At EuroBiotech, Teva The Contender

We've long thought that the largest, most successful generics companies can teach big pharma a thing or two about efficiency and execution. After all, Teva's profit margins rival those of Big Pharma, and could soon surpass them on average(Teva's net margin was 21.8 percent in 2009 and analysts project it will be 25.7 percent this year, compared to 23.6 percent for Big Pharma's group average, according to a consensus analysis by EvaluatePharma, but that's another story).

In addition to efficiency, Teva also believes it can compete with Big Pharma in dealmaking and has chosen some of the most competitive, expensive therapeutic areas to make its mark—oncology, neurology and auto-immune diseases.

Teva's not the obvious choice in these categories. It isn't at all clear that the company is willing to pay top dollar for high-quality assets, and most of its deals to date on the innovative side have been small with tiny upfronts. Still, it seems to be making some in-roads.

According to Gerard van Odijk, president of Teva Europe, however, Teva has a slightly different profile compared with big pharma. “We are attractive because we are quick, and we make deals happen. And when we commit, that’s our deal in a particular area,” van Odijk told Elsevier Business Intelligence’s 17th annual Euro-Biotech Forum last week.

Teva derives about 30 percent of its revenues from branded products, a balance it aims to retain even as it moves to double revenues by 2015. To help maintain that ratio, van Odijk said the company is always seeking either clinical or preclinical partnerships with biotech companies and academic institutions in its areas of expertise.

“There is no lengthy process of debate: if it’s the right fit, the right product, you will get the right decision,” he said. Once its business development group vets an asset, a small group of its top executives signs off on the decision, including van Odijk and his North American counterpart, Bill Marth. Other potential advantages include a highly experienced intellectual property team, and a strong global marketing presence, he said.

That may resonant with biotechs, some of which appear frustrated by the dichotomy between Big Pharma's message, which is that it needs innovation, and its reality: many Big Pharmas striving for greater R&D efficiency, warn that each in–licensed program means a cut from some internal project, leading to higher hurdles to get organizational support for a deal and cautious and slower decision making.

For biotechs thinking about their products' future commercial support, Teva's presence in neurology is obvious, but it is also a leading oncology company in many countries through its generic oncologics, and its subsequent knowledge of the market, van Odijk pointed out. It now has three proprietary oncology drugs in mid-to-late clinical trials, all of which it gained through partners, including an antisense drug in-licensed from Oncogenex in December for $20 million upfront, a $10 million equity stake and up to $370 million in potential milestone payments, and a stem cell product, which is in Phase III for patients with haematological cancers and is being developed by a Gamida Cell-Teva joint venture.

Teva likes to see strong IP and in vivo proof of concept, and not necessarily toxicology studies, and is happy to consider either equity investments or licensing approaches to deals. “There is no one size fits all, we take a pragmatic approach,” he remarked.

With company acquisitions, it was no secret that Teva was interested in increasing its market share in southern Europe, Central and South America, and some Asian markets, he told the crowd. -- John Davis

Shameless Euro-Biotech Forum Promotion

Shameless. We think it's just shameless how some otherwise self-respecting bloggers, providing valuable, balanced, editorially-independent and intelligent industry commentary, lapse into the occasional fit of promotional madness.

Don't you? We mean, it's as if we were to use this space to plug our forthcoming Euro-Biotech Forum in Barcelona. There'd be plenty to say: the event, held June 29-July 1 in the classy Hotel Arts Barcelona, is simply the most productive partnering meeting out there.

That's why it'll be teeming with senior dealmakers, from Pfizer, GSK, Merck & Co., J&J, Sanofi-Aventis, AZ and plenty more, including the leading Big Biotechs and European mid-caps.

And as well as kicking off--or closing--their next set of deals, Euro-Biotech attendees will hear our own guru Roger Longman's view on dealmaking's new drivers, plus get to question our hand-picked panelists during discussions covering alternative biotech financing, and Big Pharma's risk-mitigating strategies in dealmaking. (If we were so inclined we could even link to the full schedule.)

That's not to mention presentations from leading European/US mid to large companies, acquirers, investors and private equity, and a couple of fantastic receptions. (Keen to come, know you'd be crazy not to? We happen to know where you can get great conference packages.)

You see? You see how easily it's done, this shameless self-promotion thing? Be warned. That it's easy is no excuse.

The Message from Euro-Biotech: Still More Dealmaking Flexibility from Big Pharma

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.

Phase II is the new Phase III

It's what you might call a slow news day for us so we figured we would dip back into our colleague Roger Longman's presentation from our Euro-Biotech conference last week. Roger's on vacation, see, so he can't stop us from pilfering his slides.

One of the points he emphasized during his talk and illustrated with some data from our Strategic Transactions Database is the idea that products that have cleared clincal proof-of-concept, i.e. the Phase II hurdle, are attacting the kind of deal dollars only seen previously for Phase III-stage products. The value of relatively scarce Phase III products these days is another thing altogether.

Taking a look at this phenomenon using upfront payments as a proxy for deal value, above, and you can see what we mean. So while those biotechs that excel at drug discovery can in fact sustain themselves by selling IND-stage candidates, which we pointed out last week, others can play on the next valuation inflection point at proof-of-concept.

Are Phase II deals a remotely new feature of the biopharma dealmaking landscape? Of course not. But the volume of deals for Phase II products has shot up in the past few years, and upfront payments are simply booming. A few recent examples include Novartis and Antisoma's deal around the oncology product AS1404 ($75mm up front), Bayer and Regeneron's deal on ex-US rights to Regeneron's VEGF-trap product in ophthalmology ($75mm u/f), and going back to last summer, Johnson & Johnson's ex-North America, ex-Japan deal for Vertex's hepatitis C protease inhibitor ($165mm u/f). Follow the links to a more detailed analysis of each deal.

