By Randall Osborne
The road to Phase III trials is long and costly, and the stock-boosting prize of positive results in late-stage drug testing might seem to investors the final, important step before approval in what's inevitably an arduous development march.
So it is. But, for biotech firms that have not found marketing partners, the advent of an official go-ahead from the FDA means much backstage activity, either working to recruit a collaborator or to assemble an in-house sales team.
It's hardly a mad scramble at the last minute. Marketing the product and reaping profits have been goals from the days of the first preclinical experiments, after all, and company officials have been planning accordingly to the extent they've been able.
Few biotech firms are big enough to handle the job alone, especially those introducing their first products. Even fewer are unwise enough to try.
Pharmaceutical partners, much sought after by biotech companies for their well-known names and their mighty teams of physician-savvy salespeople, may promise exactly the kind of marketplace success a drug developer hopes for.
Considered alongside the great advantages, the drawbacks of teaming with pharma financial sacrifice, and having to work with a sales force busy pushing an array of products rather than just one are so small as to be negligible.
Yet, they are real. In a touch of irony, the biotech firms with the strongest sense of the drawbacks may be those with late-stage products that have not snagged pharma partners, and are casting around for a way to assault the market once the long-awaited FDA nod is won.
Several believe they have found the way.
In the past year or so, three biotech companies CV Therapeutics Inc. (CVT), Cell Pathways Inc. and InKine Pharmaceutical Co. have opted for contract-sales agreements. And all have signed with the same firm: Innovex Inc., a subsidiary of Quintiles Transnational Corp.
Most recent to enlist the strategy is InKine, which submitted its new drug application (NDA) in November for Diacol, a patented anhydrous sodium phosphate tablet designed as a purgative agent for adults undergoing colonoscopy. InKine sealed its agreement with Innovex last week.
Cell Pathways Inc. made a deal in January to let Innovex market Aptosyn (exisulind), an oral cancer medication. The company filed its NDA in August.
CVT sealed a pact with Innovex a year ago this month to market ranolazine, the company's drug for stable angina, which is in Phase III trials. That agreement was more involved and extensive than the other two. As part of it, Quintiles made a $5 million equity investment at market prices at the time of signing, and agreed to pay $10 million upon product launch. Sales and marketing services provided by Innovex over five years were estimated to cost CVT about $110 million, which it said makes the deal equal to a $125 million commercialization financing.
Innovex will launch and market ranolazine in the U.S. on a performance basis that will not exceed 33 percent of revenues. For years three through five, Innovex is expected to get the equivalent of 25 percent to 30 percent of total revenues. CVT retains all product rights, along with the option after five years to convert the Innovex sales force to a CVT sales force.
John Parsons, vice president of emerging markets for Innovex, heads up the department formed to handle the needs of biotech. Innovex offers three models, he said.
One model is fee for service, like the InKine and Cell Pathways deals, in which "customers come in and say, 'We want to build a sales force, and we want to manage it or we want you to manage it, but we want to keep all revenues and financial benefits to ourselves,'" Parsons said. "Usually, it's a per diem cost. It depends on the [sales-team] candidates, their salary and bonuses. All are very well exposed, in a cost model; all of that's built in. We also provide [fee for service] for product marketing."
Another model is risk-share, in which "some or all of the fee is put at risk," Parsons said. In effect, Innovex extends credit based on performance of the sales team. "You could call it a royalty or bonus," he said. "The better the sales force performs, the higher the incentive. All of our agreements are performance based, but that one is even more leveraged."
The third model is revenue sharing, as in the CVT agreement, where "we've agreed that CVT funds the pre-launch, and we fund post-launch," Parsons said. "We've agreed to minimums we'll provide. In return, we get a percentage of the revenue from dollar one. We take a lot more risk, but the reward is commensurate."
Although the CVT deal was well publicized, details of some pacts (such as those with InKine and Cell Pathways) are not disclosed. Many times, the agreements themselves are not made public.
"We pride ourselves on confidentiality," Parsons said.
Each model lets the biotech firm keep not only a larger share of revenues from its product, but keep its identity as the vendor as well.
"All of our sales teams are dedicated [in these deals]," Parsons said. "We don't have any syndicated or flex-time reps. The salespeople carry [the contracting company's] card, not an Innovex card."
Could a pharma company, having just signed a marketing deal with a biotech firm, hire Innovex to do the marketing more cheaply than the biotech partner might have expected from pharma? Of course, Parsons said. Isn't biotech, then, just eliminating the "middleman" by choosing Innovex directly? Doesn't this make Innovex a competitor with pharma?
In several ways, CVT got a better deal from Innovex than it would have from pharma, Parsons said most notably, in the five-year life of the agreement, with an option for CVT to take the sales force in-house.
"Probably, big pharma would want an extended agreement, to the end of the patent life," he said.
"But we don't choose that competition," Parsons added. "Our mission is to serve our customers, whoever they are. That may mean we'll help a biotech company develop their product to the point where they have a business plan or marketing plan, and help them find a strategic alliance. If their choice is to maintain their identity, and they want to go with Innovex, we'll do that."
Mainly, he said, pharma comes to Innovex either because the company has signed with a biotech firm and needs help because the biotech drug is outside the pharma company's area of focus, or because the pharma company has merged and finds itself with "mature products, languishing because of resource drain."
In four years, Innovex has launched more than 25 new drugs and built more than 60 sales teams, comprising more than 10,000 sales representatives and managers.
As biotech refines itself, Parsons said, the trend will be toward more contracting deals.
"The industry is finally coming into its own," he said. "My sense, in talking to the clinical people, is that products are being developed by experts that perhaps came out of big pharma, and the approval rate will be high. We can provide everything from off-the-bench clinical development [forward], so it's a one-stop shop. We're a 'virtual' pharmaceutical company. There isn't anyone out there who can say that."
More "virtual" biotech firms will be enabled by Innovex, Parsons said. Recently, he worked with "two researchers [who] had a product and had developed a final formulation," he said. "They were a partnership, not even incorporated. We established a corporation, and I actually named the company."
The researchers paid for market investigations, and Innovex developed a business plan, said Parsons who declined to name the firm, but said more like it will be made possible by the easy availability of marketing services such as Innovex's, as well as other contract work.
"You could imagine that, with a CEO and maybe a chief financial officer, everything can be outsourced," he said. *