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Friday, June 20, 2008

Out-Partnering II: Self-Interested Sharing

In our last out-partnering post, we suggested the possibility that out-partnering could spur a wholesale change in business model, using Pfizer and the potential virtues of spin-outs as Exhibit A.

Today we turn to out-partnering as biotechs are learning to do it…and as, we (humbly) suggest, Big Pharma should too.

Take Alnylam, a biotech more than usually cognizant of the diminishing value of its core technology.

Alnylam’s strategy is to do everything it can to more durably asset-ize its RNAi platform’s temporary tech value. In terms of dealmaking, that’s largely meant selling the platform for cash (viz deals with Novartis and Roche) while RNAi technology is still rare. (In other words, before companies like Dicerna and maybe MDRNA catch up and dilute Alnylam's partnering value).

But more recently Alnylam's been selling the platform for money and potential products – the point of its Takeda deal (see our discussion here). Along with $100 million up-front and $50 million in near-term fees, Alnylam gets a reciprocal first right of negotiation on any project Takeda decides to shop in the US and more importantly, opt-in rights for 50/50 co-dev/co-commercialization deals in the US on up to four Takeda programs of its choosing (exercisable all the way through the start of Phase III).

Despite its sparse infrastructure, negative cash flow and infinite PE multiple – all hallmarks of biotech -- Alnylam is in fact acting kind of like a Big Pharma – providing value to its partner in return for downstream commercial rights.

Which leads to this question: why isn’t Merck doing the exact same thing with the RNAi platform it got from Sirna? Merck certainly knows it can’t possibly exploit all that technology itself, as does Alnylam, but it isn’t pursuing the logical next step, selling it to another company in return for downstream rights.

There are probably a thousand practical reasons for not doing it. Among them: Merck isn’t set up to do it; it's expensive; and technology isn’t really packageable. But the real reason is strategic habit. Drug companies do not share, even when it’s against their interests not to. Drug companies still believe that owning a broad swathe of discovery-stage territory confers on them some temporal or intellectual advantage, despite the fact that 99% of discovery programs will fail. Which means that if you’ve got the chance to let someone else farm some of that territory, you should.

If we were Emperor of Pharma (or if we were merely responsive to shareholders’ growing concerns that we were maximizing their research investment – or at least making it repay its cost of capital, which it most probably isn’t) we’d get cracking on figuring out which companies might, in exchange for downstream product rights or perhaps some other valuable trinket, be interested in playing with our discovery toolkit. Might not be too radical, for example, for GlaxoSmithKline to maybe open up a sirtuin target or two to Pfizer (whom we understand though cannot confirm made a last-minute bid for Sirtris). Or maybe Bristol-Myers Squibb could more profitably exploit its adnectin platform, acquired with Adnexus, by letting someone else take a crack at it.

Keeping their new technologies to themselves, GSK, Bristol and Merck aren’t going to get a dime back on these early-stage investments for years – in the best case. Maybe never. Seems to us the more sensible approach would be to structure some out-partnering deals that increase the likelihood that something will come out of these technologies, and, as Alnylam has done, secure a share of any lucky results.
image from flickr user furiousgeorge81 used under a creative commons license.

6 comments:

Anonymous said...

It is clear from this short article that it is written not from a scientific and thoroughly researched perspective, but rather a purely statistical hindsight view of biotech in general. Thus, the authors apply the average of what biotech has done in the past to demonstrate what one company will conclusively do in the future. Way to go out and not bother to look past the haze on the windshield guys. Good luck with your investments and your readership...

Anonymous said...

Portraying the monetization of your platform technology with more than $700M in realized funds, as a failure of your business model and a reflection of the weakness of the underlying technology, shows lack of company and scientific analysis. Also, putting Alnylam and Merck on par with regard to technology and IP strength reveals little understanding of the space. One would almost have to come to the conclusion that you are somewhat jealous of the attention that RNAi has garnered.

Anonymous said...

Embedded in your article there appears to be an assumption that the IP Merck acquired when it purchased Sirna is roughly on par to the IP that Alnylan possesses.

I think that would be an inaccurate assumption. Perhaps one of the reasons Merck hasn't licensed the IP it owns is that it is an incomplete package.

Remember, Merck had a license with Alnylam which was terminated by Alnylam after Merck's purchase of Sirna and subsequent challenge of Alnylam's Kreutzer-Limmer patent.

I believe Merck does not currently have freedom to operate in the field... much less issue a broad license to others.

Anonymous said...

There is such a flawed premise in this article and so many misconceived assumptions, it actually scares me that people out there might read what is written here.

Anonymous said...

I couldn't agree more with Roger on his recommendation that Big P acquirers of platform technologies (eg, BMS/Adnexus; GSK/Domantis, etc) "lend out" the technologies for targets they will never, never prosecute. Now way can a single Big P take full advantage of the platform. I base this view on many years of experience inside of a few Big Ps who did acquire platforms. And one has to believe that the core technology will be significantly enhanced in the hands of a committed Big P organization, such that the sublicensees will be even more confident of success for their programs. And surely creative BD folk can craft deals where they get quids or a piece of product rights going forward. As I used to say, usually to the deaf ears of sr. management, a percentage of something is bigger than a 100% of 0.

Pete Shuster said...

I have experience with marketing and supporting both "antisense" and "siRNA" based platforms for drug discovery. I am finding my customers using siRNA with lipid based transfection kits are successfully doing gene expression studies both in vivo and in vitro.

"siRNA" is working where "antisense" failed. So the question is it a viable platform? If it is, there is room for companies like Alnylam or Dicerna (who have an exciting 27mer DisRNA technology as part of the platform) to generate great returns for investors.

Worst case, they perform like Isis Pharma, who in spite of the limititation of antisense, still has great potential to deliver meaningful returns to its investors.