1) The document provides an overview and approach to assessing life science technologies, with an emphasis on quantitative and qualitative assessments of potential product leads. 2) It discusses key areas of focus for technology assessments, including the technology itself, intellectual property, regulatory issues, competition, pricing, and developmental stage. 3) The assessment involves evaluating the scientific basis of the technology, protection of intellectual property, path to market including clinical trials and regulatory approval, commercial opportunity, and risks.

1. Framework for TechnologyFramework for Technology
AssessmentAssessment
Life Science Entrepreneurship Certificate Program
Rice University
Jason E. Moore, M.S., M.B.A.
Vice President, PLx Pharma Inc.
PLx Pharma Inc.

2. Overview & ApproachOverview & Approach
• Quantitative and qualitative assessments of potential product leads
– The technology itself
– Path-to-marketPath to market
– Intellectual property
– Regulatory issues
– Competition and market
– Product pricing
– Inventor and institution
• Perspectives
– Entrepreneur or start-up company licensing professional
– Development-stage company product portfolio managers
– Big company technology assessment
• Emphasis on life science company key areas• Emphasis on life science company key areas
• Technology focused, with an emphasis on therapeutic products…
• Not “How to Evaluate a Business Plan”
PLx Pharma Inc.

3. FundamentalsFundamentals
Stating the ObviousStating the Obvious
• The technology should lead to a useful, commercially valuable
product
• The technology/product should be adequately protected and other IP• The technology/product should be adequately protected and other IP
must not block the path to commercialization
• There must be a clear business model/strategy that can be
formulated for generating a profit from the technology’sformulated for generating a profit from the technology s
commercialization
• The technology should address a need in a large and growing market
Th h ld b ffi i t l it i th th t k t d• There should be sufficient clarity concerning the path to market and
the regulatory environment
• Every technology is unique
• Life science product development is development research, is very
complex, and is defined by its many uncertainties and assumptions
• Evaluating early-stage technologies is difficult
PLx Pharma Inc.

4. Due DiligenceDue Diligence
Establishing an ApproachEstablishing an Approach
• Conducting Due Diligence
– Have and use a thorough framework for
technology assessment
"There is an increasing
concern that in modern
h f l fi di
– Be thorough and systematic
– Ask for, and expect, access to all data
(with CDA)
Look at source data when possible
research, false findings may
be the …vast majority of
published research claims. A
new claim about a research
finding is more likely to be
false than true."
– Look at source data, when possible
– Critically evaluate all claims and data,
including published articles
– Use experts routinely; don’t rely only on your own
intellect or scientific knowledge
• Caveat emptor
– “I have the cure for cancer.”
“Thi ill b th k t i [l th 10] !”– “This will be on the market in [less than 10] years!”
– “There is no competition.”
– Institution has no interest in the technology/inventor is the only owner
PLx Pharma Inc.

5. Due DiligenceDue Diligence
Establishing an ApproachEstablishing an Approach
• Assess
– The technology itself (the scientific basis and its applications)
– Intellectual propertyte ectua p ope ty
– Path-to-market
– Commercial opportunity/valuation
– Licensing deal structure/economics
– Feasibility and “other”
• Complete assessment within a global framework (eg, SWOT)
– Strengths – Opportunities
W k Th t /Ri k– Weaknesses – Threats/Risks
• Understand the psychology of inventor and investor
– Group think – Wishful thinking – Need to Believe!
• Define licensing criteria prospectively* (aka know your strategy)• Define licensing criteria prospectively (aka, know your strategy)
– Time-to-market – Deal terms (up-fronts, royalty rates, etc.)
– Therapeutic area – Relative aggregate risk
– Valuation or annual sales target
PLx Pharma Inc.
g

6. Technology AssessmentTechnology Assessment
What is it?What is it?
• What is it?
• How well characterized is it/can it be?
C l bi l i l– Complex biologicals…
• How are its effects measured (in vitro, in vivo)?
• Are there useful animal models to evaluate early efficacy?
– The ability to translate basic findings into disease cures often relies on
animal models that serve as surrogates of the human condition
– Many diseases lack validated animal models, hampering translational
progressprogress
• What is the amount and quality of the discovery science?
• How novel is the technology?
– Patentable
– Regulatory and commercial analogies
– Regulatory and market risks
PLx Pharma Inc.

