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Quick Background

-Compound

Elagolix is a GnHR antagonist in phase 3 clinical trials. The compound was discovered by a team at Neurocrine Biosciences (NASDAQ:NBIX) as a possible future treatment for endometriosis. It has other indications currently in clinical trial including uterine fibroids and oncology.

-Deal

June of 2010, Abbott (NYSE:ABT) which later spun off into Abbvie (NYSE:ABBV), bought the rights to develop and commercialize Elagolix. Under the terms of the agreement, Abbott made an upfront payment of $75 million. Abbott Agreed to make additional development and regulatory based event payments of up to $480 million. Commercialization events based payment could make it an additional $50 million in addition to a percentage of worldwide sales.

-Clinical Trial of Elagolix

The Neurocrine Biosciences' phase 3 compound Elagolix was well tolerated in phase 2 clinical trials. While its primary endpoint for endometriosis is a very subjective one in "pain," the end point was something worked out between the FDA and Neurocrine. It did show on a statistically significant level that it relieves pain associated with endometriosis. Bulls and bears alike believe this drug profiles pretty well from safety standpoint. GnHR analogs and antagonists are pretty well understood by scientists. Its phase 2 data showed limited adverse effects beyond the placebo with the expectation being some menopausal like symptoms commonly associate with these types of drugs. These symptoms are already experienced by users of Lupron another compound used to treat severe endometriosis. The experts I spoke with, and I, believe the compound has a very good chance of meeting its endpoints and receiving FDA approval. The question then becomes does the drug have commercialization potential.

In order to discover whether Elagolix might be adopted as part of the therapy for endometriosis I went on field study of women's health clinics and departments to see what ob/gyns, physicians assistants, and nurse practitioners are using to treat endometriosis, and ask them about key adoption characteristics. In addition to unearthing market needs, I spoke with some key opinion leaders in the women's health field to see if Elagolix provides health care professionals and patients what they need.

Channel Check Methods

The channel check used in this example was a 3 parts method in order to try to understand the adoption process and compare and contrast differences between researchers, clinicians, and sales reps. Through this paradigm I was able to view what researchers and expert believe what the market wants, what clinicians say they want, and how what a clinicians' wants might differ from actual prescribing behavior.

-Ride Along with Sales Rep

Physicians practicing have limited time and for the most part don't usually pick up a telephone to answer questions. They also expect high levels of compensation for their time and thoughts. This means using a secret shopper method to get their current treatment practices is extremely difficult.

To better understand the treatment adoption behavior of clinicians treating endometriosis, I spoke with a pharmaceutical salesman who specializes in selling compounds in women's health field. He gave me permission to ride along with him for a few days. The ride along method allowed me to get access to many different ob/gyns at the point of contact with the sales rep. It also allowed me to get extensive feedback and lastly it allowed me to get the sales rep's view of clinician prescribing behavior.

-Good measure expert opinion

In addition to the point of sale research, I spoke with researchers who are familiar with the specifics of Elagolix, and other compounds such as Lupron, in order to see if they believe the compound will be adopted for treating endometriosis.

Expert Opinion:

I spoke with a broad range of people on the viability of Elagolix including researchers who worked directly with the compound to people on board/committees who reviewed it independently. Overall the positive opinions were that they drug:

  1. Works in reducing pain
  2. Is well tolerated
  3. Can be administered orally

The negatives:

  1. Effectiveness is comparable with current treatments
  2. Cannot be taken intermittently
  3. Has similar side effects of Lupron in higher doses

My take away from the expert opinion was that Elagolix has a very good chance of being safe and meeting its primary endpoints; However, consensus, was its effectiveness when compared to current, already on the market, treatment options, wasn't overwhelming. This begs the question as to whether Elagolix will face limited market demand.

-Physicians treating Endometriosis

When possible, I conducted a back and forth interview with clinicians. Questions asked varied depending on the time and answers given. One consistency was that I asked every clinicians in the field what they are currently using for their first line treatment, their second line treatment, and what characteristics would make them adopt a new treatment. I tried to avoid asking them about severity because I didn't want to bias their answers. I wanted them to think endometriosis and think treatment option only (ie I wanted the first recall association with endometriosis)

  1. First Line:
    1. Majority: OCPs
    2. Other responses: Lupron, pain medication.
  2. Second line-
    1. Majority: No majority answer.
    2. Other Responses: Lupron, pain medication, surgery, and other progesterone treatments.
  3. Factors in adopting a new endometriosis-
    1. Majority: Cost
    2. Other responses: oral, effectiveness, side effects.

