By Cynthia Drake

Special to BioWorld Today

SAN DIEGO - "Does your company have the 'right stuff' - the stuff SmithKline Beecham is looking for?"

Tamar Howson, SKB's senior vice president and director, business development, speaking about what big pharma wants out of a corporate alliance, said, "What we're looking for are compounds that address a large unmet clinical need. We want companies with a sound scientific basis for their product. Hopefully that product will be at an advanced clinical stage with well-designed clinical trials.

"We also want products that fit within our chosen disease portfolios or are 'fast followers' - products that are synergistic to our strategies," she said. "A solid patent situation is very important, and last but not least, we structure our deals so there's satisfactory ROI [return on investment] for both SKB and our new partner."

Howson was one of five panelists who spoke here Monday at a CalBio Summit '99 presentation on "What Big Pharma Wants from Their Alliances with the Biotech Industries." The two-day conference wraps up today.

"We can't always count on our discovering the right drug at the right time," Howson said. "So SKB counts on alliances with pre-proof of concept, Phase I and Phase II stage biotech companies. In fact," she said, "20 percent of our bottom line last year came from in-licensed product. We think that percentage may double in the next 10 years."

According to Howson, successful alliances hinge on just a few key points:

• Alignment of opportunity valuation: The potential partners have to agree closely on how big the product opportunity is.

• Chemistry of the cross-functional teams: It's the chemistry between the real people who do the real work that counts.

• Clear understanding of objectives: the endpoint, timing, milestones.

"The objectives need to very clearly understood at the time the deal is done," Howson said. "With these key points in place a strategic alliance can be a win-win for both sides. Bottom line, she said, is to "keep a flexible approach over the life of the deal."

Licensing also is important to Johnson & Johnson Pharmaceuticals. Thomas Heyman, J&J's executive vice president, business development, noted his company had more than 16 compounds that each brought in more than $100 million in revenues in 1998. About half of those were in-licensed. These included Procrit (Amgen Inc.'s EPO), according to Heyman, "the biggest biotech product in the world." Other big movers were Levaquin and Floxin.

Big Pharma Seeks Good Fit

"We continue to see collaborations for compounds to broaden our pipeline," Heyman said. "And it's not just late stage products. We're looking for all stages - early, mid- and late-stage. We're not smart enough to know which drugs are going to hit. We're driven by compounds that fit into our franchise."

Like the other big pharma companies, J&J has focused objectives. The areas of interest include hematology, oncology, gastro, anti-infectives, women's health, neurology, pain, acute coronary care, metabolic disease and psychiatry. Metabolic disease is a new area. The company is having success with its blood glucose meters and is looking for ways to create synergy with those devices. The acute coronary care target is the newest for J&J, stemming from its recent acquisition of Centocor Inc.

But compounds aren't the only J&J interest. "We also need discovery tools - what some in the business call platform technology," Heyman said. "We're looking especially hard for pharmacogenomics, compound libraries, proteomics, bioinformatics and databases. We know there's a lot out there that's outside the J&J walls. We want to bring it in with collaborations."

Recognizing the importance of outside alliances, particularly platform deals, J&J recently created its Early Technology Group to focus exclusively on platform deals. The team includes two PhDs - one in La Jolla, Calif., and one in Belgium. Their job is to identify and negotiate collaborations for new technologies.

Eli Lilly and Co. also wants to be in the alliance business. "We've got a commitment from our senior managers, even our chairman, said David Thompson, Lilly's vice president, business development. "Alliances are one of the cornerstones of our future success.

"In 1998, 20 percent of our revenue came from external innovation," Thompson said. "We're currently growing at a rate of 15 to 20 percent per year. To continue that type of growth rate we'll need to be at $20 billion in 2005 and $40 billion in 2010. We're going to need to get up to 40 percent of our growth from outside."

Thompson said Lilly looks all up and down the value chain for partners. Many of its deals are done at the delivery stage. He said the company is focused on six basic arenas: neurosciences, endocrine disease, cancer, infectious disease, women's health and cardiovascular disease.

Lilly also has interest in "out-partnering." Thompson said, "We believe strongly in our internal science and partnering expertise. So, when we may not be able to fully develop a compound, we look for someone who can.

"We intend to be the first company to survive a 'Year X,'" he said. "In Lilly-speak, that stands for the year that Prozac goes off patent. We must have external technology relationships to keep up our growth. We've got good internal growth, but we need more from outside."

Thompson said Lilly has established a Sourcing Innovation Team to find new technologies, figure out how to get that technology and how to then create value for the partners involved. The entire focus of this team is to attract new biotechnology partners.

Novartis also is playing a role in the alliance game. "More than 30 percent of the company's R&D budget is committed to new technology," according to James New, head of global business development and licensing at Novartis Pharmaceuticals. "This is a major thrust for us. In our seven R&D sites we have more than 2,700 full-time equivalents working just in discovery. Net-net we want to maintain the leading edge of innovation. We're looking for technologies to complement our in-house research. We want the latest and the best - breakthrough technologies."

At Novartis, the Strategic Research Alliance is the division that manages biotechnology and academic relationships. "We generally structure a deal with equity, some up-front money and milestone payments for set achievements," New said. "We prefer worldwide rights but we have done some deals where the partner keeps some territory."