7. Technology AssessmentTechnology Assessment
How is it to be used?How is it to be used?
• How will it be used in the marketplace?
– Who are the real users of (market for) the technology (patients,
physicians caregivers)?physicians, caregivers)?
– What indications, therapeutic areas are addressed with the technology
– On what basis will the product compete?
• What is the standard of care for the given indication/use?• What is the standard of care for the given indication/use?
– Critical to understand the SOC…
• Degree of unmet medical need
• Market size and dynamicsMarket size and dynamics
• Likely comparator in pivotal clinical trials
• Implications for a marketed product (displaces others, used in combination?)
• What scientific evidence indicates the technology could actually begy y
used as asserted?
– Let data provide the primary voice
PLx Pharma Inc.

8. Technology AssessmentTechnology Assessment
Intellectual PropertyIntellectual Property
• Most often, the real product is the intellectual property (and not the pill,
injectable, or device)
– The IP is typically the heart of any major transaction in the pharmaceutical, biotechnology,
and medical device industries
– The strength of the IP can significantly affect the terms and value of any transactions (or
whether it will occur at all)
• What is the nature and extent of the intellectual property protection? Whatp p y p
jurisdictions filed?
– Composition of matter
– Utility patent
• The most useful patents in biopharma are those that cover
the composition of an effective drug and its application
to treating particular diseases
• Exclusivity• Exclusivity
– Ownership: Assignments and licenses, encumbrances;
you want to see a clear chain of ownership
– Claims analysis: Coverage and validity (eg, will the patent
PLx Pharma Inc.
claims cover the product for which FDA approval is sought?)

9. Technology AssessmentTechnology Assessment
Intellectual PropertyIntellectual Property
• Patent analyses
– Freedom to operate (FTO) : Formal legal analysis to answer the key question:
“Will any aspect of development or commercialization infringe the patent of ay p p g p
third party?”
– “Opinions of Counsel”
• Note Patent (20 years +/- PTO adjustments) and Non-Patent (FDA) exclusivity
N P t t l i it• Non-Patent exclusivity
• 7 years – orphan indications
• 5 years – new chemical entity (NCE)
• 3 years – new indications/formulations3 years new indications/formulations
• 6 months – pediatric indications
• What effective patent life remains for key patents?
• Hatch-Waxman: “Drug Price Competition and Patent Term Restoration Act”
• Beware provisional patents
• What non-patent IP exists, and is it effectively transferrable?
PLx Pharma Inc.

10. Technology AssessmentTechnology Assessment
What developmental stage is it?What developmental stage is it?
Innovation/ Validation/ Pre-Clinical Clinical Market
Discovery Prototypes Models Trials
• What evidence is there that there is a “product”?
• Has an attempt been made to “product-ize” the technology?
– Formulated?Formulated?
– Prototype exist?
– Tested in animal models or in
clinical trials?
– “Proof of concept”
• Regulatory status and
communications
Drug Substance (API) Drug Product
PLx Pharma Inc.
Drug Substance (API) Drug Product

11. Technology AssessmentTechnology Assessment
What is the path to market?What is the path to market?
• What non-clinical studies will be
required (GLP)
– Deviations from the “standard
k ”?package”?
– Validated animal models?
– What do non-clinical studies
reveal about safety issues thaty
may be present in humans
– Law of combinatorial risk: safety
issues rarely “go away”
CMC Issues
• Knowing the general framework is
• CMC Issues
– Drug substance vs. drug product
– CMC Framework
• Identity
only the beginning
• Critical to understand the nature and
size of both nonclinical and clinical
studies that will be required
y
• Strength
• Quality
• Purity
• Potency
studies that will be required
• CMC is the iceberg beneath the surface
• What special challenges does this
technology present?
PLx Pharma Inc.
– GMP Standards
– Continued…
technology present?

12. Technology AssessmentTechnology Assessment
What is the path to market?What is the path to market?
• CMC Issues (cont)
– What are the key technical
issues?
• Applicability of regulatory
mechanisms for accelerated
development
– Is the product “difficult to
formulate”?
– What evidence for product stability
is there? What conditions?
development
– Subpart E
– Subpart H/Accelerated Approval
– Fast-track Designation
is there? What conditions?
– What do you know about COG?
– Can (must) the API be formulated
for the desired route of
– Orphan Drug Designation
– Special Protocol Assessments
– Priority Review
administration?
– Myriad technology-specific issues
• Clinical studies
N b f t i l
• Beware of overly aggressive/
optimistic assertions of
accelerated development
– Number of trials
– Size of trials (target enrollment)
– Understanding “pivotal” clinical
trials
• Substantial evidence and the
two-trial rule (AWCCT)
• A note about biomarkers
PLx Pharma Inc.

