Catching a Big Pharma Partner
DEAL FLOW · Biotechs learn to squeeze value out of hot product deals when choosing a suitor
BY MALORYE A. BRANCA
Most biotechs only ever dream of having dozens of suitors clamoring for a partnership. However, as the demand for late-stage products grows, a handful of smaller companies have found themselves in that enviable position, and it calls for a dramatic switch in strategy.
When Icos set out to find a development/marketing partner for its Phase II erectile dysfunction (ED) compound in the late 1990s, "We had so many suitors it's hard to remember the number," says Gary Wilcox, the company's executive vice president of operations. Pfizer's spectacular launch of Viagra had opened up a lucrative new market. As word of Icos' drug's potential spread, at least 40 companies expressed interest in a partnership.
When Icos sent out its own bid sheet to the final contenders, Wilcox recalls, "Some companies said, 'We don't do bidding. We'll send you our proposal.'" Those firms probably expected most of their competitors would do the same thing. Lucky for Icos, others said, "We understand, this is an auction," Wilcox says.
That willingness to change the rules of the game helped allow Lilly to win the battle for tadalafil (Cialis). Icos wanted a 50-50 joint venture around the compound to ensure the program would be sustained and to allow it to become involved in the drug's marketing. They were key ingredients in Icos' plan to become a fully integrated pharmaceutical company in its own right.
Lilly is happy, too. "Cialis has filled an important need for us," says Mark Barbato, executive director and global product team leader for Cialis. "It is a new technology, and we have been trying to pursue innovative compounds." Cialis grabbed 20 percent and 30 percent of the U.S. and European ED markets, respectively, in its first six months after launch, quickly overtaking Levitra.
When Array BioPharma was looking for a development partner in late 2003 for its program in MEK inhibition — a popular new target for cancer drug development — CEO Robert Conway recalls "nobody was turned off" by the bidding procedure. "This is the normal course of events now," he explains. When a biotech takes control of the partnering process, "it actually validates [prospective partners'] interest further."
At the time, Pfizer had a similar compound in clinical trials that was doing well. "If one big pharma is making progress against a target, it gets everyone's attention," Conway says. "Management starts asking, 'Why don't we have one?'"
Conway's team contacted a dozen prospective partners, but half wanted to evaluate the proposal further. Array began negotiations with several companies simultaneously, before settling on AstraZeneca.
The Right(s) Stuff
This was the first major program Array had out-licensed, so it was important to get it right. Besides looking for a good deal economically, Conway says, "We wanted to retain rights to all other indications outside of oncology, and we wanted a partner that had an outstanding reputation with cytostatics." The final deal provided both. Besides nabbing a top-notch oncology partner, Array collected a $10-million upfront payment, with more than $85 million in potential milestone payments.
Actelion's management team is largely made up of former Big Pharma staffers. So, when they found themselves holding a hot new set of leads, they knew exactly what to do. "We held a beauty contest," says Roland Haefeli, vice president and head of investor relations and public affairs at Actelion.
Having developed a new class of renin inhibitors, Actelion set out to make the most of it. "It was much easier because we had a validated target," Haefeli says. "Everyone knows the effect of a consistent drop in renin." Usually, biotechs and pharmas are negotiating around much murkier concepts.
The beauty contest drew "all the pharmas that populate the planet," Haefeli says. Merck won the bid, offering $10 million up front and an enticing $262 million in potential additional payments just for the first product. The companies are jointly developing the compounds involved, with Merck leading the commercialization effort while Actelion retains the option to co-promote any of the products. Actelion can build up a sales force with Merck paying the tab.
These deals don't happen every day of the week. "It's highly unlikely we'll ever see such a deal again," Haefeli says. "People have been looking for renin inhibitors like this for 20 years." But for companies that can swing them, every detail in such a deal can make a big difference down the road.
ILLUSTRATION BY STEVE ADAMS