Download Drug discovery alliances

N E W S & A N A LY S I S
FROM THE ANALYST’S COUCH
Drug discovery alliances
Rose print
chair by
Danielle Roberts
Andrew Jones and Les Clifford
Early-stage R&D collaborations and alliances
are of increasing importance to the pharmaceutical sector. When some of the best-in-class drug
discovery capability and research programmes
exists externally, alliances offer an alternative to
building expertise from scratch, and present a
degree of flexibility, cost advantage and risksharing not afforded by in-house programmes.
Although late-stage licensing agreements
have and will continue to remain important in
meeting the short-term needs of the pharmaceutical sector (for example, bulking up pipelines
or filling strategic gaps), it is early-stage drug
discovery collaborations that will have a crucial
role in ensuring that R&D operations continue
to remain competitive in the long term.
Why early-stage deals?
NATURE REVIEWS | DRUG DISCOVERY
Current trends
Reflecting the growing importance of early-stage
drug discovery alliances to the pharmaceutical sector, the average value of deals has risen
sharply in recent years. Typically structured
around upfront, milestone and royalty payments,
with R&D funding and equity investments common elements, average deal size has risen from
US$110 million in 2003 to US$145 million in
2004 and US$169 million for the period to July
2005 (Ernst & Young analysis).
Further analysis of big-pharma alliance
activity in the period July 2004 to July 2005
provides insight into the current focus of alliances and indications to the content of tomorrow’s pipelines, and is provided overleaf. With
respect to disease focus, 28% of all collaborative
activity has been targeted at oncology, making
it the single most active area (FIG. 1a). In terms
of therapeutic type, alliances directed at small
molecules continue to dominate (FIG. 1b).
Core competencies
Overcoming the challenges presented by R&D
collaborations and effectively leveraging partnerships across large networks is now a key success
factor for pharma companies. Alliances are not
simply being used to gain access to capability and
assets. Going head-to-head with in-house programmes, alliances can be a catalyst for creating
healthy ‘competitive friction’, increase options
and, when a pipeline’s financing needs exceed
available resources, alliances provide opportunity to out-license non-core assets to partners
in the network while maintaining options to
participate in later-stage development.
As companies become more creative in how
they exploit alliances, and as networks become
larger and more complex and companies come
to rely more heavily on these to drive performance, they must ensure that they maximise
value and mitigate risks by building alliancemanagement expertise. The core competencies
for overcoming challenges can be divided into
three groups: identifying, managing and measuring. First, companies must be able to identify
best-in-class capability, evaluate opportunities
presented by programmes and understand the
associated risks. Second, companies must create
deal structures and design contracts to ensure
aligned incentives, objectives and clarity on
future contingencies, and give consideration
to cultural differences and potential impact on
partnerships, ensuring effective processes and
systems for knowledge sharing and protection
of intellectual property. And third, companies
need to ensure that in-house and alliance programmes are captured in the same portfolio
evaluation and decision-making processes and
judged on a like-for-like basis to overcome bias
toward internal programmes; achieve adequate
transparency through structured reporting
processes; and develop approaches to measure
the performance of alliance-management capabilities, whether by use of surrogate endpoints
(such as internal client satisfaction) or true endpoints (financial value created over time).
Given the potential value in the biotech sector, the quality of a pharma company’s alliance
network will be a key factor in its future success
or failure. Strong alliance management will help
secure the former and avoid the latter.
▲
Biotech companies are facing unfavourable
market conditions for raising capital. Since 2002,
venture capital investors have shown a reduced
appetite for companies with early-stage pipelines
and altered their investment behaviour1 and
focus accordingly, by moving to companies with
critical mass, or favouring opportunities with
existing or near-term products and revenue.
In addition, investors in the public markets are
indicating that conditions are currently unfavourable for initial public offerings (IPOs). As of
July 2005, among 28 biotech companies that had
an IPO2 in the US during 2004, 19 were trading
at a discount to their initial offer price (average
discount of 40% across the 19). As an example
of the challenging environment for biotech
companies in the public markets, Peninsula
Pharmaceuticals withdrew from its planned
IPO in favour of an acquisition by Johnson
& Johnson’s Ortho McNeil subsidiary during
June 2005.
