COVER STORY
LOOKING FOR VALUE Biotech firms, such as antibody specialist Cambridge Antibody Technology, are looking beyond standard licenses to thoroughgoing research and marketing collaborations.
THE PARTNERSHIP PUSH The value of alliances between drug majors and biotechnology firms has shot up, with a renewed interest in early-stage deals RICK MULLIN, C&EN NORTHEAST NEWS BUREAU
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partnerships are basically marriages of convenience: Drug companies need products and technologies, and biotechfirmsneed money and help with clinical trials and regulatoryfiling.Recent trends, however, hint that although these practical incentives are still big drivers, a more farsighted approach to deal making is starting to emerge. One indication is big pharma's renewed interest in early-stage deals, those involving biotechs with interesting technologies whose most advanced candidates have yet to enter Phase II clinical trials. Of
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course, our cynic would say this renewed interest stems from the premium now paid for late-stage compounds, given their scarcity and the competition to snap them up. It is not as easy, however, to explain away the nuances in the structure of deals, which increasingly call for collaboration in the lab and a more detailed regimen of risk sharing from discovery through commercialization. This desire for closer cooperation has pushed the potential value of deals, including milestone payments and royalties, to an all-time high. The U.S. biotechnology industry generated revenues in excess of $15 billion last year through partnerships, up from about $11 billion in 2004, according to Burrill & C&EN
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COVER STORY Co., aventure capital firm that specializes One indication of the spike in partner in biotechnology. ship activity occurred in December and In fact, many in the industry now refer January when two drug companies, Asto a buyer's market for biotech companies traZeneca and Wyeth, had big runs on seeking partnerships. "They have these big companies lined up outside ACROSS THE BOARD their doors, and they can compare There is no clear preference for early- or late and contrast," says Barbara Yanni, stage development deals vice president and chief licensing of ficer at Merck. "They want to see our Average total deal values, $ millions development plan for their molecule 160 Γ 2003 and our plan to sell their molecule. 20 «2004 We take that very seriously." 2005 The current partnership environ 80 ment has its roots in 2000, when the stock market and drug companies 40 shifted investment away from com panies with unproven technologies to those with products in the later stages i S of development. Such firms, however, turned out to be in short supply Mark DeWyngaert, senior manager in the Stage of development health sciences practice at Ernst & IND = Investigational New Drug. NDA New Drug Application. SOURCE: Burrilt & Co. Young, says there is now a shift back to early-stage investments in the wake of high prices for late-stage deals and lessons partnership deals. Both firms' strategies, learned by drug companies regarding the though somewhat different, illustrate cur need to be involved in drug development. rent thinking across the sector. "The big pharma companies are the ex In the late 1990s, AstraZeneca man perienced partners in these transactions," he aged the integration of Zeneca and Astra says. "They have a lot of experience with the Pharmaceuticals without making signifi Food & Drug Administration." Several big cant changes in the traditional medicinal drugmakers saw drug candidates that were chemistry approach to research and devel managed in the clinic by inexperienced bio opment, according to John Patterson, the tech partners sent back for months of repeat firm's executive director of development. testing. "The big pharma companies want to Since then, however, the need for change get involved earlier on to guide the project has become apparent. now," DeWyngaert says. "They've learned "Science has been mushrooming in the some valuable lessons." outside world," he says. "We can no Ion-
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ger expect to stay at the forefront of ev erything with internal research. And we do have a pipeline weakness. We are out there, like many others, looking for good opportunities." He says the company has commit ted to an "ongoing externalization process" that at the turn of the year led to partnerships with Targacept, on a compound in Phase II clinical trials for treating Alzheimer's disease and schizophrenia, and with AtheroGenics, a small-molecule drug discovery company. In addition, last July As traZeneca formed an early-stage li censing and research agreement with Avanir to discover, develop, and com mercialize treatments for cardiovas cular disease based on Avanir's reverse cholesterol-transport technology. In that deal, Avanir will receive $10 million in up-front payments and may receive up to $330 million in develop ment and regulatory milestone pay ments plus royalties. Targacept will receive a $10 million up-front payment, up to $300 million in milestones, and royalties. In both cases, AstraZeneca will retain rights to develop and market drugs that emerge from the partnerships. Patterson acknowledges that AstraZen eca is interested in late-stage deals, but they are difficult to come by. "Of course we'd all like low-priced, low-risk, Phase III products with wonderful programs, but there are very few of them, and when they do exist, you end up spending top dollar," he says. Plus, working with partners in early development has unique benefits. "When
