July News from BIO Ventures for Global Health

Here at BIO Ventures for Global Health (BVGH), we have been vocal about the benefits of the novel market-based incentive mechanism known as the FDA Priority Review Voucher, or "PRV." But we also want to know how stakeholders in the biopharma and global health communities are responding to the incentive. Since product development partnerships (PDPs) play a major role in championing the development of new vaccines and therapeutics for neglected diseases, we reached out to PDPs to gain insight into on-the-ground negotiations around the incentive. Here's the scoop:

Joan Herbert, PhD, Business Development Manager at the Medicines for Malaria Venture (MMV), offered some helpful insights into MMV's experience incorporating the PRV into deal negotiations. Because PDPs generally partner with a pharma company who will likely apply for and receive the PRV, the voucher introduces a mutual advantage in the negotiation: 1) Pharma or biotech companies have an opportunity to make a financial gain as a result of their partnership with the PDPs and the investment of donor funds; consequently, 2) PDPs such as MMV reasonably then seek a 'return on this investment' by negotiating to receive a share of the value of the PRV, and 3) the PRV is a potential source of much-needed income for PDPs, which can in turn be re-invested into further research or access activities. Everyone wins, right?

The R&D sector is certainly ripe for this incentive, yet uncertainties around the program's implementation still pose a challenge to negotiations. First, how much is the PRV worth? Although estimates have ranged from $50-600M, this is a subject of much debate and guesswork in negotiations and will be highly dependent upon the actual drug and indication (market size) and the time to approval. Second, the 'rules of engagement' have yet to be conveyed in detail by the FDA. Companies and PDPs are seeking clarity around such issues as the current limit to one voucher transfer (the initial intent was for unlimited transferability) and the required 365-day advanced notification of an intent-to-use the PRV. What happens if you give your 365-day notice and the final pivotal trial data are not yet available? Can the voucher then be recouped? What happens to the user fee? How does one value the contribution to the project of each party (i.e., how much is each party 'owed')? Are only direct costs counted (e.g., costs of clinical development)? What about the costs of project team members or those of external advisory committees? Similarly, how should partners value their technology and their input?

These unknowns have made contractual negotiations tricky. In the mind of Herbert, these negotiations are reminiscent of those between the emerging biotech companies of the 1990s where the tendency was to make calculations in "BioWorld Dollars" in order to increase the investment interest. Herbert cautions about the importance of valuations of contributions being realistic, especially in cases where a technology may not be proven. For instance, it must be considered that some partners may intend to sell their PRV rather than use it for their own products. How will this affect the value of the PRV? Will it become like royalty stacking with several stakeholders requiring a 'slice' of the value? From a PDP's perspective, how attractive would this be to a large pharma partner?

The bottom line is that PDPs such as MMV see a value in introducing the concept in negotiations with their partners, even at an early stage of drug development. In the case of discovery stage projects, they have tended toward agreeing on some principles of engagement and then agreeing to 'park' the discussions until the product enters later stages of development -- rather than engaging in protracted discussions around the perceived value of a project that may not even come to fruition. And with regards to the determination of the value that the PRV has brought to a pharma company, PDPs have found it important to include clauses in the contract that obligate reporting of the value and allow for the PDP to audit the partner if necessary, similar to the calculation of royalty payments.

Ultimately, time will tell. The first PRV was awarded to Novartis a little over one year ago -- not a long time in terms of portfolio management. Novartis understands the 'buzz' that has been created around the PRV and that the first use of the voucher will set the standard for the future. Therefore their thoughtful approach to the use of the voucher should be seen as a responsible action rather than a stifling one. In addition, legislation is currently under discussion that could clear up some of the policies that are causing uncertainty among companies and PDPs. In the interim, we will continue to address the challenges identified by companies and PDPs so that we clear a financial avenue for companies to commit resources to neglected disease R&D.

To read BVGH's blog about jumping to conclusions around the PRV's success, see http://www.bvgh.org/News/Blog/PostID/45.aspx.