FEASIBILITY STUDIES BEFORE PRODUCT DEVELOPMENT CONTRACTS SMOOTH NEGOTIATIONS, MASS. BIOTECH SPEAKERS SAY; LICENSING CORE TECHNOLOGY NOT UNTHINKABLE

"Feasibility arrangements" could be an avenue for biotechnology and pharmaceutical companies to become comfortable with one another before signing a collaborative or licensing agreement, Alkermes CEO Richard Pops and Merck VP-Corporate Licensing Elizabeth Wyatt said at the Massachusetts Biotechnology Council's annual meeting March 15 in Boston.

At the meeting, entitled "Biotech and Big Pharma: Competition and Co-Dependence," Pops said joint experimentation allows corporations to "share experience" and create a "database to make decisions." He added: "It's a hell of a lot easier" to do a deal after previous collaboration. "We can sit down with a partner and compare results." Such agreements are informal; Merck's pre-contract feasibility arrangements "can range from as little as two months to as much as two years," Wyatt stated.

Parke-Davis Pharmaceutical Research Division VP-Therapeutics Leonard Post, PhD, added that feasibility arrangements are good for biotechs, because they are "strong statements of confidence," provide an opportunity to "strengthen the company's case" before the deal is signed and allow the biotech to "build up champions" within the pharmaceutical company.

Rhone-Poulenc Rorer Gencell General Manager Thierry Soursac, MD/PhD, noted that nine of the 14 deals Gencell entered into in 1994 began with research before the deal that sometimes did not share the objectives of the deal. Lilly VP-Pharmaceutical/Business Development Dave Thompson, however, said that Lilly does not do feasibility studies, just as the company does not sign letter-of-intent stage agreements.

Creative Biomolecules President and CEO Charles Cohen, PhD, told the audience that it was crucial for biotechs to "learn to let programs go." Lilly's Thompson emphasized the need for similar winnowing in pharma companies, saying there are "assets down there, down below the portfolio, that maybe we ought not be doing, because at the end of the day we should be up-averaging the value of our portfolio."

Biogen Chairman and CEO James Vincent emphasized the need for biotechs to "control the rate of expansion," because it is easy to convince oneself that "things are going too well." GelTex Pharmaceuticals President and CEO Mark Skaletsky also advised the audience of the need for a "manageable corporate structure."

Pops asked the panel how much economic and market analysis they felt should be part of a biotech's presentation. He noted that in his experience, an economic analysis of the costs of developing a product and its market potential "impressed" potential partners, while pharmaceutical companies' reactions to the analyses "teased out what their underlying expectations are." Seragen President and CEO George Masters said he always includes market analyses, although he agreed with Skaletsky that a pharmaceutical company often knows the market better and has its own market projections.

"What we're willing, eager, to do with people we talk to is give them material, even the protocols we used for animals," Skaletsky said. Cohen had concerns about such an approach, saying that while he would make material available on "straightforward" compounds, the potential for "unfair" interpretation of data or deficiencies in animal models made him wary.

The panelists advised biotechs to negotiate what Masters called "some break-up positions in your agreement." Vincent suggested including development milestones in a contract that would enable the biotech to regain its technology if the pharmaceutical partner changed the development status or priority of the contract. Masters said in the Seragen/Lilly deal, "Lilly is contractually bound to certain levels of funding" ("The Pink Sheet" Aug. 15, 1994, T&G-12).

"Don't enter into corporate alliance discussions with a weak balance sheet," Masters warned. "Some of the big companies will really push you around when they realize you're chewing up $1 mil. a month" in burn rate.

"You have to be absolutely certain you have an intellectual property position," Cohen advised. "In the scientific mind, there is a tendency to ignore the importance of creating an intellectual property estate."

An audience member asked Vincent what Biogen's in-licensing considerations would be, since Biogen is one of the few biotechs to reach that corporate stage. Vincent replied that Biogen was very interested in "enabling technologies" and "novelty." Vincent attributed the "degree of me-too-ism and incrementalism" in the industry to "thinking in therapeutic categories." He predicted that "with the concentration of buying power we have today...without novelty, you're not going to be able to generate pharmaceutical margins."

The need for novelty and significant therapeutic difference "plays into the hands of the biotech industry," Vincent said. However, "the horizons of management are going to have to be expanded somewhat....You're going to have to license some core programs because that's the only way we're going to deliver the novelty."

Skaletsky reminded the audience that the aftermath of licensing core technology is, according to him, Wall Street's impression that the core technology is then gone. With that caveat, however, the panelists did support licensing some core technology rather than following the older paradigm of "keeping our prime development programs in-house" while licensing "the secondary, tertiary" ranks.

Lilly's Thompson also spoke of the changing pharmaceutical pattern. "Large pharmaceutical companies owned all the assets" under the old model, he said. "You did your own discovery, you did your own tox[icology], you did your own preclinicals....You can't do that anymore, and what you should be doing is judiciously placing your assets." Lilly believes "partners are going to be integral," Thompson continued. "Last year, we did 29 deals...about 50% were biotech."

Pfizer says it is bending its traditional policy of tight in-house control of clinical development and regulatory submissions. Senior Director, Licensing & Development James New, PhD, said the company is discovering ways to work "with the FDA that allow joint representation" with development partners. He noted that use of contract research organizations allows "equal access" to clinical trial data.

Parke-Davis is changing its position of "two or three years ago" that it would not share clinical development or marketing rights with a partner, Post observed. Now, the company does not want to "share profits without sharing risks as well," he added.

Merck still finds control of regulatory submissions and clinical development important, Wyatt said. To adapt to the changing environment, the company is creating "joint project teams" for development.

Pops brought up the "myth" of the increasing value of later-stage products to pharmaceutical companies, or the idea that a drug should be in Phase II for a partnership to arise.

Wyatt replied that between 1991 and 1993, 60% of the deals Merck signed were before an IND had been filed. Merck looks for "proof of principle," she said, which occurs at different points in the development cycle for different drugs. Pfizer's New agreed that Phase II was no longer a requirement, especially as the industry downsizes, and Post noted that the Warner-Lambert subsidiary does deals for "very early-stage products" as part of its development strategy.