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COVER STORY small companies work with us," Patterson says, "we can optimize and get the right re sults instead of waiting another year to get the best molecules on the table." Meanwhile, Wyeth, which has a relatively well developed biopharmaceutical operation and bills itself as the world's fourth-largest biotech company, is targeting a 25% con tribution to revenues in 2006 from biopharma-based drugs, says Cavan Redmond, executive vice president of the firm's biopharma business. Partnerships have been a strategic thrust for the company. "We've been successful in biotechnol ogy by being able to go from discovery to development, manufacturing, and com mercialization on a global scale, with part nerships where partnerships make sense," Redmond says. Wyeth recently signed deals with biotech firms Progenies, Exelixis, and Trubion Phar maceuticals. Trubion, which has a rheuma toid arthritis candidate in Phase II clinical trials, will receive $40 million up front and can earn up to $800 million in milestones, plus royalties. Redmond acknowledges that Trubion's Phase II candidate was attractive, but in
describing the deal, he emphasizes access to technology and the drug discovery part nership. "We've been looking at a number of technologies and companies: the next generation of proteins or antibodies that
into research and business development. GlaxoSmithKline, which several years ago divided its R&D into seven Centres of Excellence for Drug Discovery, or CEDDs, last year added the Centre of Excellence for
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would allow us to have unique discovery tar gets and enable us to go after the market to meet unmet needs in a different way. That's where Trubion fits in," he says. Most other major drug companies make similar claims in regard to their in corporation of partnership and licensing
External Drug Discovery, an eighth CEDD that specifically targets access to outside technology through partnership, joint re search, and licensing. Merck, which has a reputation for a heavy emphasis on in-house innovation, has sig nificant outside collaborations dating back
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to the early 1980s, according to Yanni. During that decade, the firm formed the joint venture with Astra AB that produced the heartburn-treatment drug Prilosec, and it licensed its Fosamax osteoporosis drug from Italy's Istituto Gentili. More recently, Yanni says, Merck has stepped up efforts to access outside technology, but she says it has bucked the trend of pursuing late-stage compounds in favor of the technology-platform-based research collaboration. Last year, for example, it formed a partnership with BioXell, which specializes in drugs for urological and chronic inflammatory diseases, to develop TREM (triggering receptors expressed on myeloid cells)-targeted therapies for sepsis. As part of the deal, Merck will obtain rights to BioXelTs lead candidate, a preclinical compound targeting the TREM-1 receptor. BioXell received an unspecified up-front payment and can receive up to $150 million in milestone payments, including $55 million for the successful development of a first product. In 2004, however, Merck broke from form, doing six deals involving products in late-stage development. "We were able to satisfy ourselves that these were interesting candidates," Yanni says, "and we were happy to partner with those companies at the stage those products happen to be at." All are still in clinical development. THE CHANGING nature of alliances is also reflected in new business practices. For example, Roche set up a formal infrastructure for pursuing and managing partnerships five years ago, according to Nigel Sheail, global head of licensing. He says the group's formation reflects "a significant change in philosophy" in which partnerships have become more collaborative. "They are not just transactions to gain access to specific intellectual property," he says. "They have become collaborative relationships with long-term agreements to work in flexible ways to maximize the value of assets." He says a2005 deal with Maxygen to develop therapies for acute bleeding illustrates this new approach. The partnership includes codevelopment, cost sharing, and copromotional aspects that go beyond the standard licensing arrangement, in which the biotech partner is usually not involved in later stage developments and promotion. Roche and Maxygen agreed to codevelop recombinant Factor V i l a products for multiple indications including intracerebral hemorrhage and trauma. Maxygen will lead early-stage clinical development and will have the option of cofunding marketing activities, receiving royalties commensurate
with profit sharing. Maxygen, which could receive payments of $95 million in addition to royalties, retains rights to develop and commercialize subsequent recombinant Factor V i l a products for hemophilia. Sheail notes that Roche, like Merck, has prototype deals that date back many years. Best known is its long-standing relationship with Genentech. Roche currently holds a 557% stake in the company, and 10 products in Roche's pipeline stem from collaborative work with Genentech.
New ways of thinking about partnerships have heavily affected biotech firms. Cambridge Antibody Technology (CAT), formed in 1990, is a pioneer in the development of fully human antibodies. CAT existed on licenses for more than 10 years, CEO Peter Chambré says. These were standard licensing deals in which a big drugmaker supplied a target and CAT used its antibody technology to provide an optimized drug candidate. The pharma partner took over development, and CAT was paid royalties.
