Biotechnology companies' partnering arrangements with big pharmaceutical houses span the gamut, from discovery research to product marketing and distribution. And collaborations of all sorts still play a predominant role in almost every biotech company's business plans.
While there are strong indications that the number of new research and development alliances between biotech firms and big pharmaceutical houses are leveling off — having reached about the same number in the first half of 1998 as they did in the first half of 1997 — this observation does not hold when it comes to marketing, manufacturing and distribution agreements. Nor does it appear to pertain to the number of ongoing R&D-based deals that have been extended or expanded by one or both partners to take advantage of significant progress being made in the course of the funded research efforts. What has remained steady, however, is the number of deals that have been terminated by one or both parties.
Marketing, Manufacturing Deals Abound
Many of the research-based collaborations signed in recent years are centered on new drug discovery technologies, with the large pharmaceutical partner gaining access to cutting-edge methods for slicing the time it takes to identify potential new drug candidates. In fact, in an increasing number of cases, a biotech firm with a fledgling drug discovery method will form a consortium of big pharma partners to help it develop the technology in full. Those partners, of course, get a head start on actually applying the technology to internal drug discovery programs — long before it is made available to other possible collaborators on a routine basis.
On the other end of the spectrum, biotechs are signing on marketing partners for products that are in late-stage clinical trials or even approved for sale in the U.S. and various other countries. But not only are biotech firms finding marketing avenues for their own products, many are in-licensing products developed by big pharmaceutical houses. In these cases, the biotech firm is gaining immediate revenues by adding the big pharma's drug to its inventory. Taking this approach also allows the biotech company to utilize its sales force in a more efficient manner — especially while the company is waiting for its own product to be approved for sale.
Not surprisingly, then, the number of marketing, manufacturing and distribution alliances struck between biotech companies and big pharma conglomerates has increased over the years. In the first six months of 1998, a total of 53 marketing, manufacturing and distribution agreements have been announced. (See the chart on p. 8 for details of the agreements announced between March 25 and June 15. For the first quarter's deals, see the April 13, 1998, issue of BioWorld Financial Watch.) Of those, the majority are new deals between biotechs and their big pharma partners, but a handful concern expansions (the addition of new territories) or renewals of existing arrangements. In 1997, biotech firms signed a total of 91 marketing, manufacturing and distribution agreements for the full year; in 1996, there were 89 new deals.
Increasingly, these marketing-based collaborations do not revolve solely around new biotech-sponsored drugs, devices and diagnostics. Now biotech companies are attempting to utilize their existing resources to the fullest extent possible. This means that companies with excess manufacturing capacity, for instance, will agree to help a big pharma firm scale up a production process for the active ingredient in its drug — such as the long-standing relationship between giant Bristol-Myers Squibb Co., of Princeton, N.J., and tiny Phyton Inc., of Ithaca, N.Y. The companies have been collaborating since 1993 on ways to develop improved production processes for paclitaxel, the active ingredient in Bristol-Myers' blockbuster anticancer drug, Taxol. Phyton, which is developing a plant cell fermentation technology for making paclitaxel — as well as other natural products — owns a commercial production facility in Germany, which has a fermentation capacity of 75,000 liters. Since 1993, Bristol-Myers has invested more than $25 million to assist in the development of plant cell fermentation technology with Phyton, and now the partners say they are ready to advance the technology to full-scale commercial production levels for paclitaxel.
As well, The Liposome Co. Inc., also based in Princeton, has decided to use its manufacturing capacity to produce an injectable multivitamin product for Westborough, Mass.-based Astra USA Inc., the U.S. arm of Swedish giant Astra AB. This is the first manufacturing partnership for Liposome (NASDAQ:LIPO), but the company intends to seek other similar arrangements in an attempt to leverage its resources.
