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Writer's pictureUlrich Neumann, MBA MSc MA

Getting Asset Evaluation Right

Updated: Mar 14, 2022

With BIO Europe starting next week, we are reminded that partnering and acquisitions of drug product candidates are such an essential part of pharmaceutical innovation. Below some thoughts around an interdisciplinary approach to asset evaluation in this ecosystem. We offer some perspectives on how to get it right, and which pitfalls one might want to avoid.



While emerging companies are focused on drug discovery and early development, they often do not have the funding or experience to manage the complex, expensive, and time-consuming path to regulatory approval, let alone commercial uptake. The go-forward path for these promising drug products is to work with venture capital, private equity, or established pharma companies.


Getting it right requires starting with the “end” in mind and defining a Target Product Profile that defines the features and benefits a drug must have to be competitive in the market. Through the process of due diligence, it is possible to understand and quantify the technical and commercial probabilities of success at each stage of drug development. This informs the relative risk and valuation for each investment. Due diligences are typically staged, with the first stage involving the performance of a stage-specific gap analysis against the Target Product Profile to identify any data gaps either at a technical, regulatory, or commercial level that would ordinarily be expected for a drug at this stage of development.


Investors often engage third parties to either lead or provide particular functional area experts to perform these diligences. Such third parties need to include a team of functional experts in nonclinical, clinical, regulatory, commercial, chemistry, manufacturing and controls (CMC), intellectual property (IP), and more. The team must have the experience to ask and answer a broad range of questions around the clinical, technical, and commercial viability of the asset to synthesize that information into a quantitative assessment of product opportunity and liability.


Factors Affecting the Probability of Success

A recent article published in Nature analyzed the reasons for Phase 2 to 3 drug failure over the period of 2013–2015. The failure during this translational phase is well recognized and has been a focus of both drug developers and regulators. In fact, the FDA published a paper on this topic, called '22 Case Studies Where Phase 2 and Phase 3 Trials Had Divergent Results'. The analysis in Nature shows that the majority of failures was due to a lack of either efficacy (52%) or safety (24%), where safety includes those failures that were due to an insufficient therapeutic index, strategic (15%), commercial (6%) and operational (3%) reasons. As you parse the data further, it is clear that the Phase 3 failures are more weighted toward both efficacy (compared to efficacy and safety in Phase 2), and commercial (vs strategy and commercial in Phase 2). This analysis helps guide our work in performing asset evaluation/due diligence for new drug products.


The Nuts and Bolts of 360° Asset Evaluation

Asset evaluation involves a cross-functional due diligence team to pressure testing and quantify risk in the following areas:


  • CMC/Drug Product—To analyze the drug substance, drug product characteristics and identity manufacturability, quality, strength, and stability

  • Toxicology (safety)—Drug toxicity refers to the level of damage that a compound can cause to an organism; the toxic effects of a drug are typically dose-dependent

  • Clinical Pharmacology—The relationship between drugs and humans, clinical pharmacology is focused on drug action and pharmacological principles such as drug absorption, distribution, metabolism, and excretion (ADME); dose justification is key to the clinical pharmacology due diligence program

  • Clinical Development and Clinical Safety—Evaluation of the planned clinical trials and study design and endpoint criteria are addressed, along with safety analysis and evaluation of adverse events

  • Biostatistics—Statistical processes and methods applied to the collection, analysis, and interpretation of biological data, especially data relating to human biology, health, and medicine; this section evaluates trial design and key efficacy analyses at different doses for different cohorts

  • Regulatory—Expertise in bringing the drug from pre-IND, IND, and end of Phase 1, 2, or 3 to NDA/BLA submission and meeting post-marketing obligations is addressed in this program; evaluation of the use of accelerated approval programs, simultaneous global filings, and sub requirements such as pediatrics are addressed

  • Commercial—”Will the drug be profitable?” is the core impetus for investment in the program; understanding of the competitive landscape for the drug in its class, for assessing the strategy of a precision medicine product versus a blockbuster, and understanding the reimbursement potential is addressed

  • Therapeutic Area—Expertise in the specific TA from both a scientific and commercial perspective is applied; what is the current standard of care and comparator drugs either in the market or under development that the new drug will compete against?


5 Areas of Caution

The process of asset evaluation needs to provide focus into four key areas: the scientific and clinical viability of the drug (scientific), the development strategy of bringing that drug to market (go it alone, partnering, licensing, etc. and development speed/costs), the regulatory, and the commercial viability and valuation of that asset.