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COVER STORY lion in milestone payments. Medarex also In 2003, Chambré says, the company In 2004, Medarex signed an agreement would receive 45% of the profits on coprostarted vetting a list of six major drug with Bristol-Myers Squibb to jointly develop moted products in the U.S. plus royalties on companies interested in forming a more and commercialize an antibody therapy for sales elsewhere. The most advanced comcomprehensive partnership that included melanoma. The terms included a $50 milpound in the program, MDX-010, is codevelopment and comarketing. The in Phase III clinical tests. following year, it signed a five-year BUCKS VERSUS BANG alliance with AstraZeneca in which Medarex also recently signed a deal Biotech now outpaces big pharma AstraZeneca paid $130 million for a with Pfizer to produce 50 antibodies 19.9% stake in CAT. for research over the next 10 years. "If Number of approvals R&D spending, $ billions 35 Biotech Big pharma all the drugs they work on are successThe alliance, which focuses on inR&D spending ful, we could end up getting payments 30 flammatory disorders and respiratory Approvals of over $500 million," Drakeman says. diseases, specifies the initiation of a "But, to be fair, that would require a minimum of 25 separate programs; lot of success." the partners will split the cost. CAT has the option of copromoting one Although partnerships with big in five products launched from colpharma have evolved, Drakeman laborative work. sees even the more nuanced ones as driven by pragmatic considerations. Donald L. Drakeman, C E O of "Partnerships happen because both Medarex, which also specializes in ansides need badly what the other has tibodies, says biotech companies are in relative abundance," he says. leveraging their improved bargaining NOTE: Data for the 20 largest global pharmaceutical companies by position to form more comprehensive Michael Morrissey, executive vice market capitalization. Approvals include new molecular entities and exclude label approvals, combinations, and new formulations. Some partnerships. "Ten years ago, biotech president of discovery at Exelixis, has drugs developed in partnerships are counted in both categories. SOURCE: Ernst & Young companies were delighted to get any a similar view. Exelixis recently signed royalties on commercialized proda licensing agreement with Wyeth ucts, and they didn't necessarily get any," he involving compounds to treat metabolic lion up-front investment, half of which was says. "Nowpeople have 50% profit-sharing an equity investment giving BMS a 2.6% disorders and a deal with BMS based on plus post-commercialization milestones." cholesterol-lowering drug candidates. Both, stake in Medarex and a potential $480 mil-
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^^«^ππ^ίκηπττΐπτπΐτπτΗτπΐΐΐπϊ^ΐΒππ^.ιιίΕίπ Morrissey says, featured late-stage assets that fit well with the drug firms' pipelines. The company's most innovative partnership, afive-year-oldcollaboration with GSK on cancer drugs, is based on joint target discovery and development. Currently, 12 programs are in the works, and GSK has an option to license three compounds in Phase II.
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"THE COOL THING is that we retain ownership of the compounds that GSK does not select," Morrissey says of the alliance. "It's a great method by which GSK can augment its pipeline." The collaboration, he says, will also support Exelixis in its ambition to become a cancer drug firm. The partners have seven compounds in the clinic and expect to file three Investigational New Drug Applications this year. Like Morrissey and Drakeman, Joern Aldag, CEO of the drug discovery and contract research firm Evotech, sees partnerships directed more by the market than by any grand philosophy. In particular, he says the abandonment of early-stage technology companies by the venture capital community has created a bottleneck in recent years. Pharma companies, prompted largely by the competition for late-stage compounds, are conveniently footing the bill to keep early-stage development under way in the biotech sector. Evotech recently signed an agreement with Boehringer Ingelheim to expand their joint-venture development deal in central nervous system drugs to include those for metabolic disorders, influenza, and other therapeutic functions. Aldag describes the partnership as "success based," with research funding matching incremental costs and a schedule of milestones and royalties. "And if Boehringer Ingelheim doesn't progress a compound," he says, "we retain the intellectual property." Some would prefer the term "risk based" to "success based" to describe the more collaborative nature of pharma-biotech partnerships, but the general agreement is that a great deal of strategic thinking has focused in recent months on developing the necessary incentives to make deals work. Most of it, however, is done on a caseby-case basis and can be hard to generalize. "Deals have become much more complex," says Ernst & Young's DeWyngaert. There are many variables to the equation—codevelopment, comarketing, contribution of late-stage compounds, and marketing support agreements, to name a few. It can get confusing, and playing the cynic, DéWyngaert notes that there is always the big pharma model: "When in doubt, buy it." •
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