BioPharm Executive: Why Your Last Investment Blew Up
Published: Mar 26, 2015
March 25, 2015
By Karl Thiel for BioSpace.com
Last month I discussed nine yellow, orange and red flags that should make you cautious about (or run screaming from) a potential investment in a biotech company. The last one suggested that you exercise extra caution when investing in a company on the basis of a Phase II success—not because that's necessarily a bad strategy, but because it is often where biotech's wheat is separated from so much chaff. It is, if you will, the great moment of uncertainty in the clinical development process that can lead to the greatest opportunity.
Why this point in particular? Simple statistics tell you that success in preclinical development and Phase I aren't great indicators of a program's ultimate chance of approval. A clinical program gets massively de-risked after Phase II—from roughly a 16 percent chance of eventual approval going in to 50 percent or more if it comes out successfully. But some programs get more de-risked than others. There are tightly designed, highly predictive Phase II studies, and then there are Hail Mary studies aimed at moving into pivotal trials, fingers crossed, as quickly as possible. You can't tell where a given program may lie on the spectrum based on headlines, and many investors-—even many pros—don't properly dig in. Start with the obvious—was the study randomized? Blinded or open-labeled? Were the results statistically significant in the primary and secondary endpoints? But then look further. Here are a few points to get you started:
Step 1: Is this biotech?
Or, more specifically, are you looking at a small molecule or a biologic? Because one underappreciated distinction in clinical development is that large molecules (antibodies, enzyme replacements, etc.) have a higher chance of success than small molecule. According to research by Joseph DiMasi et al. from Tufts University, the chance of a small molecule drug entering Phase I reaching approval is about 13 percent. For a large molecule? More like 32 percent. Yahtzee!
Step 2: Is it a cancer drug?
In a different study, Michael Hay et al. also found that the likelihood of approval changes pretty drastically depending on the therapeutic area. Cancer drugs were the worst of the lot. An oncology drug that is advanced to Phase III has about a 45 percent chance of success in that study, they found. That's considerably lower than the overall rate across all diseases (60 percent). Areas like infectious disease (65 percent), autoimmune disease (68 percent) and endocrine (67 percent) were much better bets. Likelihood of approval from Phase I was over 10 percent for all diseases in the study; for cancer, less than seven percent.
Step 3: Where was the trial conducted?
Step 4: How wide was the therapeutic window?
Step 5: Have similar drugs been successful?
Step 6: Is the company counting on a subgroup analysis?
If a Phase II study failed its primary endpoint but showed efficacy in a smaller subgroup, that may be justification for another small-scale study. But if management is using this to justify a Phase III trial, you should be very wary. Subgroup analyses are often used to justify new clinical strategies, particularly in cancer trials. To pick one example, Oncothyreon believed its cancer vaccine tecemotide (Stimuvax) would be successful based on a subgroup analysis from a Phase II trial of patients with non small-cell lung cancer. Despite an initial Phase II failure back in 2004, the company spent years pursuing a subgroup—patients with localized stage IIIB cancer—only to fail in Phase III. The program wasn't finally killed off until 2014.
Step 7: Is the company experienced?
Step 8: How badly do they need a win?
Drug companies often get a bad rap for profiteering on the backs of the sick, but the truth is that companies, and the individuals that work for them, desperately want to create new medicines that work. They want to do it for business reasons, and they want to do it for personal reasons. Even major pharma companies are susceptible—just see the above examples of bapineuzumab and solanezumab, two drugs that should have been discontinued after Phase II but were pushed forward because management desperately hoped to find an efficacy signal in a larger population. For smaller biotechs, the problem can be especially pernicious. Companies with only one or a handful of programs, or those that need progress to justify funding or their very existence—you can bet they are going to put results in the best possible light and move forward if at all possible. The more existential the circumstances, the less you should rely on management's judgment.
Read the BioPharm Executive online newsletter March 25, 2015.
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