In our experience, there are some areas of caution that we believe should be highlighted:


  1. Dose selection continues to be a vexing challenge in establishing POC and in selecting the “right” dose for late phase trials. In early development, dose selection is key as too high a dose can result in unacceptable toxicity and too low a dose can impair efficacy. In our learnings, an understanding of the relationships between the disease, drug characteristics and individual variability is essential. Exposure (of dose)-response analysis can be levered to inform or confirm trial design decisions, such as cohort selection and endpoint criteria as well as dose regimen.

  2. In the excitement around the scientific and clinical viability analysis, we see a shortchanging of CMC analysis. Drugs can be denied marketing approval if the quality of the product and the manufacturing process cannot be shown to be of a sufficiently high standard to satisfy regulators. Failure to allocate the time and investment in CMC reviews frequently results in delays in drugs’ overall development timelines that could have been avoided.

  3. While most companies want to sell their drug globally (or in multiple countries), they often develop a regulatory plan that is centered on one location and hope to adapt it later for others. The assumption that the FDA will accept the EMA approval and vice versa is incorrect, and it is wise to understand up front the different requirements and plan accordingly. A simultaneous submittal strategy can be accomplished, but it must be planned (and financially supported).

  4. Comparative effectiveness and health economics outcomes research is essential. As the voice of the payer dominates your commerical succees, a metric-driven approach to determine how the evidence supports a case for targeted reimbursement is pivotal to success. Models and real-world evidence are key to reimbursement success and model-based analysis of the competitive landscape will determine the value trajectory for the product in question.

  5. Intellectual property. The relative value of composition of matter, method of use, or other IP claims are direct drivers of value of an asset. Failure to understand or address the patent landscape and impact of time has heralded the death of many potential medicines. Development decisions including methods of manufacture or formulation may infringe process patents and impact freedom to operate, which can create expensive settlements.


Moving Forward

The high costs and risks associated with drug asset acquisition require the involvement of an unbiased and cross-functional team. That team should have deep subject matter expertise in early development formulation, clinical pharmacology, translational medicine, and regulatory science strategies to optimize the pre-clinical to clinical proof-of-concept development process. Working with others from the financial and commercial side, they need to look for opportunities to cost-effectively accelerate the clinical development-to-launch process, with a view to increasing the probability of success and cost benefit of the drug. This approach will support interactions with health authorities and payers on innovative development programs.


A hallmark to the design of contemporary drug development programs is a strong modeling and simulation (M&S) strategy beginning in early development to improve decision-making and provide a narrative to support proof/reason-to-believe for differentiation, efficacy, and safety to health authorities, payers, investors, and deal-makers. Our definition of M&S includes PBPK (physiologically-based pharmacokinetics), PK/PD (pharmacokinetics/ pharmacodynamics), quantitative pharmacology, model-based meta-analysis, and other relevant quantitative approaches that facilitate differentiation. Understanding how to reduce the clinical trial burden/cost, how to successfully lever accelerated approval approaches, and how to increase the economic feasibility of bringing products to new regions and underserved populations is valuable. Most important, the experience in pressure testing, optimizing, and communicating the value of development and licensing plans to support partnering strategies is key to success.


A technical evaluation team leader must be a highly experienced drug developer who has led due diligence and development teams, and understands the interplay of the various functions and how to weigh the functional perspectives appropriately, in order to define program POS and other program impacts such as slippage risk. Such a team leader must also be able to articulate how the due diligence findings are incorporated into deal terms in order to stage-gate investment decisions aligned with value creation and be able to support negotiations from both the buyer and seller perspectives.


We believe that Certara—with hundreds of scientists with expertise in drug development, clinical pharmacology, M&S, regulatory and commercial development —is the right strategic partner to bolster your ability to select the best investment opportunities.


Since 2018 we’ve helped biotech clients create over $44B in value for investors through out-licensing of assets, IPO’s, and acquisitions by big pharma. For private equity customers, we are proud to lead high-stakes investment diligences totaling around $2-3B+ every year. For example, we have conducted 50+ due diligence evaluations for one of our partners NovaQuest (formerly part of Quintiles) alone over the last 2 years.

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Harrison R. (2016, December). Phase II and Phase III Failures: 2013–2015. Nature Reviews Drug Discovery, 15, 817–818.

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