-Women's Health Sales Reps

This was a way to get a feel of how the actual sales and adoption process works. I only spoke to 5 sales reps for various lengths of time. One sales rep was the ride along rep with and we spent about 20 hours talking about his job and adoptions of new treatments in Women's health. Some major take-aways from these conversations were:

  1. Doctors are habitual. Sales reps mentioned visiting office purely as a means of trying to break their prescribing habits
  2. Physicians' face time is expensive

The Results

Through this ride along I was able to see treatment patterns, behavioral patterns, and overall adoption patterns. I was able to see the role costs and incentives played in treatment decisions. Unfortunately, my take away was that at every turn Elagolix will face challenges.

-Differences in Payer problem with Elagolix

During my ride along I spoke to physicians in different clinical settings. There was a pattern that emerged: community health clinics with public payers will not adopt treatments other than OCPs as first line. One physician joked: "When patients come in here for women's health issues' I'm giving them OCPs while still taking their temperature," facetiously saying that it's the first line for everything. He went on to say that it's frustrating treating women for pain since he really cannot do anything other than OCP and narcotics for extreme cases. Lupron is a "prior authorization" for these clinics and rarely approved.

Private clinics also mentioned costs as a factor in treatment although their answers varied a lot more. Even private payer hospitals and clinics for the most part said OCPs were the preferred treatment because costs.

-Surgery Incentive

Surgery such as hysterectomy is an alternative treatment and highly incentivized from physicians' perspectives. Surgeons in the women's health field can make significantly more money by performing surgery. This doesn't mean physicians are putting their financial desires above their patients' health but rather an extra weight into making a treatment decision. The fact remains that in order for Elagolix to be success, physicians would have to replace a current therapy which compensates them well, for another treatment that doesn't pay them. Financial conflicts of interest present themselves on a conscious and subconscious level.

Speaking to one ob/gyn surgeon about treatment options for endometriosis I received the response "Danazol," a treatment used during the 70s and 80s, which is out of favor because of masculinizing side-effects. He was familiar with Lupron but it wasn't in his immediate recall and only talked about it after it was brought up. I believe he has his patients' best interest at heart however I believe his incentives cloud his judgment. It's not as if a Laparoscopy surgery or a hysterectomy doesn't have its benefits.

The surgeons were quick to point out that it's effective and the only treatment that doesn't require constant therapy until menopause.

All sales reps confirmed the bias physicians had towards surgery. A pharmaceutical sales rep who sells a therapy for menorrhea, heavy menstrual bleeding, told me that a physician who is his good friend recommends surgery for this more minor condition. The sales rep said the physician never prescribes his drug despite their close friendship. Another salesman told me about a situation where she met a patient in the elevator who asked about her treatment pamphlet. Turns out the patient's treating physician never told her about alternative therapies and was recommended ablation before any therapies were prescribed. While these are just individual anecdotes, all these reps could point to this sort of situation, or could name multiple physicians when I asked "Do you have any evidence that physicians will push for surgery?"

-The Abbott Pricing Dilemma

About midway through the channel check process, it became clear that Elagolix would not be adopted over OCPs because of costs or over surgery because of incentives. This means the market for Elagolix will be limited to the patients currently receiving Lupron. But who makes Lupron? Abbott.

Lupron comes off patent in 2014 and Elagolix will probably come to market around 2016. Lupron however is a biologic. This means it's unknown whether or not it will face generic competition because of costs. If Abbott prices Elagolix too low, it will cannibalize sales of Lupron. If it prices too high, perhaps generic leuprolide acetate will hit the market and compete against Elagolix.

-Commercialize or not

Currently, with uncertainty over whether or not Lupron will face generic competition or if Elagolix will be priced right, Abbott will have to make a decision whether to ramp up a sales force to commercialize Elagolix.

Solving this equation is difficult and involves personal opinion estimates outside the scope of these research, however I did want to show the Abbott Pricing Dilemma.

(Lupron Sales - Lupron Costs)=Elagolix sales -Elagolix Costs- Royalty Payments -Commercialization and Marketing cost.

*Price of Lupron may or may not be affected by generics

*Lupron is a biologic and costs more than Elagolix a small molecule.

*Abbott's commercialization decision would not affect Abbot much but it will affect Neurocine.

Elagolix Compared to Other Treatments:

-Elagolix vs. OCPs

(click to enlarge)

While Elagolix might be more effective in treating endometriosis, OCPs will remain the first line treatment due to effectiveness in many cases, low costs, and minimal side effects. According to one endometriosis expert and Abbott consultant for Elagolix, about 80 percent of cases the patient will receive benefits from OCPs.