While biotech companies are experiencing
a funding squeeze, the pharmaceutical sector
needs to fill its pipelines and address productivity issues. However, the scarcity and high cost
of sourcing clinical compounds makes relying
on late-stage in-licensing an unsatisfactory
strategy.
The pressures on the biotech and pharmaceutical sectors point towards the two becoming
increasingly dependent upon one another: biotech companies for cash and technical validation,
and pharma companies for enhanced discovery capability — one of the mutually beneficial
solutions to this being early-stage deals.
However, the emphasis on early-stage dealmaking will not simply be driven by circumstances; it will be driven by a crucial strategic
consideration. By partnering early, pharma
companies are better positioned to steer development and ensure commercial success. This is
becoming increasingly important as the market
demands ever more clinical and economic evidence to secure access (that is, reimbursement
at the right price). Drug development must now
be powered to meet the needs of multiple stakeholders in multiple territories: outcomes-based
studies must be built into clinical development
and strong pharmaco/health economic arguments formulated. The question that remains to
be answered is whether biotech companies have
the in-house resources and expertise to ensure
that, in addition to regulatory hurdles, their
development programmes are able to meet the
needs of all budgetary stakeholders in all major
territories. Although the biotech sector might
have proven its ability to innovate, it remains
unproven in this regard.
So, although late-stage deals have traditionally presented relatively lower risk with respect
to regulatory failure, as budget-driven healthcare decision-making places greater emphasis
on this ‘fourth hurdle’, the overall risk profile
of late-stage compounds looks set to change.
The knock-on effect will be reluctance among
pharma companies to in-license late-stage assets
that have been developed without adequately
accounting for ‘fourth hurdle’ demands.
VOLUME 4 | O CTOBER 2005 | 807
N E W S & A N A LY S I S
DRUG DISCOVERY ALLIANCES | MARKET INDICATORS
▲
Oncology is the most active disease area for alliances, accounting for 28% of all recent collaborative activity (FIG. 1a), and the majority of alliances
involved small molecules, although biologicals
(in particular, antibodies) are also popular
(FIG. 1b). Among the most significant recent
deals are AstraZeneca’s monoclonal antibody
alliance with Cambridge Antibody Technology,
and Pfizer’s US$480-million collaboration
with Medarex TABLE 1. As such alliances bear
fruit, the technological distinctions often made
between the pharmaceutical and biotech sectors will lose meaning. Indeed, the majority of
products brought to the market in recent years
by Wyeth are biologicals, such as etanercept
(Enbrel) and gemtuzumab (Mylotarg).
Among the multinational companies,
GlaxoSmithKline has been the most active to
date in terms of total number of collaborations,
and the recent formation of a business unit
dedicated to sourcing and developing new drugs
‘virtually’ through partnerships underscores the
strategic importance placed on its alliance network. When deal activity is adjusted against 2004
ethical sales, Boehringer Ingelheim tops the list,
followed by Merck and Novartis TABLE 2.
Table 1 | Pharma–biotech discovery alliance and acquisition highlights
Deal highlights in 2005
Les Clifford is Head of Ernst & Young’s
Pharmaceutical Practice in the UK. Andrew Jones is
an analyst in Ernst & Young’s Pharmaceutical
Practice. 1 More London Place, London SE1 2AF, UK.
e-mail: [email protected]
doi:10.1038/nrd1856
1.
2.
