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Health & Biotech
Welcome back class to Part 2 of our Clinical Trials 101. When it comes to healthcare and life sciences investing there is one area where investors should take notice and that is research and clinical trials. An understanding of how the trial process works, important bodies and terminology is useful investing information in this unique sector.
In the first of our series on Clinical Trials 101 we looked at what exactly are clinical trials, the three different trial stages, protocol and key organisations.
Now we get into the nitty gritty of how to spot a company which has a good chance of actually getting its drug to market and passing the hallowed Phase 3 or pivotal trial status.
When it comes to clinical trials, there’s not much room for error and the stakes are high. We are, after all, dealing with human life, so safety and efficacy is paramount.
The trial process can cost companies hundreds of millions of dollars and if results fail to meet expectations the share price can plunge and a biotech can find itself losing the faith of investors.
A good example is Hexima (ASX:HXL) which was developing a drug to treat fungal nail infections but saw its share price plummet and lose most of its value on June 24 upon news its Phase 2 trial results were inconclusive.
Hexima said it intended to conduct a detailed review of the complete clinical trial data set and study conduct and expects to report its findings when complete but its CEO has also since resigned.
The HXL share price has plunged ~95% year to date but in some good news for the company its share price has rallied more than 10% in the past week on no news, so perhaps it could be in recovery mode.
Our guest lecturer, Bioshares analyst Mark Pachacz, said reviewing clinical trial results is firstly done by companies themselves (and their consultants) but they will then tend to work to get the results published in a relevant medical journal, which can also be a process in itself, for added credibility.
He said bodies in jurisdictions responsible for approving drugs will have their own reviewing clinical trials process; for example the US the Federal Drug Administration (FDA).
Neuren Pharmaceuticals (ASX:NEU) recently announced the US Food and Drug Administration (FDA) had accepted for review the New Drug Application (NDA) of trofinetide for the treatment of Rett syndrome, that was submitted by its US partner Acadia Pharmaceuticals (Nasdaq: ACAD).
If the FDA approves the NDA, Neuren expects it will earn revenue of $118 million plus double-digit percentage royalties on net sales between 2022 and 2023 in the US.
“The FDA might say we have a lot of questions still so we will give it over to an expert panel who work in that field and they will look and vote on it,” Pachacz said.
“In Neuren’s case the FDA has indicated that an advisory panel is not needed which is a positive sign.”
Pachacz said when it comes to reviewing clinical trial results there are three crucial points for investors to note.
“Safety is always paramount for studies into a drug,” Pachacz said. It essentially ties in with the Hippocratic Oath taken by physicians worldwide for centuries of “first do no harm”.
Statistical significance plays a crucial role in decision-making for medicine. If this really excites you then read more about statistical significance and evidence-based medicine at the National Institutes of Health website but just be sure to bring your pocket protector and elbow patches.
Pachacz said when it comes to statistical significance there is a crucial number known as a probability value or P-value, which is less than 0.05 or 5%.
“It basically means there was a less than 5% chance the outcome was a random occurrence,” he said.
“If you look at a study and it is 0.06 you haven’t reached the requirements set by the FDA and won’t get approved generally but if you come in at 0.49 you’ve passed the magical figure of 0.05 and have a good chance of getting your drug approved so it’s quite simple like that.”
So how often do trials pass the magical figure?
“In Phase 3 about 50% of the time the mark is not achieved,” Pachacz said.
“It’s pretty hard to achieve because you’re looking at a whole group of patients and some of them, their conditions might be different as well.
“Even looking at Alzheimer’s, the cause might be different to another, or in cancer a treatment might only work on a subset of patients, but you need to show on average is it works across all of them.”
Furthermore, Pachacz said how well a drug works has to be traded off against side effects.
“Are the benefits good enough to justify the side effects to the patient and in cancer that is something seen all the time,” he said.
“Most drugs should have some level of side effects or they’re probably not doing anything.”
According to the FDA “a therapeutic intervention may be said to confer clinical benefit if it prolongs life, improves function, and/or improves the way a patient feels”. It’s worth noting the same link has a good glossary of clinical trials terms.
“What that means is if you’re talking about cancer, for example if you are providing an extra three weeks of life, that may not be a clinical benefit but if you are providing four or five months that may be a clinical benefit.”
Passing a clinical benefit is crucial in having a drug approved and to the business of making money for a biotech.
“You can pass safety, pass the probability value milestone but if your clinical benefit is really low you are going to struggle to get approval and generate sales,” Pachacz said.
Medicines and treatments are expensive for healthcare systems, so who determines exactly what is a clinical benefit and how can we put a price on the extension of human life whether it be for days, weeks, months or years for example?
Well, Pachacz said while seemingly harsh, it ultimately does comes down to cost-benefit analysis and is quite clinical with formulas to determine how much extra life is worth from a monetary perspective.
Following on from point three on clinical benefit, Medlab Clinical (ASX:MDC) CEO and managing director Dr Sean Hall said it is generally accepted that human life has a value and the purpose of a drug is to add value.
“Furthermore, the purpose of co-pay, where a government subsidises the cost of a drug determined to add value to human life, is to ease the financial burden on a patient and their family,” he said.
“So while a pharmaceutical script might cost the patient $20 out of pocket, the real cost could be upwards of hundreds or even thousands.”
In Australia a drug may be approved by the Therapeutic Goods Administration (TGA) for safety but it will be approved to be subsidised by the government under the Australia’s Pharmaceutical Benefit Scheme (PBS) by the Pharmaceutical Benefits Advisor Committee (PBAC).
The independent expert body appointed by the Australian Government comprises of doctors, health professionals, health economists and consumer representatives whose primary role is to recommend new medicines for listing on the PBS and under what price. Basically they determine if a drug is even worth going to market.
“When dealing with the potential for government subsidies for a medicine it is super specialised and it is a completely separate model to registering a medicine,” Hall said.
“It’s very complex and there are specialised people who help pharmaceutical companies in this area.”
While many governments around the world have expert bodies to help decide on co-payments from governments, it’s a super complex area.
In the US for example, the largest consumer of prescription medication in the world, there is not direct regulation of medicine prices meaning pharmaceutical companies can charge what the market will be willing to pay.
When prescription-drug benefits were added to Medicare in the US under a 2003 law, the pharmaceutical industry successfully lobbied to prohibit the US Federal Government from using its purchasing power to negotiate drug prices.
The whole area of setting pharmaceutical prices is complex worldwide (you could write a PhD on the topic). But there is one important aspect worth noting. Remember back to our part one of Clinical Trials 101 where we learned about orphan drug development and how companies may be incentivised to develop treatments for rare disease?
One of these incentives is higher reimbursement for orphan drugs.
“When they are approved, companies can charge a lot more for an orphan drug which will generally get reimbursed at least in the US$100,000 per year range per patient. Whereas a non-orphan drug you are generally looking at $20,000 to $30,000 per year,” Pachacz said.
In our next part we will look at the chances of getting a drug to market and the importance of pharma companies maintaining investor confidence.
At Stockhead, we tell it like it is. While Medlab Clinical is a Stockhead advertiser they did not sponsor this article.
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