13. Additional InformationAdditional Information
D d Bi l i A l ThDrug and Biologic Approvals: The
Complete Guide for Small Businesses —
FDA Financial Assistance and Incentives
B F k J S i ki d K t R K tBy Frank J. Sasinowski, and Kurt R. Karst,
Hyman, Phelps & McNamara, P.C.
2000/160 pages/soft cover
ISBN: 1 885259 68 9ISBN: 1-885259-68-9
Available at FDLI: http://www.fdli.org/pubs
Regularly updated
information about federally
and privately supported
• Finding labels for approved drug products
finding generic drug products for a brand
name drug product
NLM resource for published
literature
clinical research in human
volunteers
• Finding all drugs with a specific active
ingredient
• Viewing the approval history of a drug
• More…
PLx Pharma Inc.

14. Assessing the CompetitionAssessing the Competition
• Therapeutic products compete on a number of basic dimensions,
which combine to dictate pricing, reimbursement and market
positionposition
– *Safety/Efficacy profile
– Ease of use (eg, route of administration, dose regimen)
– Some measure of “Value” (eg selling price reductions in hospital days– Some measure of Value (eg, selling price, reductions in hospital days,
lost work days) and/or “Quality of Life”
– A note about CMS…
• Three areas of focus What would constitute aThree areas of focus
– Currently marketed competitive products
• Standard of care
• First-line treatment
clinically meaningful
improvement over the
standard of care?
• Second and subsequent treatment
– Pipeline competition
– Market and market dynamics
PLx Pharma Inc.
y

15. Resources for AssessingResources for Assessing
Competition and MarketsCompetition and Marketspp
• Marketed Product Competition
– Safety and efficacy; PDR®,
package insert
• Market Dynamics
– Key products and companies
– (Molecular) Targets andpackage insert
– Pricing: Thompson Red
BookTM
• Pipeline Competition
(Molecular) Targets and
technologies
– Total market size and key brands
– Share changes by quarter
• Pipeline Competition
– News
• MedAd News
• BioCentury
– Key patent expirations
– Unmet needs of patients,
physicians, caregivers
– Payor and FDA dynamicsy
• BIO SmartBrief
• Venture Wire
– Information Portals
K l d E
Payor and FDA dynamics
• Information Sources
– *Clinical thought leaders
– IMS Health and others’ reports
• KnowledgeExpress
• Nerac
– Scientific Publications and
Meetings
p
– Conference proceedings (industry,
scientific)
– FDA
PLx Pharma Inc.
g

16. Assessing Technology ValueAssessing Technology Value
• Estimating the value of early-stage technologies is notoriously difficult
• Approaches
– Top downTop down
• Estimates of market size, market share of key products, penetration/share of your
product for a given time period (year)
• By Analogy: comparison of sales for similar product in similar clinical setting
Bottom up: build a financial (NPV) model which estimates future cash flows for a– Bottom up: build a financial (NPV) model, which estimates future cash flows for a
given product (by indication); includes
• Manufacturing costs Sales, general and administrative costs
• Selling price per unit Penetration/uptake rate
S l l Di t d ( t l ) f f t• Sales volume Discounted (present value) of future revenues
• Pharma uses
– Basic NPV models
– Real Option Analyses
Real Options Analysis…
Real Option Analyses
– Monte Carlo simulations with NPV models
– Decision Tree Analyses
…captures the effects of uncertainty and
change inherent in many projects. Unlike
discounted cash flow analysis, it recognizes
active project management and the learning
that occurs during development research.
PLx Pharma Inc.
that occurs during development research.

