By Jim Shrine
BASEL, Switzerland - The biotechnology industry bought a little clout with the $14.8 billion it raised in the first quarter, which was more than 10 times the amount raised in the same period last year and more than was raised in any previous quarter.
And that bolstered negotiating position likely will remain strong, said Mark Edwards, managing director of the consulting firm Recombinant Capital Inc., which specializes in alliances involving biotech companies. "Even if the capital markets don't open back up - and I think they will - this year will go in the record books. The terms of the economic exchange will get much different," he said, adding that the effect will change deals for both late- and mid-stage products, and even for discovery-stage projects.
"The result, in my view, is another round of negotiations that will push the value curve in the direction of rewarding the innovators," Edwards said Wednesday on the second day of the three-day Allicense 2000 conference being held here at the Messe Basel. Recombinant Capital, of San Francisco, and International Biomedicine Management Partners, of Basel and San Francisco, are sponsoring the event.
"It's a great time to be in the partners game," Edwards said. "It's a seller's market and the impact will be felt down the line." Pharmaceutical companies are going to have to give more than they are used to if they expect to fill their pipelines with biotech products. And they do need to fill those pipelines.
The increased biotech clout was evident in the presentation Wednesday evening of the Breakthrough Alliance award for 1999 to CV Therapeutics Inc., which contracted with a sales organization for the sale of its lead drug, ranolazine, now in Phase III trials for stable angina. Voters, who had chosen separate deals from Millennium Pharmaceuticals Inc. each of the past three years as best, included business development and licensing officials at both biotech and pharma companies.
"You don't have to partner with a large pharmaceutical company," Daniel Spiegelman, senior vice president and chief financial officer at CV Therapeutics, said at a presentation earlier Wednesday. "We wanted to get as close to selling the product as possible [without creating a sales organization], because that's where the money is."
CV Therapeutics contracted with Innovex Inc., the sales force arm of Quintiles Transnational Corp., in a deal that entailed only $5 million up front and a $10 million loan upon approval, terms that seem to pale in comparison to big-ticket 1999 collaborations such as the $335 million deal Triangle Pharmaceuticals Inc. signed with Abbott Laboratories for the marketing of six antiviral drug candidates. That collaboration included $118 million in equity funding and $32 million in non-contigent research support.
CV Deal Creates New Model
But the back end was what stood out in the deal that CV Therapeutics touted as the first of its kind for a biotech company. After accounting for saved sales and marketing costs, the Palo Alto, Calif., company estimated it would retain about 90 percent of the profits for the drug. At the same time it will get for five years the use of a dedicated sales force of 75 to 100 people, then have the right to keep that sales force. Also, the deal left the company open to partner outside the U.S., and gave it complete control of all development and marketing decisions. (See BioWorld Today, April 12, 1999, p. 1.)
"I thought it was a remarkable tribute to the deal-doers," Edwards said. "And it was remarkable that not only biotechs recognized the value creation/capture elements of the deal's structure, but their pharma counterparts did as well.
"One might wonder if it exposes the lock-grip of pharma companies," Edwards said, referring to a Spiegelman point that a pharmaceutical partner for ranolazine could have turned right around and contracted with Innovex itself. Biotech companies traditionally have received no more than 50 percent of profits, and usually end up with a lot less in some sort of royalty arrangement. "What works for pharma can work for biotech," he said.
The other four nominees for the breakthrough deal of 1999 were Abbott and Triangle; AstraZeneca plc and Maxygen Inc. for their molecular breeding alliance for crop improvement; Pfizer Inc. and Arqule Inc. for their combinatorial chemistry partnership; and Schering AG, LeukoSite Inc. and Ilex Oncology Inc. for the marketing agreement for Campath, a humanized monoclonal antibody in development for oncololgy and other indications.
Mediocre Science Holds Europe Back
That the top biotech deals almost always involve U.S. companies does not go unnoticed in Europe. Gottfried Schatz, president of the Swiss Science and Technology Council, opened Wednesday's meeting with an address titled "How can we strengthen European science?"
He pointed out that the U.S. and Western Europe have similar populations, gross domestic products and education systems. "Yet, when it comes to groundbreaking medical research [published in scientific journals], two-thirds or more comes from the U.S. We must conclude that Europe does a poor job in developing its scientific talent."
The reason, he said, stems from the continent's "unwillingness to accept the fact that basic research is inherently elitist. It's done by talented individuals who thrive when working in friendly but intense competition."
Elitism in the performing arts or sports is fine, but it is "politically incorrect" in Europe to have intellectual elites, he said. The result is "an inefficient use of public funds" given disproportionately to mediocre scientists.
"It's a typically European problem," Schatz said. "We lack the political guts. We must have the courage to give research grants to individuals. European research is at a critical crossroads. There is no better way than to focus our resources on our top talent. We must do everything we can for those few individuals who really make a difference."