If you have been following DepoMed lately you are familiar with the disappointing results of the Breeze 3 trial and the impact it will have on Serada their extended release gabapentin DDEP for the treatment of menopausal hot flashes. I have an earlier post on this.
Listening to the DepoMed conference calls discussing the results of the Breeze 3 trial, and the more recent 3rd quarter financial results, I realized that DepoMed is either willing to pay a huge price for the ‘slooow’ statistical analysis and clinical review of the Breeze 3 trial, or they are signaling that they are dropping Serada. Let me explain.
The Breeze 3 trial was intended to be the pivotal trial that supported the filing of Serada for the menopausal hot flashes claim. It was an expensive trial with direct out of pocket expenses of about $8 million, and all-in costs of perhaps $15 million. That’s expensive but not unreasonable considering it would have supported an NDA filing. It’s the $100 million cost of the statistical analysis and clinical review that is shocking; or perhaps not really.
Where does the $100 million figure for the analysis and review cost come from? It’s a little complex, but easy to understand.
In the company press release of November 1st DepoMed said they hoped to meet with the FDA as soon as the first quarter of 2012 to discuss trial results and the next steps. In the most recent conference call they pushed it back to the first half of 2012. I know the FDA doesn’t have a ‘drop by when you’re free and let’s discuss your results and where you want to go’ policy. But the FDA is responsive to companies with late stage programs who have data and a plan to discuss.
Meeting with the FDA in the first half of 2012 implies that DepoMed has not completed a full analysis of the data, and hasn’t figured out what the data really means and what they want to do with it.
It seems to me that the study analysis, presumably the statistical analysis, will take another two to three months to complete. If the analysis was complete and a development decision made, a meeting with the FDA could be arranged as soon as December, even with the FDA’s tight schedule.
So how does a 2 to 3 month statistical and study analysis add up to $100 million? In an article I published in 2006 I looked at the real cost of time for pharmaceutical product development. In that article I presented analysis and guidelines for estimating the cost of delaying, or accelerating, a development program. I won’t go through that process in detail and point those interested to the article.
Delaying analysis and a meeting has significant implications on sales and profitability in two areas; a loss of marketing exclusivity before generics, and the loss of competitive position. Serada exclusivity seems to extend to 2020 based on a licensed method of treatment patent. The three years of regulatory exclusivity will expire before then. Taking two or three months longer for analysis means two or three months less sales.
The competitive impact of a delay can be more costly, but harder to define. Being second to market, or trailing a competitor by an additional two or three months can seriously impact momentum and market share. My 2006 article discusses this in more detail. In addition to the established estrogen products on the market there are a number of non-hormonal agents in development to address menopausal hot flashes. A delay may or may not the hurt Serada’s competitive position, but it will certainly not improve it.
Assuming that Serada has peak product sales of about $400 million in the sixth year on the market (when most products hit their peak market penetration), I estimate that a three month delay in getting to the FDA will cost the company about $130 million in lost sales, or $90 million on a net present value basis. And these are incremental sales, which would have a much higher profit margin.
If the peak product sales were double, about $800 million the lost sales and income numbers would be more like $250 million $180 million. And if the peak sales were $200 million the cost of the statistical and clinical review delay would be $65 and $45 million. That’s a high price to pay for a leisurely analysis of clinical trial data.
My sense is that a decision has been made to abandon Serada. After three expensive Phase III trial failures another trial would probably be throwing good money after bad. Delaying final analysis of the study and a meeting with the FDA will let Serada fade into the background, at which point, perhaps in Q2 2012, an announcement of the program’s termination can be offset with good news about Gralise sales.
But if a decision is made to soldier on with the Serada, the delayed statistical analysis and clinical review will have cost DepoMed a cool $100 million or more. I know statisticians are expensive and hard to pin down, but for that kind of money I would think you could afford to get things done much faster.