Three common mistakes development-stage life sciences companies make

Over the years Bruckner has worked with many development-stage companies. While many mistakes get repeated from company to company, we think three varied examples are of interest to highlight.

1) Misunderstanding the actual role of clinical KOLs

Clinical key opinion leaders (KOLs) play a key role in helping development-stage life sciences companies determine appropriate clinical targets and clinical protocols.  But most companies make the mistake of giving KOLs carte blanche to determine the clinical pathway for their therapeutic, and then accept the recommendations/guidance as a truism.  KOLs have an important perspective for sure, and anything they say needs to be thoughtfully considered.  But while it might seem self-serving for strategy consultants like Bruckner to say this, the fact is KOLs actually have a relatively narrow perspective and lots of blind spots.  They are not thinking strategically about your therapeutic, they are not considering all the moving parts, and they never bring in a payer or commercial perspective.  Many are not even well versed in regulatory policy.  Their recommendations often reflect their own practices and patients, often at prestigious tertiary care centers.   Some will give advice that is focused more in the direction of their particular personal concerns and perspectives (like the last really sick patient they saw who might be helped by an experimental therapy) without necessarily going beyond that.  Worse, quite a few KOLs basically give the same guidance (often without a lot of updating) to every company they consult with—and usually KOLs are working with more companies than just yours.  One KOL even joked to me, “It’s work I do while sitting on the toilet in the morning.”  Guidance from KOLs is essential.  It is not, however, to be taken as absolute.

“We’re selling the company before FDA approval, and it won’t be our problem.”

(Would you care to guess how many dozen times someone has told us this and suffered the consequences?)

2) Achieving far less lucrative exits by neglecting to incorporate long-term needs into the development plan

Development stage companies have two basic functions: raising money and running trials.  So it’s no surprise that many stick primarily to satisfying the needs of regulators. This is a critical mistake.  Ignoring other stakeholders as trials are designed diminishes asset value, leaves opportunities undiscovered and risks unaddressed, and ultimately results in lower assessed value by future exit partners.

I recently had a phone chat with a CEO of a company developing a particularly promising therapeutic.  The early-stage data has been spectacular, the treatment could significantly elevate the standard of care, and the prospects for FDA approval are hopeful.  I asked the CEO to describe how they were approaching concepts outside of a strictly regulatory silo such as building a value proposition, payer needs, and early commercialization.  He replied bluntly, “We’re not, and I’m not concerned about it.  We’re selling the company before FDA approval, and it won’t be our problem.”  (Would you care to guess how many dozen times someone has told us this and suffered the consequences?)  I tried to explain to the CEO why this was a mistake, namely because by not building the drug robustly with a broader view, he was actually diminishing the value of the asset and what a potential acquirer would pay.  He said, “Even if I concede the point and we’ll get 30 or 40% less, so what? We still win!”  When I hear something like this—and this was hardly the first time—I always wonder what the investors would think if they knew the CEO’s candid thoughts.  They would be especially upset if they knew that folding other stakeholder needs into the program could be done judiciously without adding appreciable cost and time. The truth is this kind of short-sighted thinking leaves large amounts of money on the table.  I know from personal experience that business development executives in big pharma love companies like this, because it gives them an easy opportunity to justify a lower price in a transaction while at the same time getting the CEO to agree why it’s reasonable.

3) Spending excessively and in the wrong areas

Can we tell you the number of times we’ve visited promising development-stage companies at their offices, and left with our heads shaking about how wastefully they spend precious resources?  It would be too easy to pick on one particular company that comes to mind, but I guess I will.  They were building out their massive office and lab space with a super hip high-end interior design, despite only having one early Phase II asset.  They needed the big space to accommodate their exploding staff.  We had to tiptoe our way through their entranceway because the tilers were laying the many 1” tiles that when finished 2 weeks later would emerge as the company logo on the floor next to soaring art pieces.  What did that disaster cost, and why on earth did the CEO think any of this was a good idea?

