Marathon’s clinical program involved no new registrational studies

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The slide cites the two old efficacy studies they acquired along with details on 9 preclinical studies, including a monkey trial and two rat studies.

Marathon’s clinical program involved no new registrational studies, the primary driver behind R&D costs.

There were projects like a drug/drug interaction study and an ADME study (a standard absorption, distribution, metabolism and excretion study) and so on. They also started an extended access program as they put more boys on the steroid ahead of the US marketing launch.

Manufacturing costs for this drug are clearly just a fraction of what Marathon will be charging, based on the current price in the UK and Canada.

I handed the slide on to two trial experts, Bernard Munos, an Eli Lilly veteran now running InnoThink, and David Grainger, who’s founded a slate of biotechs from his base at Medicxi in London. They both ran cost estimates on what it would take to do this kind of program.

What did it really cost?

Munos and Grainger each came up with a final figure not far off from what Shkreli paid to lay his hands on Daraprim. But they have two distinctly different views of the research costs.

Munos turned to G. Sitta Sittampalam, another development vet at Lilly who has been closely involved with the Therapeutics for Rare and Neglected Diseases program at NIH’s National Center for Advancing Translational Sciences and with drug repurposing for leukemia at Kansas University Medical Center.

“From his experience,” notes Munos, “the preclinical work for Emflaza (the 9 tox studies in red on their slide) can be estimated at $5-10 million, and the clinical development program at $50-60 million.”

“The studies from the 1990s that Marathon acquired were likely cheap (<$5 million) since they were old data that had basically no value when they were acquired; and from Marathon CEO’s admission needed a fair amount of “cleanup” to be usable. That puts the entire package at $65-75 million.”

Grainger, who specializes in low-cost biotech startups, looked up the studies he could find online, ran the numbers for the whole thing, and concluded that this could all be done for much, much less. But his potential initial valuation for the company also reaches fairly close to the $55 million that Shkreli paid for Daraprim before triggering his own well-documented scheme to rip off the system.

The whole preclinical effort at Marathon, Grainger says, could be done for less than $2 million, including $600,000 for a 9-month monkey study of toxicity. The clinical program is harder to map out entirely, but if you include a maximum amount of $400,000 for a US ADME study, $400,00 for a food effect study and $720,000 for the extension study, it’s not hard to see that Marathon was looking at a small overall budget. He added, though, that it was hard to figure what the comparison study on Calcort — the drug sold in the UK — would cost, as it’s not listed on clinicaltrials.gov.

Then there was overhead. Medicxi likes to run virtual companies, and he estimates that if this was their operation, they would reserve $2 million for overhead, plus $500,000 for external regulatory assistance. “They very probably had a larger team than we would have had, though,” he adds.

“So that comes to just over $6 million in total,” he notes in a breakdown, “which feels about right to me. If someone came to Medicxi proposing to deliver that operating plan, and wanted to raise $10 million to do it, we would think that was a generous, but probably not outrageous, amount of money. If anyone told me it would cost them much more than $10 million, then I’d laugh and say you must be doing it wrong!”

“Regarding your last question, I can’t of course estimate what the license to the efficacy data might have cost. That is, as you say, a wild-card. But if Marathon had come to Medicxi with this proposal and suggested a pre-money valuation of more than $25 million we would probably have walked away. Others might be more generous, but I find it hard to believe it was more than $50 million.”