Various pharma execs have chalked the rise in Phase II prices up to their own companies' inability to reliably and predicably get products through proof-of-concept themselves. This is excellent news for clinical-stage biotechs. A few, like CNS-focused Synosia, have set themselves up as proof-of-concept specialists, in-licensing compounds in preclinical or IND or even Phase I, shepherding them through a human efficacy trial, and licensing them on for a significant profit.

Live from Paris: Roger's dealmaking overview

Everyone was feeling a bit fuzzy this morning

Day two of our Euro-Biotech Forum opened up this morning with Roger Longman's dealmaking overview. One of the topics that Roger touched on was the increased specialization of biotech companies along the development continuum: Phase III specialists, proof-of-concept specialists, and--perhaps getting back to biotech's roots--discovery specialists.

The idea is to latch on to a particular and finite piece of the so-called value chain where investors can take advantage of an inflection point. Thanks to some of the astounding deal values we heard about yesterday this specialism is increasingly popular and undeniable profitable (when products work out--of course it's also a cheaper means of finding out quickly when they don't).

Below is a quick snapshot of the upshot for some of the discovery shops out there. Of course not all discovery companies opt-out at IND; some hang on to considerable upside. But the very idea that biotechs can subsist, and even thrive, as pure drug discovery purveyors recalls what seems to be a different, pre-FIPCO era.

Drug Discovery Pays

Welcome to Paris: take my drug ... Please

Mood lighting for the hot dealmaking topics panel

Windhover's Euro-Biotech Forum kicked off this morning in an overcast Paris with a panel discussion on deal structure and rationale. We'll keep readers apprised of the goings on here but most of the action as it were takes place behind closed doors, in the one-on-one partnering discussions.

The morning panel though, moderated by IN VIVO Blog's own Melanie Senior and sporting three pharmaceutical executives (Scott Myers, VP global strategic marketing with UCB, Nigel Sheail VP global head of licensing Roche Pharma Partnering, and Beverly Jordan VP Finance for Strategic Planning, AZ), gave us all a peek at the mindset of a few European in-licensors/acquirors at a time when the leverage in dealmaking sits squarely on the other side of the table.

Most of the panelists' comments about specific deals were just that--specific--and of the "if you've seen one deal, you've seen one deal" variety (AZ's Beverly Jordan went as far as to suggest that deals were like snowflakes, though we're relatively sure she didn't mean that they were small, cold, wet and disappear as soon as you catch them).

But accepting the premise that deal structures and the strategies that propel companies toward alliance or acquisitions are in fact unique, there are some more broad generalizations that can be drawn from our guests remarks.

More than ever Big Pharma (and smaller, medium-sized outfits like UCB) are comfortable in their roles as collectors and integrators of biotechnology products and technologies (snowball makers?). AZ in particular has embarked on a significant and deliberate externalization strategy going back to early 2006 (Beverly Jordan noted the MedImmune acquisition but focused more on an earlier important move, the takeover of alliance partner Cambridge Antibody); UCB's dual acquisitions of Celltech and Schwarz Pharma, we heard from Scott Myers, have created a force in mid-sized European pharma; and Roche is perennially near the top of the deals tables. When challenged that surely all that external spending might come at the cost of supporting in-house R&D, the answer was a resounding 'not necessarily.' AZ, said Beverly Jordan, has one of the lowest R&D spend-to-sales ratios in the industry, so there may be room to maneuvre.

Melanie set the scene with a dealmaking review, which mostly illustrated biotechs' increased leverage in dealmaking with the pharma counterparts (though, as she pointed out, part of the bump in 2007 figures is a reflection of intra-pharma dealmaking, in as much as Bristol-Myers Squibb remains a Big Pharma).

Trending Upward

It is mainly in response to the price of later stage deals, Roche's Nigel Sheail reminded us later, that preclinical and Phase I deals have soared in number and price as well. But upfront payments for later stage assets suggest there is still plenty of competition further down the value chain: the average upfront payment in licensing deals in 2005-07 for Phase II products was $41 million, according to data that Melanie crunched from our Strategic Transactions Database. From 2000-02, that same figure for Phase III projects was only $28 million.

The rising costs of doing business development combined with the increasingly sensitive and uncertain safety/reimbursement environments are certainly contributing to Big Pharma's embrace of large molecule technologies and specialty products in general. But surprisingly the data doesn't necessarily reflect this phenomenon when it comes to licensing deals, where traditionally primary-care oriented spaces like metabolic and cardiovascular disease kept pace--both in number of deals and value of up-front payments--with specialist areas.

Still, oncology, the favorite specialist area for most companies, continues to dominate in number of deals. This is generally due to the availability of oncology products, thanks to the myriad targets and unmet need which make it a fertile ground for many biotech companies, points out Nigel Sheail.

Although biotech companies seemingly have the upper hand--at least as reflected by deal valuations--the panelists stressed that high-upfronts and big payoffs weren't necessarily the way forward for every deal, thanks to tax considerations etc. Partners should "be creative," think about downstream rights, quids, and revenue sharing. Scott Myers encouraged potential partners to dream up new structures: "don't expect us to have a formula, because we don't."

All that said, IN VIVO Blog prefers for now to look at the numbers. If as Aesop (and today, Nigel Sheail) said, "the value is in the worth, not in the number," then surely as biotech's own products become more valuable to the future of Big Pharma that worth will increase. We think the numbers will continue to follow.

If you're here, happy dealmaking.