Companies make spending mistakes in many different flavors. Some are way overstaffed with headcount numbers that are shocking, bringing capabilities in-house that would be far more economical to outsource (there go those self-serving consultants again!) or that were simply not needed or redundant.  Worse still, many of these folks come from bloated bureaucracies and are not suited to the nimble and creative needs of a young company, and for them, the solution to filling in these artificial shortcomings is often to hire even more people.  Other companies  go overboard with real estate and locate at pricey addresses simply because it’s the cool place to be seen rather than where they can get their needs met at 20% of the cost. Many also rent far more space than they need (but will “grow into” one day).

Friends, the more money you spend, the more you need to raise, the greater the dilution, the less ROI for your investors and yourselves.  Let’s face it – wasteful spending in development-stage biotech companies is an epidemic.  It shouldn’t be.  Maybe COVID has tempered some of the office space euphoria, but more likely on the other side of the pandemic it will continue to be an issue for many development-stage companies.

A new lens for investors: Three common clinical development pathway pitfalls

Many companies/development programs in which you are investing fail unnecessarily because of avoidable mistakes being made in architecting the therapeutic’s clinical pathway and designing of trials. The consequences of such errors can be costly to you.  Exits that can otherwise be successful instead end up as write-offs, and any exit that does occur can be blunted and thus vastly smaller.

Pitfall #1: Getting off on the wrong foot by using the routine, defective, high-failure-rate process

Most companies use the same defective process to design their therapeutics’ clinical development pathways. Executive leadership often believes they’re perfectly architecting and optimizing their program—when in fact they’re not. The reality is that it’s clear in real-time, not just in hindsight. So why is this so common? Because company leaders are all engaging the same processes and checklists that everyone uses. But, just because the process is familiar doesn’t mean it’s effective. The clinical pathway is like a house’s foundation. If the foundation is poorly constructed or lies 50% on solid ground and 50% in a swamp, why should anyone be surprised when the house eventually collapses?

Our observation is that trusting a process that is significantly contributing to the 86% failure rate of development-stage clinical programs warrants revisiting, immediately.

They’re certainly not thinking of payers, commercialization, operational issues, and other key components—thus missing valuable opportunities, and unintentionally baking new risks into the program.

Pitfall #2: KOLs are a meaningful resource, but it’s important to understand the limits of their expertise

Companies use key opinion leaders (KOL) to assist them with the design of new therapeutics’ clinical pathways and trials. Each time, they’re relying on highly regarded clinical experts to examine the unique considerations of their therapeutic and design a pathway accordingly. However, KOLs frequently do not give programs the special attention they require, instead settling on a defensible but certainly uncreative and untailored fallback position. Further, KOLs can give advice only within the area of their clinical expertise. They often are not focused on multiple critical aspects of program development that affect other stakeholders. By design, they are likely to think of one stakeholder—the FDA—and at best pay only a passing nod to most everything else. And even with regards to the FDA (n.b., KOLs are not regulatory experts), they’re typically limited to the expected and the routine and are not searching for other aspects of potential clinical impact which can build healthcare and competitive value. They’re certainly not thinking of payers, commercialization, operational issues, and other key components—thus missing valuable opportunities, and unintentionally baking new risks into the program.

This process is typically augmented by internal staff, however inadequately. Physicians and scientists in the company can bring additional disease-area specialization. Sometimes a commercialization person will have some input as well, but that’s not typically the case because that function usually doesn’t exist in the early-stage development phase. Little if any credence is given to payer needs beyond some hand-waving to make people feel as if it’s included.

Thus, the routine process is a highly siloed, serial approach driven by a clinical group that relies on KOLs who usually lack regulatory compliance expertise and almost always miss out on significant clinical value.

Not infrequently, the resulting inadequate clinical design choices, regulatory missteps, and missed clinical value proves to be the difference between success and failure, or between breakthrough success and modest success.

Pitfall #3: Problems are often identified when it’s too late

The best time to make sure the clinical pathway is 100% correct is at the very start of the clinical development process. It is possible to correct many if not most misalignment issues prior to Phase II, but this generally costs both time and money. After Phase II, changes can still be implemented, but oftentimes they result in the need to introduce new clinical targets—and hence add clinical risk—or possibly to run another Phase II. There are good reasons why companies are loathe to do either at that later stage.

