Collaboration Deals With Pharma May Be Preferable To Licensing For Biotech

Biotechs may want to look at deal structures with pharmaceutical companies outside of the traditional licensing model in order to have greater control over the development process, Medarex Senior Director of Development Melinda Shockley said at the recent Drug Information Association annual meeting in Philadelphia.

Shockley acknowledged that there are benefits to the traditional licensing structure - the licensee assumes responsibility for development and the licensor receives some return on their investment. However, she cautioned that such arrangements may not always maximize rewards.

"As the innovator, typically you're the party that really understands [the compound] the best and if you're just handing it off, you really have no control over what the new party is going to do with it," she explained.

"In some cases there may be success. In some cases there may be absolute failure because they just don't know how to maximize the value of the innovation," she said.

Collaborations and partnerships, on the other hand, provide the innovator more control over its product or technology. As an "active party," the innovator shares both the risk and rewards with its partner, Shockley explained.

"You're really retaining significant commercial interest in this product; this is a way for the innovator to build a product pipeline as opposed to handing off that baton to pharma and allowing pharma to build its pipeline. You have an element of control in R&D," she said.

Collaboration is "a way to balance risk, so you retain a significant commercial interest, but you're not bearing the entire risk of somebody developing your product, your technology," she said.

Another attractive aspect of collaborations and partnerships is that it allows a biotech to tap into the expertise of a large pharmaceutical company in areas such as commercialization where the biotech may have less experience.

Partnerships are "an opportunity to build on capabilities. In a partnership, you learn from one another, so as the smaller party you actually have the opportunity to learn from the larger biotech or pharmaceutical company."

Conversely, Shockley noted that another drawback to the licensing model is that it is more difficult for the biotech to learn from the licensee. "It's more...hands-off, and so you really, as the innovator, may not benefit from the knowledge and expertise of the licensee, as you could if you entered into a different type of arrangement," she said.

However, Shockley emphasized that the closer relationship and greater control afforded by partnerships and collaborations can also be downsides.

Partnerships are often challenging when the innovator company has different expectations about the vision for its product or technology than its partner, she explained.

"Bringing together two separate organizations and identifying common ground and ways to really drive forward and maximize your potential of new innovation can be quite challenging," Shockley said.

For the larger company, "it's one of many products in their portfolio, and they're trying to integrate the product in their overall product scheme, whereas the biotech is just focused on one thing," she noted.

One area where differing corporate visions can clash is cost sharing, where the less cash rich biotech may have different priorities than the pharma partner.

With "cost sharing/risk sharing, again you're on the hook for some money in terms of supporting its development, commercialization activities," she noted, "especially if you are partnered with a company that has deep pockets, and doing that extra Phase II trial is really not as much a burden to pharma as it might be to a smaller company."

Another potential problem is that the companies may face different time pressures. "You hear a lot from the folks on the biotech side that...time is of the essence," Shockley said.

On the other hand, "a lot of times, the more experienced partner, the more experienced company, really knows how long it takes to develop the drug or the product and really understands the steps along the way where you might need to pull back, rethink, readdress the strategy," she said.

Shockley emphasized that in order for partnerships to be successful, "really open communication and communication of expectations of both parties are key to really being able to manage the partnership."

Shockley said that "there's a lot of partnering going on," noting that there were over $17 bil. of such deals in 2005.

"You're seeing these deals done between biotech and biotech as well as biotech and pharma, so, although challenging, they work, and you're seeing a lot of products that are actually reaching the market that are the result of collaborative efforts," she added.

During the recent Biotechnology Industry Organization annual meeting, big pharma executives said that co-development deals may become more common going forward as a result of the increasingly competitive M&A environment and the desire for greater flexibility (¹ (Also see "Big Pharma Seeking Simple Deals In Complex Biotech Licensing Environment" - Pink Sheet, 15 May, 2006.), p. 6).

A number of large pharmaceutical companies including AstraZeneca, GlaxoSmithKline, Merck, Schering-Plough and Wyeth have stepped up their efforts in the M&A arena in recent months (² (Also see "Schering Seeks Salvation In External Deals; Hassan Outlines Licensing Plan" - Pink Sheet, 7 Nov, 2005.), p. 18).

Merck is taking an "open door" policy to licensing deal propositions. "We have to look at innovative ways to be innovative," Merck Associate Director Business Performance Improvement Robert Gould said at the recent DIA annual conference.

"Merck's emphasis on partnering comes from the fact that we're uniquely positioned to partner in multiple areas," he said. Gould emphasized the company's focus on its small molecule program and vaccine business.

Gould explained that Merck is looking for biotech companies "not only to complement our pipeline, but to bring that innovation in because those companies have strengths and make a complementary program that enables both of us to share in the future successes by financial return as well as by improving human health."

Merck announced the acquisition of two biotech companies in April - GlycoFi and Abmaxis - that it had previously been collaborating with, to "become a significant player in biologic drug discovery and development."

Merck VP & Chief Licensing Officer Barbara Yanni has cited the two deals as examples of Merck's flexibility in structuring and restructuring relationships with partners.

"GlycoFi, which had a novel yeast-based protein authorization technology and Abmaxis, which had an antibody engineering technology, really complemented our internal expertise," Gould said. Merck has expertise in yeast expression technology.

"So what's our R&D strategy? Embracing partnerships, and through embracing partnerships, embracing innovation."

GlaxoSmithKline is taking a slightly different approach to working with biotech companies, seeing them as an extension as more of a "virtual organization."

"You cannot be a success today just by looking at your own 20,000 scientists. You have to get access to the best pieces of science outside the company," GSK CEO J.P. Garnier said at the recent Goldman Sachs Healthcare Conference.

"But you have to deal with it in a different way, not just by licensing compounds, that we do like everybody else...but frankly the clinical attrition on this pipeline is going to be the same as the clinical attrition on our own pipeline, [so] many of our drugs will go away."

"What we have to do is enter into more of a virtual organization, so what you do is not just give dollars to people to do science on your behalf, you look for people who [complement it]," he said.

"So, when we add them to the collaboration, there's much more than us signing the check and waiting for the product to come, and we have been very successful in this way."

"We have currently 48 programs that follow this kind of framework, and hopefully all will produce something of value to us," the exec concluded.

Garnier said in January that the head of GSK's biologics unit has a complete "blank check" to pursue opportunities to bolster its biotech pipeline (³ (Also see "GSK Takes “Blank Check” Approach To Pursuit Of Biotech Agreements" - Pink Sheet, 16 Jan, 2006.), p. 17).