Pharma Firms Debate Novel Biotech Deals: How Much Competition Is Healthy?

R&D productivity is best encouraged through "benchmarking" among a firm's own drug development centers rather than external competition with licensing partners, Merck Exec VP-Worldwide Basic Research Anthony Ford-Hutchinson, PhD, said.

Competition with biotech partners on the same drug targets "is extremely counterproductive," Ford-Hutchinson declared during the BIO-Windhover Conference in Washington, D.C. April 15.

"With benchmarking, you can encourage competition within the internal organization not by competing on the same targets but by looking at the productivity of" different global research labs within the same company, he said.

Ford-Hutchinson was responding to a question posed by Windhover Information Managing Partner Roger Longman suggesting that GlaxoSmithKline is using biotech partnerships to set up competition for its in-house research labs.

Longman pointed to an October 2002 deal between GlaxoSmithKline and Exelixis as having set up an "intriguing competitive dynamic."

"Basically what this deal was is that GSK said to Exelixis, 'You guys set up, do discovery through early development pretty much on your own. Phase IIa, come back to us...and depending on the compound that you've got, we'll either accept or reject. If we accept, we'll pay a big milestone; if not, go away.'"

"The intriguing thing about this is not merely that Exelixis got a significant chunk of change from GSK, but that Exelixis can be now a benchmark against which GSK's own internal discovery is measured," Longman said.

"If Exelixis outperforms any of GSK's [Centers for Excellence in Drug Discovery] then it will be fairly clear: you guys here at GSK didn't perform as well as those guys out in California did."

GSK set up the CEDDs structure to attempt to match the virtues of small, entrepreneurial research organizations with the resources of a top-tier pharma firm. CEO J.P. Garnier recently told investors that there are already clear indications that the approach is improving productivity (¹ (Also see "GSK R&D Initiative Sees Early Success: Phase II NCEs Up Three-Fold" - Pink Sheet, 17 Feb, 2003.), p. 14).

Merck's Ford-Hutchinson maintained that using explicit or implicit competition with external partners to drive productivity is counterproductive. Merck feels "obliged to work hand-in-hand with that partner, not have internal competition with that external partner," he said.

AstraZeneca Global Discovery Research Head Jan Lundberg, PhD, suggested that R&D managers need to "control" competition, not encourage it.

"The ambition of our company is to have what we call a global collaborative learning organization," Lundberg said.

"There is always competition between disease areas in relation to funding," he said. In addition, "scientists are competitive by nature." Therefore, "you don't have to encourage competition but rather you have to control it...to make the company maximally productive."

Roche VP-Preclinical R&D Lee Babiss, PhD, described the challenge as encouraging "constructive" competition while eliminating "destructive" competition.

"We've worked very hard to maintain a healthy, constructive competition and get rid of destructive competition," Babiss said. "Certainly with our biotech partners, we never want to see any type of major competition emerge."

Babiss acknowledged that Roche's deals with Chugai, Genentech and Antisoma follow "a similar model, one could argue, to GSK-Exelixis," in that Roche has a right of refusal on compounds coming out of the firms. However, he maintained, "you are not comparing apples to apples because the strategies of each of those partners is very, very distinct."

"What we do expect...from ourselves and from those partners is a given level of productivity," Babiss added. "That is healthy competition, as I see it."

At BIO-Windhover on April 16, GlaxoSmithKline had the chance to describe one of its recent partnering approaches during a presentation with Cytokinetics on the companies' collaboration on anti-cancer mitotic kinesin inhibitor therapies.

The deal, struck in June 2001, involves a "draft-pick mechanism." After five years of collaborative research, the compounds and their targets are subject to a sports-like draft: GSK picks compounds to be further researched by the collaboration; Cytokinetics can choose compounds for its own independent research.

At a later time, however, GSK has the option to "call back" any compounds chosen for independent work by Cytokinetics and bring them back into the fold of the collaboration for further joint development.

The two companies maintain this approach does not pit GSK R&D against Cytokinetics'.

In structuring the deal, a key priority for the biotech was that "we didn't want to compete with our collaborator," Cytokinetics CFO Robert Blum said. "We didn't want to...end up in a situation where downstream - in research, or even in development or commercialization - we were at odds with our collaborator."

GSK also wanted to "drive a more open collaboration," VP-Worldwide Business Development John Keller, PhD, agreed. "I think one of the greatest dangers when you're trying to split up...or divide interests in a broader platform is that partners...become competitors. There's a motivation of, 'well, these are my projects, or maybe these will become my projects if I do this.' And the projects start to fall apart."

"The goal here was to drive everything to bring it together," Keller maintained.

So far, the partnership has been "very fruitful," Blum said. In August, Cytokinetics announced the initiation of a Phase I clinical trial for the collaborations' kinesin spindle protein inhibitor. A 2003 IND filing is planned for another compound, Blum said.

While large pharma firms may differ in their views of how much competition is healthy within a partnership, there appears to be unanimous agreement that the competition to find partners is increasing.

The intense competition for late-stage projects has been a recurring theme among large pharma firms for several years. The BIO-Windhover panelists suggested that there will be more intense bidding in coming years for early stage deals as well.

Pharma firms are particularly interested in finding partners who can apply biomarkers or other technologies to pare down what they see as a bumper crop of early stage research candidates that may soon overwhelm development efforts (see ² (Also see "Pharma Pipelines Filling, Firms Say; New Fear Is “Bottleneck” In Early Stage" - Pink Sheet, 21 Apr, 2003.) ).