Tuesday, December 14, 2010

2010 Alliance DOTY Nominee: Pfizer/Biocon

It's time for the IN VIVO Blog's Third Annual Deal of the Year! competition. This year we're presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (four or five in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™

OK, it may not be the biggest DOTY or even the most creative in terms of structure. The terms are pretty plain vanilla - Pfizer pays $200M upfront to Indian biotech Biocon and an additional $150M in development and regulatory milestones, plus payments tied to commercialization. In exchange, it gets rights to sell Biocon's portfolio of biosimilar insulins throughout most of the world. Thus, this ain't the kind of deal that inspires heady talk in the biz dev community, which is more likely to eye the latest fancy risk-sharing schemes.

While the structure of Pfizer/Biocon is quite traditional, the concept is anything but. Indeed, the union of these two companies is, in fact, blatantly ambitious and could have far reaching implications. It demostrates a new way of doing business for pharma, touching on an battery of industry hot topics: biosimilars, pricing flexibility, diversification and emerging markets. Because of its conceptual radicalism, it is by far the best choice to win the DOTY award.

The alliance brings together two diametrically opposed companies that have surprisingly complementary interests: big, unwieldy Pfizer, which lacks a presence in diabetes, and Biocon, an aggressive, comparatively small Indian biotech, which, while far from naive, has limited global operations and ambitions to develop an oral insulin.

Pfizer now will sell all of Biocon's biosimilar insulins and insulin analogs, including recombinant human insulin, Glargine, Aspart and Lispro; in Germany, Malaysia, and India only, the partners will share commercial responsibilities. Biocon is in charge of global manufacturing, development and regulatory approvals. The partners assert -- and there's really no other word to describe their pitch - their broad portfolio will enble them to challenge the industry's diabetes mainstays. Take that, Novo Nordisk, Sanofi, and Lilly.

The deal was spearheaded by two aggressive business leaders who think outside the box: David Simmons, who has headed Pfizer's $10B Established Products Business Unit and recently took over Emerging Markets as well, and Kiran Mazumdar Shaw, chairman of Biocon . Simmons has spent the past two years scouring Asia and elsewhere for inexpensive outsouring opportunities to buttress his units' generics business, but the Biocon alliance is different and more strategic than his unit's previous deals with Indian generics manufacturers Aurobindo and Claris.

With insulin, Pfizer is plunging into the biosimilars fray. Simmons has said previously that Pfizer wants to play in this space, but until now, he hasn't articulated just how it will do so. By teaming up with Biocon, he's indicating Pfizer's willingness to essentially outsource its approach to this new business opportunity with an up-and-coming EM player.

For Biocon, too, the deal represents new territory. India's budding biotech industry is just that --budding -- and often seems to be stalled. Biocon, however, has stood out as an exception, with its long-time efforts to become a global innovator, backed by self-generated revenues from more traditional, lower margin businesses, such as contract research and drug development services, as well as sales of generic biologics to domestic markets. Like Simmons, Shaw seems intent on pushing beyond her company's comfort zone.

Timing is a key virtue of this deal - the partners have some -- not much - breathing room because they will roll out the insulins gradually. They won't discuss their regulatory strategy in the US, where they hope to launch in 2015, but FDA officials say the agency is "open for business" when it comes to biosimilars, despite lack of formal guidance in this area.

Emerging markets is the wild West of pharma these days, but Pfizer and Biocon have demonstrated admirable patience and a cautious, yet forward-thinking approach to a new business opportunity. Simmon's recent appointment as head of emerging markets, even as he retains his current position at EPBU, puts him in charge of one of Pfizer's major growth initiatives. How's that for validation of a strategy?

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