BUSINESS Merck, ^anni explained, still holds fast to its in-house development efforts but al so realizes that partnering with biotech firms ensures strong research capabilities. To this end, the company has recendy refined and significantly accelerated the negotiation process for alliances, making the voyage from first meeting to signature happen in two to five months with senior management committed to timely decision-making. At validation deal signed in 2002 between the same time, deals have become more ex GlaxoSmithKline and Exelixis that opened pensive and the jostling among big drug the door to therisk-sharing,value-sharing companies for partners, more competitive. kinds of agreements seen currently, he ex "Partners tell us about the other deal offers plained. Roche and ArQule signed a deal they have on the table," Yinni said. this year with terms that can be canceled In one alliance outlined at the session, it very quickly, McCully said. was the technology platform at the biotech Christine Rschette, executive director for firm Sequenom that caught the eye ofProcter & Gamble Pharmaceuti global business development cals. Sequenom has DNA andlicensingat Novartis, said analysis capabilities to do during the partnering session whole-genome scans and that ^igpharma/biotech col comparative sequencing. laborations are the future of iC We are interested in that ap the industry" At the same proach," said Don Lucas, time, deals must be tailored who is responsible for world to the needs and interests of wide strategic alliances, dis both partners in terms of covery, and early develop funding and control, gover ment at P&G. "They are nance, noncompete agree good at genomics, and we are ments, intellectual property and exit provisions. "Deal complexity is ris good at drug discovery" he said, joking that ing," she said. While product failure can sink the public may not be familiar with the drug an alliance, it is not the only stumbling block. discovery division of the "soap company" Poor communication between partners is often "the stone around the neck ofthe deal," ESSENTIALLY, Lucas said, P&G is build Rschette said. ing a medical business out of its core "We are very open to partnering, now detergent franchise. In particular, bisphosmore than ever," said Barbara Yanni, chief phonates have grown out of the chemistry licensing officer at Merck. New areas of of creating soapsuds to reveal their poten interest for Merck are diabetes and on- tial for osteoporosis treatment. P&G's Actonel (risedronate sodium) is a bisphosphonate that regulates bone metabolism. Fosamax (alendronate RISK HEDGING sodium) by Merck and Aredia (pamiEarly-stage biotech/pharma deals make a comeback, and milestone payments rise dronate disodium) by Novartis are oth er bisphosphonate-based osteoporo $ Millions, on average _ _ sis medications. 80 I • 1989-91 1992-94 ~i 1995-97 P&G is not interested in expanding I • 1998-00 2001-03 in the crowded space of current treat 60 - — - - ments, Lucas said. The ideal drug can 40.L didate would be a small molecule that promotes bone growth and has a pro file "better than a bisphosphonate." P&G had identified this strategic need Up-front R&D Milestone Equity internally when Sequenom approached SOURCE: Recombinant Capital it with an idea for an alliance. A $30 million collaboration ensued and has cology She explained that one-third of the been in place for six months. The compa company's revenue is attributable to li nies are currently working on expanding censed products and patents. To date in genomic validation of targets and expect 2004, Merck has signed 26 deals and has three tofivecompounds to be ready for in more than 40 in the pipeline for the year, vivo validation experiments soon.—VIVI EN compared with 47 deals for all of 2003. MARX
PARTNERING GOES BACK IN TIME
Early-stage deals, once the norm for biotech/ pharma alliances, are making a comeback
T
HESE DAYS, IT SEEMS, EARLY-
stage biotech/pharma alliances are making a comeback. At IBC Life Science's 9th Annual World Con gress on Drug Discovery Tech nology meeting in Boston earlier this month, a special session on business strategy and partnering offered a peek behind the stage in an industry with few backstage passes. While the total number of deals be tween biotech and large drug companies remains steady at approximately 450 per year, today's deals more closely resemble the way business used to be done, said Michael G. McCully, director and senior analyst at the consulting firm Recombi nant Capital, who chaired the session. At the turn ofthe millennium, optimists believed that having a gene was almost a surefire way to a drug. Biotech companies, flush with money after accessing the capi tal markets between 1999 and 2001, were able to push drugs into Phase II and III clin ical trials on their own. They partnered with pharma companies seeking to license drug candidates at these phases, and thus deals of the late-stage variety blossomed. McCully calls 2002 the year of the late-stage deal. However, those alliances were oriented toward blockbuster drugs, and they "are all bust," he said. "None of them deliv ered any compounds." So companies are now returning to discovery-stage part nerships of the type that prevailed be fore the genome boom. The hard reality of early-stage deals is that the vast majority of them will fail, McCully said, yet when executed well they can work for both partners. The bust has made large drug companies cau tious, and hence they are finding tools to hedge theirrisks.That hedging might take the form of structuring deals with equity, loans, or convertible bonds, a set up, McCully said, that "stimulates biotechs into behaving." As McCully watches alliances take shape, he sees up-front payments rising. In general, however, alliances are being formed with better defined chapters. They are more loaded on the back end with mile stone payments that govern relationships. It was a six-year drug development/target HTTP://WWW.CEN-ONLINE.ORG
Deals are more loaded with milestone payments that govern relationships.
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