17. • Decision Tree Analysis
– Accounts for development risk
– Maps development path schematically,
Decision Tree Analysis for a
Drug Development Program
p p p y
assigns probabilities to categorical
outcomes
– Allows discounting of NPV, based on
development risk
– Valuable complement to commercial
revenue discounting
– Excellent for comparison of relative
risks/value between products (portfolio
management
• Monte Carlo Simulation with
(NPV) Revenue Model
– Accounts for commercial risk (eg,
selling price COGS uptake rates)
management
Value
selling price, COGS, uptake rates)
– Allows one to describe the
“probabilistic input variables”
– Provides descriptive statistics for
possible outcomes
Assumptions
Utility
possible outcomes
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
PL 2,389,696$ 13,857,855$ 22,476,229$ 32,410,723$ 35,052,197$ 37,908,951$ 40,998,530$ 35,471,928$ 30,690,312$ 26,553,258$
NHL 21,182,784$ 90,327,628$ 144,440,652$ 205,307,942$ 218,868,532$ 233,324,798$ 248,735,901$ 212,131,926$
HRMPC 54,751,049$ 107,147,803$ 157,266,188$ 205,179,953$ 200,768,584$ 196,452,060$ 192,228,340$
AML 1,759,672$ 15,224,564$ 24,698,527$ 35,615,577$ 38,722,059$ 42,087,834$ 45,734,217$ 39,747,414$ 34,536,274$
RCC 682,668$ 1,476,611$ 2,395,433$ 3,454,214$ 3,735,733$ 4,040,195$ 4,369,471$ 3,780,466$
H&N 3,813,594$ 7,934,564$ 12,381,490$ 17,173,952$ 17,866,062$ 18,586,064$ 19,335,083$
Total 2,389,696$ 15,617,527$ 59,566,245$ 207,478,132$ 332,586,226$ 455,040,844$ 528,044,534$ 537,205,784$ 538,581,222$ 488,565,347$
PV (Inflation) 2,320,093$ 14,721,017$ 57,831,306$ 195,568,038$ 322,899,249$ 428,919,638$ 512,664,596$ 506,367,974$ 522,894,390$ 460,519,697$
– Allows sensitivity analysis
and fuller scenario analysis
– Better than point estimates
PLx Pharma Inc.
( )
PV (million) 2.32$ 14.72$ 57.83$ 195.57$ 322.90$ 428.92$ 512.66$ 506.37$ 522.89$ 460.52$
p

18. Additional ReadingAdditional Reading
Introduction to Simulation and The New Math for Drug Licensing
Risk Analysis
(2nd Edition)
by James R. Evans, David L. Olson
2001/392 pages/hard cover
g g
by James Kalamas, Gary S. Pinkus,
and Kevin Sachs
In: The McKinsey Quarterly
2002 No 4 pp 9 122001/392 pages/hard cover
ISBN: 0130329282
The Real Power of Real Options
2002, No. 4, pp 9-12.
Scientific Management at Merck: An
by Keith J. Leslie and Max P. Michaels
In: The McKinsey Quarterly
1993, No. 3, pp 97-108.
Available at: www.mckinseyquarterly.com
Interview with CFO Judy Lewent
by Nancy A. Nichols
In: Harvard Business Review
Pub date: January 1, 1994yq y Pub date: January 1, 1994
Available at: www.hbsp.harvard.edu
Real Options Analysis: Tools and Techniques for
Valuing Strategic Investment and Decisions
2 d Editi2nd Edition
by Johnathan Mun
2006/667 pages/hard cover
ISBN: 0471747483
PLx Pharma Inc.
ISBN: 0471747483

19. A Note on LicensingA Note on Licensing
• A key to evaluating technology value is
analyzing the “deal”
• Framework for understanding the deal
Early-Stage Technologies:
Valuation and Pricing
by Richard Razgaitss
– Technology (nature, scope/”field of use”)
– Term/duration
– Exclusivity
– Rights conferred, in what geographies
Deal economics (up fronts milestones
by Richard Razgaitss
1999/291 pages/hard cover
ISBN: 0471328561
– Deal economics (up-fronts, milestones,
royalties, maintenance fees, etc.)
– Milestones
– Reversionary rights
– Transferability/change of control
Licensing Executives Society
URL: www.usa-canada.les.org/
– Principal technology-specific risks
– “Intangibles”
• What-if scenario modeling to clarify the
implications of tradeoffs recommended
g
Les Nouvelles
Journal of Licensing Executives
Society International
URL: www lesi org
• Find and use key attorneys/
consultants for early deals
URL: www.lesi.org
PLx Pharma Inc.

20. “Other”“Other”
• Inventor and institution
– Company proximity to inventor considered by some to be the “single
most important factor” for (early-stage) technology successmost important factor for (early stage) technology success
– Evaluate the inventor and the institution
• Bureaucracy
• PersonalitiesPersonalities
• Potential for access to facilities/sponsored research
• Reputation, grant funding success
• Aggregate risks• Aggregate risks
• Pass the smell test?
• Unconventional approaches needed to “make it work” (eg, new surrogate
endpoint)endpoint)
• “50% of the time…”
PLx Pharma Inc.

21. It Does Happen…It Does Happen…
PLx Pharma Inc.

22. Th k !!Thank you!!
Jason E. Moore, M.S., M.B.A.Jason E. Moore, M.S., M.B.A., ,, ,
jason.moore@plxpharma.com
713-842-1249
PLx Pharma Inc.