SAN DIEGO – Early stage companies focused on regulatory milestones would do well to pay equal attention to the changing reimbursement concerns, said panelists representing their potential future backers and buyers at the BIO 2014 convention. More than ever, investors are looking for reassurance that if and when a product reaches market, it will make its way on to managed care formularies, a key element in achieving return on investment.

"Over the last six or seven years, we've seen a dramatic change in where the burden is place in terms of understanding the reimbursement landscape," said Stephen Butts, president, chief operating officer and co-founder of Aerial Biopharma LLC, a company that sold rights to its narcolepsy program to Jazz Pharmaceuticals plc. "From a start-up standpoint, we need to have answers for the larger companies. They're looking for any opportunity to throw things out as they do their initial screens." (See BioWorld Today, Jan. 14, 2014.)

"As a small company, you want as much third-party information as you can gather so that when you're in a discussion with Bayer [AG], you can lean forward and say, 'We've talked to people about this.'" said Butts. Although any potential partners are going to do their own research, not having done one's own research means not being able to respond to challenges, he added.

While figuring out who are going to pay for a new drug and how they'll pay for it used to be an exercise reserved for the end of phase III trials, "those days are as dead as the dodo," said Chris Seaton, senior vice president for negotiations at Bayer Healthcare LLC. Seaton wants to know what package of benefits will make a new drug a success, not only because reimbursement issues can make or break profitability, but also because when a company works those issues out, it signifies a certain level of confidence-building validation.

"It used to be that novel was a good word," Seaton said. "Now I don't care if a drug is novel or 50 years old. My question is, 'Does it work, can I protect it, and does it have a value proposition that's going to allow me to make money on it?'"

Talking to regulators in both the U.S. and UK early on is crucial, Seaton said. "They can be your worst enemy or your best friend," he conceded, but reaching out to them is relatively cheap and immensely important to making one's case in negotiations. "We're looking to do global deals," he said.

Niall O'Donnell, a principal at Rivervest Venture Partners LLC, agreed with Seaton, suggesting that companies reach out to the UK's Medicines and Healthcare products Regulatory Agency (MHRA) as early as possible. "The MHRA will invite you in for tea and biscuits," he said. Together with the FDA, "these are the guys who are going to get your drug approved," he reminded the audience. Moreover, the panelists noted, U.S. and European regulators are in constant contact and what one body does will have an influence on the other.

"It used to be that companies came through the door and the attitude was 'build it and they will come,'" said O'Donnell. Today, opportunities must have a reimbursement story. "Now we ask, 'Where's your primary market research. How do you talk to payers?' If you haven't done that, you're not going to get acquired."