-Elagolix Vs. Prescription Pain

(click to enlarge)

While prescription pain medications would be the preferred treatment for patients suffering from endometriosis, according to many physicians I spoke with it's not always effective. In cases with narcotics, it can become habit forming.

-Elagolix Vs. Surgery

(click to enlarge)

Surgery seems like an extreme option but it does have its treatment benefits and is heavily incentivized in many cases. It will remain a very viable option for women who are not concerned about getting pregnant. Many times women with endometriosis have infertility issue as a result.

Outside of simply aging, it does remain one of the only treatments that addresses endometriosis on a permit basies.

-Elagolix Vs. Leuprolide Acetate:

(click to enlarge)

Elagolix would be the preferred treatment in a head to head battle with leuprolide acetate; however, there are still cases in which leuprolide acetate will be used. If costs are minimized is one example. If Elagolix is priced too high and Lupron faces generic competition, leuprolide acetate will probably receive more use due to the fact that so many field physicians mentioned costs as their number one reason for adopting a treatment for endometriosis.

Another scenario in which leuprolide acetate would become the preferred treatment is when compliance is important. The physicians I spoke with said that they currently administer Lupron in an appointment before surgery, in order to shrink uterine fibroids or to reduce uterine tissue. Many mentioned this as a time in which compliance would override the ease of oral since the doctor wants to have 100 percent compliance for sake of facilitating ease of surgery.

Counter Points to Abbvie's Consultants, and Neurocrine's Website Consultant's selling points

  1. The only treatment for severe endometriosis is Lupron-While many practitioners I spoke with called Lupron their first line for severe endometriosis, most say they try OCPs for even severe cases. (meaning their stated first line and their actual first line differ)
  2. Elagolix is Lupron without the reputation-The Elagolix bulls quickly brought up the bad side effects well known in Lupron. My field study supported this notion as 100 percent of the women's health professionals I spoke to giving Lupron were aware of the side effects. My research did however show that add back therapy is being used by most practitioners in the field. This different greatly from the Elagolix consultant who told me, "I must have spoken to the most informed ones." If all the practitioners knew about the side effects, and most already give add back therapy, I believe the selling point of "Elagolix is Lupron without the bad reputation" perhaps Lupron's reputation will improve by the Elagolix FDA submission date of 2016.

From Nuerocrine's Website

Addressable Population

  1. 7.5 million women in the US alone are believed to suffer from clinically significant endometriosis (Datamonitor)-While this is true, severe endometriosis can be treated in most cases with OCPs, an Elagolix consultant even told me it might be as high as 80 percent. Even if a patient has clinically significant endometriosis, if she doesn't have insurance, the cost factor will most likely exclude Elagolix.
  2. When diagnosed, 75% of endometriosis sufferers have symptoms defined as 'moderate or severe' (IMS Health, NDTI)-The severity of the endometriosis plays a role in treatment options however other factors such as costs, incentives, and side effects play a longer role.
  3. 10-20% of all oral contraceptive prescriptions are written off-label for endometriosis (IMS Health, Neurocrine market research)-Oral contraceptives cost pennies a day. Unless Elagolix wants to severely cannibalize the high compensation currently using Lupron market, it will not price itself to compete against OCPs.
  4. OBGYNs prescribe NSAIDs and opioids "off-label" to approximately 25% of their endometriosis patients-As with OCPs, it's unlikely that Elagolix can compete on a pricing level against these types of treatments.

Conclusion

While Elagolix seems to work better than many treatments on the market, it lacks the payer economics to make it a first line treatment for endometriosis. The fact that it cannot be taken intermittently and is limited to 3-6 month intervals, makes it less advantageous than OCPs and pain medication in many cases. Surgery is another treatment option which is the only permanent one when done correctly. This option is also highly incentivized by some of the treatment decision makers.

Overall most physicians see cost as the key factor in picking up a new endometriosis treatment. This means that overall the future market for Elagolix will probably be the market currently dominated by Lupron. Abbvie owns both Lupron and Elagolix which means it will have a commercialization and pricing decision if it is approved and if a generic leuprolide acetate hits the market. Right now there are a few different scenarios in which Abbvie might not even opt for strong commercialization efforts. After speaking with experts on the compound and seeing some of the future points of sale for the compound, I have become bearish. In the best case scenario, I see this compound as having peak sales numbers significantly less than the current market for Lupron.

Source: Neurocrine Biosciences: Elagolix-Channel Checks And Expert Opinion Reveal Small Market Size, Unfavorable Incentives