Some weeks ago, IN VIVO Blog noted the odd coincidence that stocks of public biotechs who had done major pharma alliances had, on average, fallen since announcing the deals. Things have improved a bit since then -- the median gain, as of last Friday, is zero – but the phenomenon was still much on the minds of dealmakers at this week’s Euro-Biotech Forum in Barcelona. (We’ve updated the chart below).
True, as Genzyme SVP corporate development Stephen Potter noted, many of the biotechs whose shares had fallen since the deal had seen major projects hit clinical speedbumps, if not walls. He noted for example that Isis was down 18% since news of the deal because FDA wanted more data on mipomersen (for more see this IN VIVO article and this blog post) before it approved it in the larger cholesterol-lowering indication it’s aiming for.
OK. But after its initial rocket-launch trajectory, and well before the bad news from FDA, Isis’ stock leveled off at maybe 1% above its its pre-announcement level. That’s because, said Potter, investors recognized that the deal wasn’t as astonishingly rich as the initial press reports bragged. But theoretically it had to add some value, right?
So do deals bleed value from biotechs by taking out of their hands clinical and commercial control? Kinda sorta. It’s at least a concern on the minds of Big Pharma’s dealmakers, if only because it’s a concern of the biotechs with whom they want to do deals. And the result is that deals are going to get richer – in terms of downstream value accruing to licensers.
That will be almost inevitable. Lehman Bros vice chairman Fred Frank, who chaired a panel on project financing, noted that, within the broader biopharmaceutical industry, Big Pharma now has more than 90% of the cash and market value – but just a third of the products in the pipeline. The rest, he said, were in small companies and biotechs. To get back to 10% growth, noted Peter Corr, the former boss of Pfizer’s R&D and now a managing director at project financier Celtic Therapeutics, Pfizer will need to deliver 8.6 new products per year (11 according to Fred Frank).
Meanwhile, with patent life draining out of blockbusters – different Euro-Biotech speakers used different numbers, all extremely large, to describe the cliff (we go with a relatively moderate Cowen estimate: Big Pharma will lose to generics $58.2 billion in US sales between 2008 – 2012) – the capital-rich, pipeline-poor companies will have to make the deals they have to with the capital-poor, pipeline-rich biotech world.
That’s why virtually all the Big Pharma speakers at Euro-Biotech stressed the flexibility of their dealmaking. Jose-Maria Romero, head of late-stage dealmaking at GlaxoSmithKline, rattled off a laundry list of structures the company had used to meet biotech’s needs to retain for investors the downstream value of their compounds (among them: options, pooling of assets, and co-promotion with and without profit-sharing) and to enable it to sign an industry-leading four late-stage deals a year (compared with just one per year for the next five most active companies, he said).
Sharing commercialization rights was hardly a Big Pharma preference but they’re squarely on the table – as are regional deals for players for whom global deals might have once seemed prerequisites, like Novartis, noted Corinne Savill, that company’s head of search and evaluation. Even indication splitting isn’t unthinkable, despite the chances that problems in the data from one company’s trial could affect the progress of the other’s.
Ultimately, indeed, some of the industry’s biggest successes involve shared commercialization and development: the shared products of Roche and Genentech, for example, noted Roche’s head of Surveillance and Analysis Andrew Jefferson, or Erbitux, developed and marketing in North America by ImClone and Bristol-Myers Squibb and in Europe by Merck Serono, noted Gary Buell, that company’s head of search and evaluation.
If joint programs are hardly the most efficient ways to develop drugs, they at least offer a path forward that keeps some control in the biotech’s hands – and gets Big Pharma the assets they desperately need.
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