Creating a drug or medical device involves complex methods, processes, time, and capital. The complexity of the pharma industry also presents challenges for the valuation process. Read on to discover the top five challenges in performing pharma IP valuations.
1. Bioavailability: Bioavailability is the percentage of a drug absorbed by the body. Estimating the bioavailability of a product can be difficult. During the innovation period, 40% of new drugs fail due to low bioavailability. As a result, many drugs are shelved. IP valuation analysts consider available data regarding the drug’s bioavailability. The more data that suggests a strong bioavailability, the lower the potential risk and the higher the potential value. Without an acceptable level of bioavailability, the product may not be worth much.
2. Regulatory environment: Life is about changes. Everything changes. The regulatory environment is no different. In order to maintain quality, safety, and efficacy, the regulatory environment adjusts its requirements frequently. Keeping up with these changes is essential so product innovations don’t stall and that they adhere to those changes. If a new product doesn’t adjust to changes in the regulatory environment, then the product will likely have little to no value, or the innovation process will be on hold until the product is brought up to standard.
3. Patient capital: It takes a tremendous amount of patient capital for a pharmaceutical company to reap the benefits of its newfound drug. If patients aren’t willing to buy into a drug, or find it less effective than alternatives, the drug becomes a bust.
4. Insurance reimbursements: IP valuation analysts have to factor in the willingness of insurance companies to reimburse patients or doctors for a specific drug. If insurance companies don’t see the benefit, then they won’t pay for patients to get the drug. This has a huge impact on the success of a company’s drug.
5. Patents: In the pharmaceutical industry, patents prove valuable in a lot of ways. Patents protect companies involved in large, complex patent cases. They protect against generics reaching the market, which is a huge factor as generics hit the market almost immediately after a patent expires. Without the patent, a drug company cannot enjoy autonomy for any length of time. Without patents, Pfizer would have never enjoyed the billions it did with Lipitor. Lipitor is a prime example of how once a patent expires, a generic enters the market. Several drugs are available today to compete with Lipitor. In fact, one article claims that the generic market for Lipitor is becoming overcrowded–less than a year after Lipitor’s patent expired. Whereas in prior years, nothing compared.
As stated above, many complicated factors pose challenges for IP valuation analysts involved in patent valuations for pharma companies. The key to success is knowing what to look for and diligently researching information to ensure accuracy.