Viragen Inc., based in Plantation, Fla., also is leveraging its resources, but in a very different manner. The company (NASDAQ:VRGN), which already has scaled up the production process for its own natural interferon drug Omniferon at its production facility in Edinburgh, Scotland, also has been in negotiations to out-license the production process. In April, it signed an option agreement with Southern Health SDN.BHD, a private health care investment group based in Australia and Malaysia, for a private-label manufacturing and distribution license based on its interferon production process, which employs human white blood cells. Viragen could get $20 million in cash for the license as well as ongoing royalties; Southern Health will construct at least one manufacturing facility and fund and conduct any clinical trials necessary within its territories. Southern officials expect to invest at least $50 million to commercialize natural interferon in Southeast Asia, but the market for the product — especially for treating viral diseases such as hepatitis B and C — is huge.
An increasing number of biotech companies are striking marketing deals that allow them to in-license a big pharma drug for marketing. Over the last several years, Alza Corp., of Palo Alto, Calif., and Scios Inc., of Mountain View, Calif. — among others — have tried this approach to generating revenues in the short term. But these schemes don't always work out to the benefit of the biotech company.
Scios (NASDAQ:SCIO), for instance, has signed a number of deals to market big pharma's drugs. Just in the last several months, it's inked an arrangement with Janssen Pharmaceutica NV (the Belgian subsidiary of New Brunswick, N.J.-based Johnson & Johnson) to copromote Janssen's antipsychotic drug Risperdal in the U.S. Scios had just concluded a copromotion agreement with another Johnson & Johnson company, Ortho McNeil Pharmaceuticals, for the antipsychotic drug Haldol. Scios also is marketing some of London-based SmithKline Beecham plc's psychiatric products — Thorazine, Stelazine, Parnate and Eskalith. On the other hand, Scios and Wyeth-Ayerst Laboratories (a division of American Home Products Corp., of Madison, N.J.) recently agreed to terminate their comarketing agreement on Wyeth-Ayerst's antidepressant drug Effexor.
Cytogen Corp., located in Princeton, found that its marketing partner for Quadramet had a change of heart this spring. The DuPont Merck Pharmaceutical Co., headquartered in Wilmington, Del., had licensed the rights to market Quadramet, for treating bone pain from cancer that has spread to the bone, in December 1994. But in May of this year, the companies charged each other with breach of contract concerning the marketing arrangements. In the end, the companies apparently settled their differences; DuPont Merck agreed to find a new marketing partner for Cytogen's product and paid the biotech company $3.8 million for the product.
And Vanguard Medica Ltd., of Guildford, U.K., which was actually established solely to in-license and develop drug candidates from big pharma, got a rude awakening when its partner SmithKline Beecham backed out of a marketing deal on Frovatriptan. Vanguard had completed Phase III clinical trials of the migraine drug, a serotonin antagonist, which it in-licensed from SmithKline in 1994. Both partners agreed that those data were compelling enough to keep the drug on track for an NDA submission. But SmithKline suddenly pulled out of the arrangement, saying that its plate of drugs about to come to market was already too full.
By The Numbers
In the first six months of 1998 (through June 15), 101 new alliances between biotech companies and big pharma were announced, compared with 106 for the first six months of 1997 (through June 30). (For details of the latest new R&D-based collaborations, see the June 22, 1998, issue of BioWorld Financial Watch.)
The number of R&D-based alliances that have been expanded, extended, renewed or otherwise modified for the same period this year stands at 44. If this number is projected to the end of 1998, there may be close to 90 alliances that fit this category. That would mean a big jump from 1997, when that number came to 79, and an even bigger leap from 1996, when 56 ongoing collaborations were modified in some manner during the course of the year. The new terms benefit the biotech partner, which usually gets extended funding for ongoing research projects.
Whether the current crop of R&D-based alliances will actually provide some measurable benefit to the big pharma partner in the future is still difficult to ascertain. However, the attrition rate for these projects (the number of terminated alliances compared to the number of new ones) seems to have hovered around 11 percent for the past few years. In 1998 to date, it's even lower: While 101 new collaborations have been signed, only seven ongoing deals — or 7 percent — have been terminated.