In the real world, the relatively few companies that realize they have a problem only become aware of it on the eve of the Phase III trial. At that point, whatever is done is at best a rescue operation, which even if successful only achieves a fraction of what would have been possible had the matter been engaged much earlier. This exposes the companies to lower valuations—not an investors’ ideal outcome.

In summary, providing a new lens to the clinical development of your portfolio company will considerably improve results. We encourage great rigor early in the process that aims to identify and question what hasn’t worked so many times before. Integrate the brain trust of your team with outside experts and any necessary talent to create a comprehensive and fortified view of your program’s development. It’s never too early to apply this, and the payback will be considerable when you’re at the FDA approval and payor access stages.

Healthcare value is your key to success. Here’s how to get it right.

No one would dispute that it is mission-critical for companies to obtain FDA approval for their new therapeutics. But FDA approval does not also ensure a therapeutic’s commercial viability. To succeed commercially with broad support for utilization, it is essential that a therapeutic delivers to stakeholders, including payers, compelling and differentiating healthcare value as compared to standard of care treatments. In the absence of properly/maximally defining and proving that healthcare value—and doing so on payers’ terms—payers will take a restrictive stance and limit access to the therapeutic. The burden of proof is 100% on the sponsor/company.

At launch, clinical trials provide the only data a sponsor has to define and prove value. So it is critical that commercial and payer needs, which will almost always exceed FDA needs, are built-in from the earliest stages of clinical development.

The problem with the prevailing approach is that it only captures some of the healthcare value that can be found—and sometimes just a small fraction of it. Unfortunately, a “complacency” is clearly evident.

It’s the norm that companies get healthcare value wrong

For over a decade, payer decision-makers have been telling us that (even in 2021) that manufacturers typically present “average to poor” value propositions for their new therapeutics. And this doesn’t apply just to new companies, it’s very much a problem for big pharma and other established players as well. Further, payers aren’t the only ones recognizing this shortfall. Wall Street analysts indicate that it’s unusual for new products to generate revenues that reach—let alone exceed—their expectations. They indicate the results are typically disappointing, and they point the finger at payer difficulties.

Why are companies routinely getting healthcare value wrong?

If the norm is that payers’ needs are not being met by companies bringing new therapeutics for coverage and access decisions, why is nearly everyone still following an approach that so consistently fails?

The problem with the prevailing approach is that it only captures some of the healthcare value that can be found—and sometimes just a small fraction of it. Unfortunately, a “complacency” is clearly evident. Company leaders believe that if they state their commitment to developing therapeutic healthcare value and hire dedicated staff, the problem is all but solved. But with companies in reality effectively operating on automatic pilot and botching the development, investors end up taking unnecessary losses, and more than a few good drugs never reach the patients who need them.

Company leadership almost never understands what’s actually happening in their internal healthcare value development process.  They typically promote the centrality of their commitment to bringing healthcare value to stakeholders and genuinely believe they’re appropriately and maximally developing it. Most companies hire highly credentialed staff who are charged with securing the best possible healthcare value and payer results. But because of a plethora of legacy policies and processes and new constructs which fail to address these problems, the results continue usually to disappoint. There’s a tremendous disconnect between what companies have convinced themselves they are doing and what they’re actually doing.

How healthcare value development should instead be approached

Getting it right requires different thinking: a much broader, integrated approach that engages many more inputs and is initiated at the start. The true process of value identification is an art that requires creativity, flexibility, and an examination of the matter simultaneously from multiple vantage points throughout clinical development. This is distinctively different from the rigid, siloed, and post hoc process that is currently followed and basically focuses on “adding up” the clinical value that can be identified based on the results of already completed trials. Healthcare value determination is much more than this “accounting process” which misses very significant potential value that could and should have been identified before the trials were executed and then tested within the clinical development process.

Getting it right doesn’t cost more, it’s about working smarter

The best news in all of this, however, is that doing it right need not be more costly. It doesn’t require that the company raise more capital or spend more money. It is about using existing resources better by working smarter.