What happened to the value of priority review vouchers (PRV)?
The FDA Amendments Act of 2007 created an incentive system for drug developers to pursue tropical neglected diseases, whereby upon approval of a product for a designated tropical disease, the drug developer would receive a voucher that could be applied to receive a priority review for another product (Priority Review Voucher, or PRV). The FDA goal for completing a priority review is 6 months, compared to the standard review timeline of 10 months. The Creating Hope Act in 2012 substantially expanded the PRV program to include rare pediatric diseases.
Last week Sarepta Therapeutics announced the sale of its priority review voucher, awarded by the FDA following the approval of Exondys 51 (eteplirsen) for Duchenne muscular dystrophy in September 2016. The transaction with Gilead netted Sarepta $125M upfront for the PRV, which Gilead can now apply to any of its product in order to accelerate the review time under the FDA guidelines for priority review. After recent transactions for PRVs seemed to continue a meteoric rise in valuation, what led to the decline in value for the sale of Sarepta’s PRV?
1) The value is in the eye of the beholder. It’s important to consider that the relative value of a PRV is entirely tied to the product that it is used for. In the case of Regeneron and Sanofi, they applied the PRV purchased from BioMarin in 2014 to the PCSK9 product Praluent in order to leap frog Amgen’s Repatha to the market in the US. The value of being the first to market was significant, and it justified the purchase price of $67.5M. In 2015, when Sanofi purchased a separate PRV, this time from Retrophin for $245M, the strategy allowed the company to shave up to 4 months off of the time to market introduction for its type II diabetes combo Soliqua. Questions abound over Abbvie’s intent for the PRV that they purchase in 2015 from United Therapeutics for a record $350M, but these valuations likely demonstrate the peak of the achievable market.
Table: Recent Transactions for Priority Review Vouchers
| Recipient | Product | Year | Acquiror | Price |
|---|---|---|---|---|
| BioMarin | Vimizim | 2014 | Regeneron, Sanofi | $67.5M |
| Knight | Impavido | 2014 | Gilead | $125M |
| Asklepion (Retrophin) | Cholbam | 2015 | Sanofi | $245M |
| United Therapeutics | Unituxin | 2015 | Abbvie | $350M |
| Sarepta Therapeutics | Exondys 51 | 2017 | Gilead | $125M |
2) There are currently 9 total PRVs outstanding. As much as Sarepta may have desired to maximize the value of their PRV based on the buyers NPV, that is virtually impossible to do if the buyer can find an alternate seller to negotiate with. PRVs do not expire, and regardless of how they are awarded they confer the same basic rights to priority review timing. In December 2014, the passage of the Adding Ebola to the FDA Priority Review Voucher Program Act eliminated the disparity between tropical and pediatric vouchers, allowing tropical vouchers to be redeemed in just 90 days and allowing resale any number of times (previously tropical neglected disease vouchers could only be sold once and required 365-day notice to apply to a filing). The growing pool of potentially available PRVs had to have hampered the ability of Sarepta to extract maximum value since Gilead could plausibly negotiate with many other parties as well as deferring purchase until they clearly had a product for which they would apply the PRV.
Table: Outstanding Priority Review Vouchers
| Holder (Awardee) | Year Awarded | Type |
|---|---|---|
| Janssen | 2012 | Tropical Neglected Disease |
| Abbvie (United Therapeutics) | 2015 | Pediatric Disease |
| AstraZeneca (Wellstat) | 2015 | Pediatric Disease |
| Alexion | 2015 | Pediatric Disease |
| Alexion | 2015 | Pediatric Disease |
| PaxVax | 2016 | Tropical Neglected Disease |
| Biogen | 2016 | Pediatric Disease |
| Gilead (Sarepta) | 2016 | Pediatric Disease |
| Marathon | 2017 | Pediatric Disease |
3) The number of PRVs is expected to increase. The 21st Century Cures Act extended the program for pediatric diseases through September 2020, and a large number of companies are focusing in orphan pediatric diseases that are attractive commercially with the bonus of earning a PRV. The pediatric voucher program included several changes, including the ability for the pediatric treatment developer to ask the FDA in advance whether the disease qualifies as a rare, pediatric disease. The marketplace for these PRVs should continue to become more competitive with additional vouchers being issued, and prices will be more closely tied to the seller’s willingness to transact, as opposed to the buyers perceived value attached to the accelerated review.
At Locust Walk, we find ourselves at the cross-roads of transactions involving biopharma buyers and sellers. With any deal, it’s essential to run an effective process and understand the changing market dynamics and how they will impact transactability and valuation. Staying ahead of the trends and informing your stakeholders along the way is the most certain path to managing expectations and closing a deal. For more information on how Locust Walk might help you with your strategic pursuits, please contact us at info@locustwalk.com
