Biopharma Out-licensing: 2012’s “In” Thing?

Talk to any Big Pharma business development executive about deal-making trends for more than 15 minutes and the word out-licensing is bound to crop up. Major drugmakers are moving beyond the rhetoric and actually giving up rights to individual assets that heretofore would have been deemed too valuable to merit out-licensing -- but with qualifications.

Talk to any Big Pharma business development executive about deal-making trends for more than 15 minutes and the word out-licensing is bound to crop up. It’s not hard to understand why: drugmakers face significant cost-constraints thanks to patent expirations and shrinking R&D budgets, and mid-stage pipelines are overly full in the wake of recent mega-mergers. As a result, says Doug Giordano, a VP of business development at Pfizer Inc., executives realize “it is now more attractive to outlicense assets than allow [them] to sit on the shelves.”

And certainly many different groups are bound to be interested in Big Pharma’s de-prioritized mid-stage assets. VCs in particular are eager to in-license clinically validated molecules in the hopes that these more advanced assets provide a quicker time to exit, and thus, satisfy limited partners. A lynch pin of the strategy at SV Life Sciences, for instance, has been to work with drugmakers like GlaxoSmithKline PLC to create spin-outs around compounds the pharma has foresworn. This association has led to the birth most recently of Autifony Therapeutics Ltd.[See Deal] and Convergence Pharmaceuticals Ltd.[See Deal].

But outside of spin-outs, which typically involve multiple assets and personnel, are major drugmakers moving beyond the rhetoric and actually giving up rights to individual assets that heretofore would have been deemed too valuable to merit out-licensing? An analysis using data from Elsevier's Strategic Transactions database suggests yes – but with qualifications.

According to the Strategic Transactions database, the percentage of alliances inked in 2011 considered to be out-licensing by multi-national pharma, top Japanese drugmakers, or big biotechs such as Amgen Inc. and Biogen Inc. soared to nearly 31%. For the purposes of this analysis, spin-offs were not included in the data set, nor were over-the-counter carve-outs like GSK’s December 2011 deal with Prestige Brands Holdings Inc. for 17 non-core consumer products. [See Deal] Instead the review focused only on transactions in which a major acquirer jettisoned discrete Rx product rights to a compound (or at most two compounds). During this time period, big biopharmas notched 964 alliances, of which 216 were out-licensings, a significant uptick from 2010 (see bar graph).

The dearth of out-licensing observed in 2010 makes sense; after the wave of mergers in 2009, Big Pharmas like Merck & Co. Inc. and Pfizer put a halt to this kind of deal flow as they paused to review and prioritize in-house assets from their suddenly larger R&D groups. But earlier this year, both of these companies got serious about beating the out-licensing drum. Merck has been the most vocal about its strategy, creating a four-person team within its business development unit devoted to the concept, even though it has been largely silent on the actual deals it hopes to strike.

Total Alliances, Out-licensing Deals Rise In 2011

Dataset of 964 total deals from 1/07 - 12/11 includes alliances from revenue-generating partners (Big Pharma, Big Biotech, Mid-sized European and Japanese Pharma, Specialty Pharma)

Source: Elsevier's Strategic Transactions

Unlike Merck, Pfizer doesn’t have a team within business development dedicated to out-licensing. Still that hasn’t prevented the company from inking multiple notable out-licensings in 2011. One of the first came in June when the Big Pharma out-licensed to Clovis Oncology Inc. worldwide rights to both the oral and IV formulations of its Phase I/II poly (ADP-ribose) polymerase (PARP) inhibitor for solid tumors. [See Deal] In this deal, Clovis paid Pfizer $7 million in one-year convertible promissory notes, and agreed to another $255 million in milestone payments. Its venture arm also agreed to make an equity investment in the fledgling biotech, which has since debuted on the Nasdaq (Also see "Clovis Oncology Seeks $149.5 Million IPO" - Pink Sheet, 23 Jun, 2011.) [See Deal].

PARP inhibitors are currently hotly desired oncology targets, so many industry watchers wondered why Pfizer would give up on a compound that is believed to have strong commercial potential. Giordano acknowledges that tension: “People have asked ‘Won’t we be embarrassed if this compound hits it big?’” He’s confident, however, that teaming up with Clovis, which has been building an internal companion diagnostic strategy for all its programs, affords Pfizer with “the best opportunity to maximize the [PARP inhibitor’s] value”. Indeed, in addition to the milestone payments, the equity stake taken by Pfizer Venture Investments means the parent company could accrue a significant return on investment – albeit as a financial investor – if the PARP inhibitor proves successful in the clinic.

Pfizer’s second and third out-licensings came this fall, when it signed away rights to its Phase III tyrosine kinase inhibitor neratinib and CTLA-4 monoclonal antibody tremelimumab to Puma Biotechnology Inc.[See Deal] and AstraZeneca PLC’s MedImmune LLC division respectively (Also see "Puma Biotechnology Licenses Neratinib From Pfizer; Raises $55 Million" - Pink Sheet, 6 Oct, 2011.) [See Deal].

Executives at both Merck and Pfizer stress the products up for out-licensing shouldn’t be viewed as the dregs of their respective R&D barrels. In both cases, the decision to out-license a certain compound was the result of a hard look at the research footprint to identify interesting products that were internally under resourced. Compounds in therapeutic areas where the historical knowledge was lacking were also obvious fodder for potential dealmaking. Take compounds to treat respiratory diseases, notes Giordano. “It’s an area where we’ve had some success but aren’t best positioned” to capture market share.

In large part, however, the out-licensing deals each company cites remain the exception rather than the rule. A closer look at the 66 out-licensing inked in 2011, for instance, shows that 43 were actually geographic carve-outs or co-promotional agreements rather than a transfer of worldwide rights like Puma/Pfizer or Eli Lilly & Co.’s recent deal with Artaeus Therapeutics LLC around an early stage migraine prevention program [See Deal].

It’s likely that 2012 will continue to see more traction for the concept of Big Pharma out-licensing. So far, two deals have been inked year to date: AstraZeneca gave exclusive U.S. rights to its migraine drug Zomig (zolmitriptan) to Impax Laboratories Inc. in February [See Deal] and Bayer AG off-loaded its exclusive ex-U.S. rights to the cancer drug Zevalin (ibritumomab tiuxetan) to Spectrum Pharmaceuticals Inc. in January [See Deal]. Hard to say that these alone confirm a trend, but the fact is, quite simply, most Big Pharmas can’t afford not to follow through.

[Editor’s Note: This article first appeared in the January 2012 issue of IN VIVO Magazine. For information, contact customer service at 800-332-2181 or sign up for a free trial at http://www.elsevierbi.com/publications/in-vivo/free-trial.]