West Coast Editor
SAN FRANCISCO - With deals getting done at earlier stages, figuring out how to structure them is like a game of blackjack, "except with all of your cards face down," said Tom Finn, vice president of strategic planning for Procter & Gamble Pharmaceuticals Inc.
"It's hard enough when you're dealing with a late-stage compound to come up with a fairly tight range of what you think the value is," Finn told attendees here at the Allicense meeting. When the compound is preclinical or Phase I, the challenge is even greater but can be met with creativity on both sides of the table, he said, noting that the game can be played in one of two ways.
You can "place a lot of bets, hope you're hitting your target product profile and cut your losses as soon as it looks like you're not going to [hit it], or try to construct deals that work under multiple scenarios," he said.
P&G, a subsidiary of the widely known consumer-product firm based in Cincinnati, is "a $2 billion company within a $50 billion company," Finn said, adding that the lead product is Actonel (risedronate), an osteoclast inhibitor for osteoporosis.
The pharmaceutical arm's operating independence "creates some interesting scenarios," he said. "There are times when I'm the small, biotech-like partner with big pharma, and then times where we are more like big pharma working with smaller biotech."
After persuading the CEO of the partner firm to go along with the idea, Finn offered at Allicense a rare look into some of the workings of the deal made by P&G with GMP Companies Inc., of Fort Lauderdale, Fla., in the spring of 2002 - a deal that other biotechnology firms and pharma companies might learn from, Finn said.
Founded by the former dean of the Johns Hopkins University School of Medicine, privately held GMP finds compounds and technologies at universities, and develops them internally or offers them for licensing or partnering deals.
The focus of the deal with P&G is islet neogenesis associated protein, or INGAP. Researchers at the Eastern Virginia Medical School's Strelitz Diabetes Institutes reported in 1997 discovery of the INGAP gene, which apparently is critical to the regeneration of insulin-producing cells. Their work was described in the Journal of Clinical Investigation.
GMP was "about ready to begin a Phase I/IIa study that the FDA had agreed to, and they were looking for a partner to take it the rest of the way," Finn said, adding that GMP "saw this with one commercial scenario - as the cure for diabetes," but P&G detected other possibilities, as well as that potentially very lucrative one.
P&G had questions. Would the drug work in Type I diabetes, Type II, or both, or subsets within each? Would it replace the need for an insulin supplement or reduce it? How long would the drug last? What would be the dosing route?
"We were just going into humans, and one of the big questions was whether this peptide would be tolerated," Finn said.
Figuring various ways the compound might function, P&G estimated it was worth about $400 million at the low end and $3 billion or more at the top, and the two firms agreed to a deal accordingly.
"We had the standard progression milestones that you see in many licensing deals," he said. "I'm not allowed to share the specific financials, but I don't think that's as important as the structure anyway."
The goal, he said, "was not to just wait until the end and see if this was a $3 billion drug, and reward them through sales royalties and/or milestones, because they wanted their money earlier if it really was a home run. On the other hand, we didn't want to overpay early, if it was not a home run."
Terms ended up including a payment if no serious adverse effects developed when patients were given 120 mg of the drug in Phase I/IIa trials, another if INGAP eliminated the need for exogenous insulin for at least two months in two or more patients with Type I or Type II diabetes, and another if the need for insulin held off for at least three months in at least 40 percent of patients with Type I or Type II disease.
More payments could come if 50 percent of patients with either type of disease need no exogenous insulin for at least six months. In Phase III, P&G would pay if the need for insulin went away in at least half of treated patients for the shorter of 12 months or the duration of the pivotal trials. Another milestone was based on patients benefiting from a single daily injection.
"We created an approval milestone based on the assessed or judged market value at the time of approval," Finn said. If the companies could not agree on that value, a third party would decide. "Most of us in the pharma world use third parties to help us develop our launch forecasts anyway," he noted.
"At the end of the day, the resulting deal structure moved us through this huge debate we were going to have over what was the target product profile," Finn said. "What we agreed at this stage is that you can't know."
The Allicense meeting, sponsored by San Francisco-based Recombinant Capital, ended Wednesday.