At the FT Global Biotech Conference, held
in London, November 12-13 2003, licensing deals were a
popular topic. As discussed in the first of our series
of reports from the conference, staying afloat long enough
to make a profit is a major challenge for the vast majority
of biotechnology companies, and licensing deals with 'Big
Pharma', or indeed larger biotechs these days, are an important
option.
But many things can go wrong, and the importance
of choosing the right partner, and getting the right terms,
was a point driven home by a number of speakers.
Antisoma and Roche - so far so good...
Glyn
Edwards, CEO of Antisoma, said the markets were closed
to his firm at the time of its (so far) successful
deal with Roche, in November 2002. As part of this alliance,
for its cancer drugs, Antisoma received £27.3 million
from the Swiss giant upfront - more than its market capitalisation
at the time. This allowed Antisoma to participate in Phase
I/II trials, gave access to Roche's oncology expertise,
and reduced both Antisoma's cash burn rate and risk to
shareholders.
Edwards stressed that while licensing deals
can bridge gaps from venture capital financing, it was
important that licensors made sure they got a decent share
of revenue. This point was highlighted by Christopher Evans,
Chairman of Merlin Biosciences, who used the example of
Cambridge Antibody Technology's deal with Abbott for its
rheumatoid arthritis antibody, Humira.
...but CAT and Celltech face problems
Sir Chris, who hoped that CAT would be successful
in its litigation against Abbott for higher royalties (still
only in the mid single digits), noted that in order to
get back the normal expected 2.5 times return on its $200
million investment in Humira, at the current rate of royalties
to CAT Abbott would have to sell $50 billion worth of the
product.
The venture capitalist remarked that management
was under constant pressure to make money and that Big
Pharma could dangle attractive carrots - biotechs just
had to make sure the small print didn't come back to haunt
them.
His and other comments appeared prescient
when news broke shortly afterwards of Celltech's problems
with the deal for CDP
870, its own RA antibody, with Pfizer: originally signed
with Pharmacia in 2001, it was then the largest deal in
the EU biotech sector, with Celltech said to be set to
receive a very high level of royalties, possibly 40%. News
of the setback led to rumours that Celltech, an aggressive
acquirer under the leadership of conference speaker Peter
Fellner, could itself now be a bid target.
Playing for high stakes
Timothy Wells, Senior Executive VP of Research
at Serono, remarked that his company reviews 500-1,000
licensing opportunities each year. According to Edwards,
cancer and CNS are the most competitive areas for deals,
with an average upfront payment now in the region of $110
million for a Phase III product in the US.
Although
Phase IIa is perhaps the key stage for signing a collaboration,
there is no “right time” for
a deal. Celltech CEO Goran Ando said some companies only
did the minimum R&D needed to gain a partner, which
could lose time in the long run, while Thomas Hofstaetter,
Senior VP of Corporate Development at Aventis, noted that
the success of a product wasn’t really known until
Phase III results were available.
Ando,
formerly President of R&D at Pharmacia,
said some biotechs viewed Big Pharma as “dinosaurs” on
their way out. This was far from being the case, and he
and others warned the smaller companies to treat their
customers with respect. Ando also noted that licensing
deals had a natural ceiling: in some cases, it would be
cheaper for the potential licensee to buy the whole company.
Johnson & Johnson is one firm to follow this path,
snapping up the likes of Centocor and Scios, while Lilly
recently announced a merger with Applied Molecular Evolution.
Products now key
Bernd
Seizinger, CEO of GPC Biotech, noted that Big Pharma
was now less willing to invest in early-stage
technology, and that this type of agreement has become
smaller. As Martyn Postle, Director of Cambridge Healthcare & Biotech,
remarked, research is now far more productive - development
is the problem. Nowadays, even a $1
billion product is only marginally attractive in some
therapy areas, so biotechs with small products can face
difficulties in finding a partner.
In
a discussion, the issue of personnel and their impact
on licensing agreements was raised. As
the Chair George Poste noted, business development units
were often used as “dumping grounds” for poor
personnel in the past. Now, as licensing is so much more
important, why not incentivise staff? Postle agreed, and
wondered why licensing wasn’t seen as a career stepping
stone on the way to CEO. One downside of out-licensing
deals not being viewed as career enhancing for pharma executives
is that smaller potential products are often left on the
shelf.
Priorities differ
Many
speakers stressed the importance of due diligence: half
of all licensing deals fail. There
are a myriad variations of licensing agreement, and speaking
for the smaller biotech, Edwards said they had to be careful
that partners wouldn’t progress internal compounds
using their data. Aventis’ Hofstaetter, on the other
hand, remarked that some licensors expect their products
to be given higher priority, and that agreements were becoming
more and more complex with, for example, non-competition
clauses: these could cause problems if they wanted to prevent
the licensee working internally on e.g. an entire family
of enzymes.
On the plus side, licensed-in compounds do
have a slightly lower attrition rate, possibly due to the
higher scrutiny and development hurdles they face, or the
fact that larger companies may progress some in-house products
just because they are available.
Postle’s organisation ran a survey
ranking the top 20 pharma firms as licensing partners.
While the results were anonymised, Postle did reveal that
Bristol-Myers Squibb came out as the best partner, and
Abbott was viewed as the worst. These two companies’ rankings
were actually out of step with their stated strategies,
whereas other companies were more in line: Abbott, Aventis,
Pfizer, Roche and Wyeth have all said they will grow through
deals; AstraZeneca, BMS, GlaxoSmithKline and Novartis will
balance both licensing and in-house development; and Merck & Co
believed in its own R&D.
At
the recent Reuters Health Summit, however, Merck CEO
Raymond Gilmartin said his company was turning
a "friendlier" face to biotechs, as it wanted
to take advantage of their science. In 2003, Merck signed
40 research collaborations, compared with 10 in 1999, and
has another 70 under consideration: Gilmartin's comments
came after Merck scrapped two Phase III programmes.
Overall,
licensing is certainly seen as growing in importance,
not least due to the paucity of some pharmaceutical
company pipelines. In 2001, licensed-in products accounted
for 16-20% of the top 20 companies' revenue: by 2007, this
figure is expected to reach 40%.
This article was written by Selena Class,
Deputy Executive Editor of IMS
Company Profiles. IMS
Global Consulting regularly assists its pharma
and biotech clients with their licensing activities. It
has worked with several companies in the identification
of attractive licensing candidates, using its extensive
information sources on R&D projects and marketed drugs
and its disease area expertise. Some of these companies
have gone on to successfully in-license candidates that
we short-listed. It has also helped companies identify
potential partners for licensing-out or marketing/promotion
alliance purposes and has helped clients with the benchmarking
of deal terms.
For further information, please contact Carole
Jones or Kevin
Bibby . |
