

“In today’s increasingly outcome-focused, evidence-driven health care system, biotech companies cannot afford to pursue an R&D strategy that only focuses on whether or not their drug works,” Giovannetti said during Ernst & Young’s annual BIO presentation.

Kristine Peterson, CEO of Valeritas, a New Jersey-based firm that has developed a needle-free insulin pump, said uncertainty over how drugs will be valued adds a “new dynamic” to determining how or whether to commercialize drug and drug delivery candidates. “Will you be reimbursed five, 10 years in the future?” she asked during a panel discussion. “Can you be a sustainable organization that makes medicines when you don’t know how all of this will play out?”

Although reimbursement is essential to success, Alkermes CEO Richard F. Pops argued that the focus of drug development will remain on curing diseases. “The value of what we do is measured in improving people’s lives,” he said on a panel hosted by Ernst & Young. “We don’t need to hire accountants and analysts to tell us where there is an opportunity.”

And investors are still placing bets on innovative research. GlaxoSmithKline, for example, announced at the BIO conference that it is teaming with Avalon Ventures to support up to 10 early-stage biotech companies. Lon Cardon, GSK’s head of alternative discovery and development, told C&EN that the deal expands the firm’s efforts to better tap into academic science.