The Evolution of Genomics Dealmaking
Executive Summary
SmithKline's 1993 $125 million alliance with Human Genome Sciences looked enormously overpriced at the time-and then quickly began to look more reasonable as prices for genomics deals skyrocketed. It was only with the addition of Takeda as a partnerthat the true possibilities of the SB/HGS alliance became evident: if both companies were to market the HGS database to partners, both could benefit.
SmithKline’s $125 million 1993 alliance with Human Genome Sciences looked enormously overpriced at the time—and then quickly began to look more reasonable as prices for genomics deals skyrocketed. Indeed, the deal began to look downright paltry: HGS was spending money at an enormous rate—but couldn’t supplement its SB-related income with other deals since SB had a virtual lock on all of HGS’s human data. A subsequent revision gave HGS some additional rights but still not enough to entice new big-money partners.
It was only with the addition of Takeda as a partner that the true possibilities of the SB/HGS alliance became evident: if both companies were to market the HGS database to partners, both could benefit. And they have: by bringing on Merck KGAA, Schering-Plough and Synthelabo, SB and HGS pull in plenty of additional revenues (HGS will get more than $90 million over five years, covering roughly half its operating expenses; while SB brings in $50 million, more than paying back its initial licensing, option and research fees to HGS). More importantly, they increase the chances that an HGS discovery will result in a new product: as successful as SB claims to have been in mining the HGS database (70+% of SB’s feasibility projects are derived from HGS data, according to SB), it can in no way do commercial justice to the wealth of information HGS generates. Should one of the new partners develop something of value, HGS will get royalties and SB will share marketing rights.
The six-company network is theoretically sharing genetic and biological information and materials—another way of maximizing the chances that one of the companies will succeed with a development. Exclusivity derives from discovery: for a company to claim exclusive rights to a molecule found through the HGS data, it has to prove activity in animal models. HGS is a full participant in this process: it too gets rights to claim molecules and says it already has six protein candidates in various areas.
Such intra-network “co-opetition”, as HGS CEO William Haseltine calls it, limits the size of the network: the more companies involved, the more difficult it will be to add members. Cooperation becomes bureaucratically clumsier with each new partner. HGS’s main rival, Incyte, on the other hand, wants to add as many members to its network of subscribers as it can. So far, Incyte has nine subscribers. Its goals: early and sustainable profitability based on database sales and increased chances to see some royalty income by having spread the data widely through the pharmaceutical research community.
HGS, on the other hand, wants to become a pharmaceutical company itself as well as profit from the development work of others. Its new semi-exclusive network certainly appears to pave the way.
HUMAN GENOME SCIENCES’ DATABASE PARTNERS
Partner (date) Deal terms
SmithKline Beecham (5/93, revised 5/95; major revision 7/96, below) HGS expected $125mm ($22mm license, $37mm in equity up front, option to buy $25mm equity later; $16mm option on intl. commercial rights; milestones; royalties); in fact, HGS has received $130mm. Original deal gave SB exclusive rights to nearly all HGS genomics data & technology outside antisense and gene therapy; HGS could select candidates SB chose not to develop. First revision (5/95) granted HGS exclusive development rights to 6 proteins per year.
Takeda (3/95) T. got rights to the data under a sub-license from SB; pays milestones & royalties to HGS; with the 7/96 re-write of the HGS/SB agreement, T. participates on same footing as the 1996 partners, below.
SmithKline Beecham (7/96) Major revision allows licensing to 3rd parties: HGS & SB share incoming license fees and milestones 50/50; HGS gets guaranteed research money and 6-10% royalties on everyone’s product sales. SB’s chief interest: marketing rights to partners’ products. HGS still keeps co-promotion rights. All partners have same opportunity to get exclusive rights to molecules they discover & prove active in animal models. HGS has taken its first choices in proteins for cancer; hematopoesis; inflammation/ autoimmune; viral; tissue repair. Partners all share their information and materials.
Merck KGAA (7/96) Merck pays $50mm over 5 yrs. ($18mm apiece to SB, HGS for license fees; $14mm research support for HGS); plus milestones split 50/50, and royalties to HGS. SB collaborates on development & mktg. of certain products Merck discovers.
Schering-Plough (7/96) S-P pays $55mm over 5 yrs. (HGS, SB get $20mm each in license fees; HGS gets $15mm for research). HGS, SB also share milestones 50/50; HGS gets royalties. S-P collaborates with HGS on late-stage development, mktg. of certain HGS-discovered products; SB co-promotes specified number of products S-P develops.
Synthelabo (7/96) Synthelabo pays $35mm over 5 yrs. ($12.5mm license fee to SB, same to HGS; $10mm to HGS for research). In addition, HGS & SB will share milestones 50/50, and HGS gets royalties. SB and Synthelabo will collaborate to develop, market resulting Synthelabo products.
SOURCE: Windhover’sPharma Alliances