By Jennifer Van Brunt
Biotechnology companies looking for strong partners from the pharmaceutical industry signed more big-ticket deals in 1998 than in any previous year. While 1997 set the record for the number of drug development and marketing deals that hit the $100-million mark, 1998 will be remembered for those that flew past this benchmark. Cambridge, Mass.-based Millennium Pharmaceuticals Inc. had already raised the hurdle in October 1997, when it signed a $218 million, broad-based agrigenomics collaboration with agricultural giant Monsanto Co., based in St.Louis. At the time, that deal was the richest partnering arrangement in biotechnology's short history. But Millennium broke its own record in 1998, when it signed a $465 million alliance with German giant Bayer AG in late September. Although the eye-popping value of that arrangement stands outside the norm, 1998 still recorded a significant number of collaborations that grazed the $150 to $200 million point. Among these were Seattle-based Corixa Corp.'s $200 million vaccine deal with SmithKline Beecham Biologicals SA in late October and Cell Genesys Inc.'s $153 million alliance with Japan Tobacco Inc. in December.
Other big-ticket deals in 1998 included:
* The $111 million expansion in January of La Jolla, Calif.-based Advanced Tissue Sciences Inc.'s (NASDAQ:ATIS) joint venture with U.K. firm Smith & Nephew plc to commercialize wound-healing products Dermagraft and Dermagraft-TC;
* deCode Genetics Inc.'s $200 million gene-discovery collaboration with Swiss giant F. Hoffmann-La Roche Ltd. in February, meant to exploit the unique population database found in Iceland;
* The $100 million agreement finalized in March between Cytel Inc.'s (NASDAQ:CYTL) subsidiary Epimmune Inc., of San Diego, and Monsanto Co.'s subsidiary G.D. Searle & Co. to develop cancer vaccines;
* Malvern, Pa.-based Centocor Inc.'s (NASDAQ: CNTO) $335 million purchase of the U.S. and Canadian marketing rights to Retevase, a recombinant plasminogen activator, from Swiss company Roche Holding Ltd. in March;
* Oxford, U.K., firm Powderject Pharmaceuticals plc's (LSE:PJP) $321 million deal with London-based Glaxo Wellcome plc, signed in March, which intends to develop needleless delivery systems for a wide variety of DNA vaccines for infectious diseases;
* Palo Alto, Calif.-based Caliper Technologies Corp.'s $100 million agreement with Hewlett-Packard Co. in May to jointly develop miniaturized lab-on-a-chip technology; and
* Coulter Pharmaceutical Inc.'s (NASDAQ:CLTR) $132 million alliance with SmithKline Beecham plc, of London, signed in December, to commercialize the Palo Alto, Calif., biotech company's monoclonal antibody-based therapy, Bexxar, for non-Hodgkin's lymphoma.
The pre-commercialization price-tag of these deals, however, is not their only distinguishing feature. Importantly, biotech firms are starting to take a much more active role in the partnership ranging from co-development of product candidates in the clinic to co-marketing, or even sole marketing, of approved products and profit-sharing in place of the standard royalty arrangement.
The alliance between Cell Genesys, based in Foster City, Calif., and Japan Tobacco is a prime example. The companies, which have inked an agreement to develop selected products from Cell Genesys' GVAX cancer vaccine program, will share equally both the product development costs and the profits. Not only does Cell Genesys (NASDAQ:CEGE) get guaranteed funding of $45 million over two years to support the development of vaccines for prostate cancer and one other disease target, but also it gets marketing rights to those products in North America. Thus, Cell Genesys has established a 50-50 profit-sharing agreement worldwide as well as control over marketing in its primary territory.
In its $51 million alliance with German pharmaceutical giant Schering AG, Myriad Genetics Inc., of Salt Lake City, reserved the right to co-promote all new therapeutics in North America. The partners are exploring the use of Myriad's (NASDAQ:MYGN) protein interaction database ProNet to unravel the biochemical pathways of major diseases. If Myriad exercises its option, it will also reap 50 percent of the profits but it has to pay for half the drug development costs. If, on the other hand, Myriad opts to let Schering handle all the marketing and sales, then the biotech firm has negotiated a "substantial" royalty arrangement
Coulter Pharmaceutical, too, is sharing profits with SmithKline Beecham on sales of its anti-cancer drug. The deal is set up so that the partners will jointly market the product in the U.S., as well as share profits equally.
New York-based ImClone Systems Inc. also stands to benefit from the marketing arrangements it has worked out with its German partner Merck KgaA. The companies, already partners on ImClone's cancer vaccine BEC2 (an anti-idiotypic monoclonal antibody that has been tested in malignant melanoma and small-cell lung cancer patients), signed a second collaboration in December on ImClone's cancer drug C225. This product, a chimeric monoclonal antibody that inhibits activity of the epidermal growth factor receptor (which is implicated in more than one-third of solid tumors), is about to enter Phase III trials in squamous cell cancer. The new deal, which is worth as much as $90 million pre-commercialization to ImClone (NASDAQ:IMCL), also gives the biotech company marketing rights in North America. Genomics company Hyseq Inc. is also intent on keeping more rights to products developed with its technology. The Sunnyvale, Calif., company (NASDAQ:HYSQ) structured its October alliance with Kirin Brewery Co. Ltd. so that it can retain 100 percent of all North American profits and 50 percent of European profits. Under the agreement with Tokyo-based Kirin, Hyseq will use its Gene Discovery platform to target particular genes involved in cell growth regulation from specific cell lines provided by Kirin. The partners intend to co-develop and co-market any pharmaceuticals that result.
As the graphs on p. 2 show, the total number of new biotech-big pharma collaborations signed in 1998 (through Dec. 24) is almost exactly the same as those signed in 1997. (Neither of these figures include the alliances that are focused on agricultural biotechnology.) But though a steady state may have been reached in the frantic pace of partnering, the deal structure is continuing to change as biotech firms take a more aggressive stake in the future of the products they have helped discover. *