By John Dodge and John Russell
April 7, 2002 | Highly publicized spats between pharmaceutical companies and their coveted early stage R&D partners are raising red flags in the investment community about the effectiveness and future of these collaborations, but many say such unions remain vital to drug discovery. For each heavily chronicled failure, there are a dozen more that seem to be working.
“Given the Bristol-Meyers Squibb-ImClone episode, we can expect pharmaceutical companies to look much more carefully at these deals. Increasingly, pharmaceuticals think that these biotech firms are too small, don't have enough expertise to manage clinical trials, can't throw enough people at product development, and don't know the FDA,” says Annette Grimaldi, managing director of health care for S.G. Cowen.
That grim assessment may be an overreaction to the messy ImClone-BMS affair, which earlier this year was cast as the poster child for partnerships gone awry. Companies entering into deals have been deftly carving responsibilities and more equally sharing the risk. Typically, biotechs perform early-stage drug target identification and leave the bulk of clinical trials, marketing and later-stage development to the pharmaceutical companies.
For instance, Vertex Pharmaceuticals Inc. has deals with GlaxoSmithKline and Novartis AG that it considers model relationships, according to Iain Buchanan, vice president of the Cambridge, Mass.-company’s European operations.
“The Novartis partnership is based on finding multiple drug candidates over several years, whereas many of the ones before it were aimed at finding candidates for single drug,” Buchanan says.
Under the six-year agreement, which is not quite two years old, Novartis pays Vertex more than $200 million in direct research costs and another $600 million in license fees once certain milestones are reached. In exchange, Vertex is charged with discovering eight clinically and commercially relevant drug candidates.
With partners GlaxoSmithKline and Aventis Pharma, Vertex also has several drugs in clinical trials and in pre-clinical stages. Its partnership with GlaxoSmithKline is the only collaboration to yield a marketable drug, which is a protease inhibitor for fighting HIV called Agenerase. A second generation of the drug, as yet unnamed, is currently in Phase III clinical trials.
CuraGen Corp. of New Haven, Conn., and Bayer Corp. both claim they could not be happier with each other after just finishing the first year in their 15-year, $1.4 billion pact to find therapeutics for obesity and diabetes. Both sides vigorously resist comparisons to ImClone and BMS.
“The BMS-Imclone relationship was for a relatively late stage product. Bayer is thinking long term in working with us, and any benefit is way down the road,” says Chris McLeod, CuraGen executive vice president. “You need to look at these as relationships as opposed to one-off negotiations trying just to get your best deal. You need to set the stage for a win-win relationship.”
Werner Kroll, vice president of technology collaboration for Bayer, the American subsidiary of Germany’s Bayer AG, echoes McLeod’s assessment.
“We are looking over the whole range of research and development, not just jumping in at a very late stage. We generate something together where there’s complimentary resources and skill sets. Bayer brings in developing and marketing plus the chemistry. CuraGen provides the genomics-based technology,” Kroll says.
But the real test of the CuraGen-Bayer relationship will be yielding marketable drugs, which at this point is many years off. Progress so far is limited to the two companies announcing in January that CuraGen had discovered 31 molecule targets associated with obesity and diabetes that were accepted as high priority targets by Bayer.
“We credit the our excellent working relationship with CuraGen, which is resulting in the development of an early stage pipeline of innovative therapies," John Amatruda, vice president, department of diabetes and obesity research for Bayer, said in the January press release.
From a pragmatic standpoint, Kroll maintains an office at CuraGen so problems can be resolved quickly. What’s more, Bayer. research is based only a few miles away in West Haven, Conn.
Although Bayer leaves Curagen alone so it isn’t suffocated by its big partner, one key feature of their collaboration is shared risk. For example, $700 million in expected development costs are split 50/50, while profits will be shared from whatever hits the market from the planned 12 compounds the pair hopes to eventually bring into clinical trials.
Instead of buying CuraGen outright, Bayer opted for the arm’s length relationship, says Kroll. “What happens if a lot of key people leave? With this kind of contract, we share the risk and the reward, but still keep cultures apart,” he says.
Still, impatient investors want results now, and analysts remain skeptical about what these partnerships will produce in the long term.
"I hear people talk about the need for big collaborations between pharmaceutical companies and biotech firms, but I don't see big pharmaceutical-small biotech collaboration working. I don't think it's necessary for startups to have strategic alliances to be successful,” says Jonathan Fleming, general partner, Oxford Bioscience Partners.