Other: 7%
(GSK, PFE, WYE)
Value
Therapy
(US$m) area/
indication
Type of
molecule
Company
Target
(reported cost
in US$M)
Month
in 2005
AstraZeneca–
Astex
275*
Oncology
Small
molecule
Roche
GlycART
Biotechnology
(~180)
July
AstraZeneca–
Avanir
340*
Dyslipidaemia
Small
molecule
Sosei
Arakis (~187)
July
Merck–
Metabasis
74‡
Metabolic
Small
molecule
Pfizer
Vicuron (1,900)
June
GSK–Vitae
175*
Hypertension
Small
molecule
Shire
Transkaryotic
(1,600)
May
Novartis–
Hybridon
136*
Asthma/
allergy
Small
molecule
Cephalon
Salmedix (160)
May
Pfizer–
Renovis
187*
Pain/UI
Small
molecule
GSK
Corixa (~300)
April
Genentech–
Curis
140*
Oncology
Small
molecule
JNJ
Peninsula
(245)
April
GSK–
Theravance
252*
COPD/
asthma
Small
molecule
JNJ
Transform
(230)
March
Ortho
McNeil–Arena
295§
Diabetes
Small
molecule
Takeda
Syrxx
(not reported)
February
AstraZeneca–CAT
~140||
Antibody
Pfizer
Idun
(not reported)
February
Wyeth–
Plexxikon
372*
Small
molecule
Pfizer
AngioSyn
(527)
February
Pfizer–
Medarex
480*
Antibody
ScheringPlough
Neogenesis
January
Diabetes
Source: Ernst & Young. *Total reported potential payments excluding royalties and equity investments.‡Total
upfront and milestone payments assuming one successful product approved in more than one indication.
§
Total potential milestone payments per compound successfully commercialized. ||Equity investment. CAT,
Cambridge Antibody Technology; COPD, chronic obstructive pulmonary disease; GSK, GlaxoSmithKline;
JNJ, Johnson & Johnson; M, million; UI, urinary incontinence.
Booth, B. From the analyst’s couch: valuation with cash
multiples. Nature Rev. Drug Discov. 4, 533–534 (2005).
Beyond Borders: Ernst & Young Global Biotechnology
Report (Ernst & Young, London, 2005).
a Respiratory: 4%
Acquisition highlights in 2005
Companies
involved
b
Protein therapeutics: 3%
Other: 2%
Vaccines: 3%
Metabolic: 7%
(JNJ, RHHY,
GSK, MRK, PFE)
Oncology: 28%
(RHHY/DNA,
NVS, MRK, AZN)
Cardiovascular:
9% (PFE, AZN,
MRK, NVS)
Small
molecules: 63%
Antibodies:
29%
Infectious
disease:16%
(GSK, RHHY,
MRK, NVS)
AIID: 14%
(JNJ, ABT, AZN,
RHHY/DNA)
CNS: 15%
(AZN, MRK, PFE,
JNJ, GSK)
Figure 1 | Preclinical discovery alliances. a | Alliances broken down by therapeutic area, with key
companies involved shown in brackets. b | Alliances broken down by type of therapeutic. Data are for
alliances formed between July 2004 and July 2005 by the following pharmaceutical companies: Abbott
(ABT), Amgen, Astellas, AstraZeneca (AZN), Baxter, Bayer, Boehringer Ingelheim, Bristol-Myers Squibb,
Johnson & Johnson (JNJ), Chugai, Eisai, Eli Lilly, Genentech (DNA), GlaxoSmithKline (GSK), Merck (MRK),
Merck KgaA, Novartis (NVS), Novo Nordisk, Pfizer (PFE), Roche (RHHY), Sankyo, Sanofi-Aventis, Schering
AG, Schering-Plough, Takeda, Wyeth (WYE). Companies involved in major alliances are highlighted using
their abbreviations in the pie-chart. AIID, arthritis, inflammation and immune disorders; CNS, central
nervous system; COPD, chronic obstructive pulmonary disease. Source: Ernst & Young.
808 | O CTOBER 2005
| VOLUME 4
Table 2 | Most active deal makers*
Rank
Company
Share‡ Adjusted
rank§
1
GSK
15%
Boehringer
Ingelheim
2
Pfizer
13%
Merck
3
Merck
13%
Novartis
4
AZN
11%
Roche
5
JNJ
11%
AZN
6
Novartis
10%
JNJ
7
Roche
9%
Wyeth
8
Boehringer
Ingelheim
6%
Eli Lilly
9
Eli Lilly
6%
GSK
10
Wyeth
6%
Pfizer
*Between July 2004 and July 2005. ‡Percentage
share of activity among top-ten most active
companies. §Rank adjusted against ethical
pharmaceutical sales in 2004. AZN,
AstraZeneca; GSK, GlaxoSmithKline; JNJ,
Johnson & Johnson.
www.nature.com/reviews/drugdisc