motivate companies, especially smaller companies, and give managers within larger companies the justification to move forward on drugs that are less profitable.”
How tempting a carrot has it really been? To date, three companies have won vouchers for bringing tropical disease treatments to market. First was Novartis (NYSE: [[ticker:NVS]]) for the anti-malarial combination of artemether and lumefantrine (Coartem), controversial because some felt the program should spur new drug development, and Coartem had already been on the market around the world for nearly a decade. The second went to J&J’s Janssen Pharmaceuticals for bedaquiline (Sirturo), to treat drug-resistant tuberculosis, the first TB drug in 40 years with a new approach to attack the bacterium.
The third voucher went earlier this year to Knight Therapeutics of Montreal for the leishmaniasis treatment miltefosine (Impavido). Knight was spun out of Paladin Labs, which bought miltefosine in 2008. The drug was already approved in Europe, says Knight’s chief financial officer Jeffrey Kadanoff, and Paladin spent roughly $10 million to ready it for U.S. regulators.
Whether freshening up a drug’s profile to aim for a voucher violates the spirit of the program or not, Ridley acknowledges the program needs fixes. He and others thought they were on the way when the Congress, pushed by a Washington, DC, mom whose son died of a rare brain cancer, moved to expand the voucher program to rare pediatric diseases. The expansion became law in 2012, but last-minute, closed-door negotiations left the tropical-disease side of the program untouched. For example, the pediatric vouchers can change hands many times, but tropical disease vouchers, as stipulated in the 2007 law, can only be sold once, which could limit their value.
The first pediatric voucher was awarded in February this year. It went to rare disease specialist BioMarin Pharmaceutical (NASDAQ: [[ticker:BMRN]]), which four months later sold it to Tarrytown, NY-based Regeneron Pharmaceuticals (NASDAQ: [[ticker:REGN]]) for $67.5 million. Regeneron announced it would apply the voucher to speed up review of alirocumab, a cholesterol lowering treatment. (Good call, Bill Gates.) Alirocumab is in a race to market with evolocumab, which Amgen (NASDAQ: [[ticker:AMGN]]) just submitted to European regulators for approval.
Duke’s Ridley thinks the program will soon hit a higher gear, with two vouchers awarded annually. But there’s an odd catch, which is also one of the flaws of the market-driven program: If it gets too popular, a glut of vouchers could drive prices down. “The market can only absorb a couple a year for high price,” Ridley says. “If there are 20 awarded each year, they won’t be valuable, because there aren’t 20 companies willing to pay tens of millions for a voucher,” he says.
Keeping voucher prices at a premium is critical to their effectiveness as an incentive. Small companies that score vouchers aren’t likely to have a second drug poised for approval, so they need a lively resale market for them. Even a midsize biotech with a deep pipeline like BioMarin preferred to test the voucher market and use the cash near-term to expand its headquarters, rather than wait a year or two for its next drug to approach regulatory review.
Looking to sell its voucher, Knight Therapeutics has been crunching some numbers, too. The company has pinpointed 60 drugs owned by 40 companies that could potentially use a voucher to speed up review, says the CFO Kadanoff. Knight has hired a banker to run an auction, and Kadanoff is keeping an eye on other companies that might soon qualify for a voucher—some have even called for advice, he says—but he’s not worried about oversupply any time soon.
If Knight can sell its voucher for a price in BioMarin’s ballpark, it will help quell some reservations about the program and give small developers an additional story to tell investors: Help us get this program approved, the pitch might go, and we’ll have a voucher worth $50 million or so in our hip pocket—a nice boost to a company’s value, especially if the investors’ money is padded with nondilutive grants.
If the voucher program’s “time has come,” in Ridley’s words, it’s also time to put Ebola
