Accelerating Process Development
Section III.E. Process Development ??There are few, if any, “non-financial” provisions with as large a potential impact on an alliance outcome as process development. ?Consider this BD&L trade-off:? If you somehow had a choice between an additional $10 million paid on product approval and an FDA approval one month earlier, which would be more valuable?? While a number of factors would be relevant, including the share of sales revenues, the cost and risk of accelerated development, and the product’s peak sales potential, there is also this certainty – each month of delay in development is a month taken out of peak sales.?
Indeed, for a biopharma product that crosses the $1 billion threshold, that’s $100 million per month gone, not delayed, for each additional month spent in development, since the post-peak sales drop-off is typically a function of IP and competitive factors unrelated to speed of development.? Hence the importance of optimizing the process development and clinical use provisions of biopharma alliances.?
In the context of the project originator as manufacturer, therefore, the first step is to specify what costs of process development will be covered, with what incentive, if any, to incur additional expenditures earlier that may accelerate drug development.? Consider, for example, this process development cost reimbursement provision of the 2001 monoclonal collaboration between Seattle Genetics and Medarex, as shown below:
Note that all process development costs other than IP-related are reimbursed at cost plus 25%.? In addition, each party owns its respective Production Technology, including Improvements, and protects such IP for regulatory purposes via use of a drug master file.
To accelerate drug development in regional alliances, process development costs must next be allocated appropriately and certain costs amortized, such as facility build-out and/or expansion, as well as the cost of non-conforming production lots.? In the 2010 preclinical alliance between Theraclone and Zenyaku for Influenza monoclonals in Japan, there is a 20% markup over FBMC for some, but not all, costs of process development, as seen in this deal snapshot and contract provision:
Recent regional alliances have recognized territory-specific process development as warranting reimbursement on an FTE basis.? A late-stage alliance might also differentiate the markup on the cost of manufacture between pre-approval and post-approval supply.? For example, in the 2017 Ardelyx license to Kyowa Hakko of Japan rights to a Phase III IBS compound, the transfer price has a 5% markup pre-launch, versus 18% for commercial supply.? Here’s the deal snapshot and contract provision:
Finally, with respect to global alliances, the parties may attempt to accelerate drug development during the period prior to the transition of manufacture to the commercialization partner via process development payments, including FTE-based, for Phase I and/or Phase II trials, as well as for stability and toxicology work.? This was the case for the 2014 MarcroGenics preclinical collaboration with Janssen, as shown in the deal snapshot and contact provision below:
Covering the cost of process development, with incentives, won’t garner additional press coverage at a deal’s commencement, but there are few provisions more impactful on speed-to-market for a biopharma project.? When the last few open deal elements are negotiated via trade-offs, one does well to consider the financial impact that this “non-financial” provision might have.
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You can see the introduction to this ongoing series of articles about best practices in biopharma licensing, or go directly to links to previously posted articles of the series here.