[Ip-health] Endpoints: Marathon’s R&D program for Duchenne MD drug likely came in at a bargain basement price
zack.struver at keionline.org
Wed Feb 15 11:37:02 PST 2017
There is a very interesting article on Endpoints by John Carroll that walks
through the potential R&D costs for the recent approval of deflazacort for
Ducehnne muscular dystrophy.
Carroll had two experts estimate the R&D costs, which they pegged at around
$50 or $75 million USD, including both clinical and preclinical costs. As
Carroll points out, Marathon's estimated total costs are less than 1% to 3%
of the $2.6 billion PhRMA estimate for R&D costs:
I handed the slide on to two trial experts, Bernard Munos, an Eli Lilly
veteran now running InnoThink, and David Grainger, who’s founded a slate of
biotechs from his base at Medicxi in London. They both ran cost estimates
on what it would take to do this kind of program.
What did it really cost?
Munos and Grainger each came up with a final figure not far off from what
Shkreli paid to lay his hands on Daraprim. But they have two distinctly
different views of the research costs.
Munos turned to G. Sitta Sittampalam, another development vet at Lilly who
has been closely involved with the Therapeutics for Rare and Neglected
Diseases program at NIH’s National Center for Advancing Translational
Sciences and with drug repurposing for leukemia at Kansas University
“From his experience,” notes Munos, “the preclinical work for Emflaza (the
9 tox studies in red on their slide) can be estimated at $5-10 million, and
the clinical development program at $50-60 million.”
“The studies from the 1990s that Marathon acquired were likely cheap (<$5
million) since they were old data that had basically no value when they
were acquired; and from Marathon CEO’s admission needed a fair amount of
“cleanup” to be usable. That puts the entire package at $65-75 million.”
Grainger, who specializes in low-cost biotech startups, looked up the
studies he could find online, ran the numbers for the whole thing, and
concluded that this could all be done for much, much less. But his
potential initial valuation for the company also reaches fairly close to
the $55 million that Shkreli paid for Daraprim before triggering his own
well-documented scheme to rip off the system.
The whole preclinical effort at Marathon, Grainger says, could be done for
less than $2 million, including $600,000 for a 9-month monkey study of
toxicity. The clinical program is harder to map out entirely, but if you
include a maximum amount of $400,000 for a US ADME study, $400,00 for a
food effect study and $720,000 for the extension study, it’s not hard to
see that Marathon was looking at a small overall budget. He added, though,
that it was hard to figure what the comparison study on Calcort — the drug
sold in the UK — would cost, as it’s not listed on clinicaltrials.gov.
Then there was overhead. Medicxi likes to run virtual companies, and he
estimates that if this was their operation, they would reserve $2 million
for overhead, plus $500,000 for external regulatory assistance. “They very
probably had a larger team than we would have had, though,” he adds.
“So that comes to just over $6 million in total,” he notes in a breakdown,
“which feels about right to me. If someone came to Medicxi proposing to
deliver that operating plan, and wanted to raise $10 million to do it, we
would think that was a generous, but probably not outrageous, amount of
money. If anyone told me it would cost them much more than $10 million,
then I’d laugh and say you must be doing it wrong!”
“Regarding your last question, I can’t of course estimate what the license
to the efficacy data might have cost. That is, as you say, a wild-card. But
if Marathon had come to Medicxi with this proposal and suggested a
pre-money valuation of more than $25 million we would probably have walked
away. Others might be more generous, but I find it hard to believe it was
more than $50 million.”
The 1% solution
To put those estimates into some added context, the pharma industry likes
to use figures that show the average cost of new drug development is $2.6
billion per approved therapy, all in. Marathon’s cost for R&D — or its
initial valuation — would have been significantly less than 1% to 3% of
that figure, based on the estimates I obtained.
Carroll puts the costs in the context of the price ($89,000) and the
potential revenues for the drug:
If half of all US patients are put on Marathon’s steroid, that’s at least
$405 million gross a year — $33.7 million a month — based on their lower
$54,000 annual net price. The total market could be worth up to a
blockbuster billion dollars-plus a year in annual revenue.
Because the FDA gave them orphan status, Marathon has a 7-year exclusivity
deal for deflazacort. Based on the company’s wholesale price of $89,000,
that market is theoretically worth up to $12.6 billion in total through the
The priority review voucher given by the FDA with the approval — in
recognition of its rare disease status — would cover all of Marathon’s R&D
costs instantly, even if it doesn’t come anywhere near to fetching the top
$350 million price AbbVie paid for one of these vouchers in 2015.
Deflazacort won’t bring in all the high-end money. But based on expert
estimates, they have the potential to blow past their research investment
with just a few months worth of revenue when it’s all up and running.
Zack Struver, Communications and Research Associate
Knowledge Ecology International
zack.struver at keionline.org
Twitter: @zstruver <https://twitter.com/zstruver>
Office: +1 (202) 332-2670 Cell: +1 (914) 582-1428
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