Pharmaceutical Dealmaking Broadens its Partnering Base

The high cost of drug development is forcing companies to think differently about how to best carry discoveries through to the marketplace. Companies are turning to collaborative alliances that call for the sharing of data and resources, entering into partnerships with academic and nonprofits, and working with government agencies to speed translational research, all in hopes of forging new models to reduce the risks and costs of early-stage research.

G. Steven Burrill

Such partnerships have increased at the same time that traditional corporate alliances—at least those with disclosed deal values—have declined. There were just $432 million in corporate alliances announced in May 2012, down from $3 billion for the same period a year ago, with no single deal valued at more than $100 million. It was by far the lowest level of activity since Burrill & Company began tracking the data monthly in 2009. Year-to-date, the value of disclosed US partnerships is down 37% compared with the same period a year ago, with just less than $7 billion in activity. Global partnering activity has fallen 18% year-to-date, with $12.5 billion in disclosed deals.

Although this decrease in disclosed deal values does not necessarily reflect less activity, it seems to signal a trend among companies that are tapping into a wide variety of resources to access new potential therapeutics as well as new ways to fund their development.

Indicative of the trend is the $285-million effort announced in May 2012 to develop new antibiotics to combat the growing problem of drug-resistant microbes, an area most biopharmaceutical companies have abandoned because the scientific challenges and complex regulatory requirements have made it financially unviable.

The new collaboration involves five European pharmaceutical companies—GlaxoSmithKline, AstraZeneca, Sanofi, Janssen, and Basilea Pharmaceutica—working with researchers at leading academic institutions. It is the first such effort under the European Commission's Action Plan, announced in November 2011, to address the rising threats from drug-resistant bugs.

The collaboration is also part of Europe's Innovative Medicines Initiative, the world's largest public-private partnership in healthcare, which seeks to improve the environment for pharmaceutical innovation in Europe by engaging and supporting networks of industrial and academic experts in collaborative research projects. The research program will initially focus on sharing information, supporting potential antibiotics already in the pipeline through new research, improving clinical trial design, and continuing research and discovery of new antibiotics.

The Innovative Medicines Initiative has issued a call for proposals in an effort to engage multiple public partners throughout Europe. The antimicrobials program is initially budgeted with $285 million (€223.7 million), with $137 million (€109 million) of initiative funding and contributions of $148 million (€114.7 million) of in-kind contributions by the participating pharmaceutical companies.

Until recently, most drugmakers were protective of their intellectual property, working in a silo-like atmosphere to develop new drugs. But as the costs of drug development have skyrocketed and drugmakers' blockbuster drugs have begun to lose patent protection, the usual way of doing business is no longer viable.

Consider Bristol-Myers Squibb,

which has created a new Inter-national Immuno-Oncology Network. The network includes industry, universities, and research centers from around the world working together to advance scientific understanding of the human immune system's potential to fight cancer. Bristol-Myers Squibb, which already has a large oncology portfolio, has been making a big push towards cancer immunotherapies.

Ten academic or cancer-research institutions from around the world including The Netherlands Cancer Institute, Dana-Farber Cancer Institute, The Royal Marsden NHS Foundation Trust, the Institute of Cancer Research, and Johns Hopkins Kimmel Cancer Center are joining Bristol-Myers Squibb in the collaborative effort.

The public-private partnerships formed through the collaboration aim to leverage the intellectual capabilities of an extensive global network with the ultimate goal of translating the research into new models for drug discovery and development, and eventually into new, improved cancer therapies.

A separate agreement in the US between Pfizer, Eli Lilly, AstraZeneca, and the National Institutes of Health's National Clinical and Translational Sciences program seeks to award grants to fund preclinical and clinical feasibility studies for new uses of more than 20 compounds shelved by the pharmaceutical companies because they failed to work in the disease areas for which they were being developed.

These agreements reflect efforts by industry and others to address the high cost of drug development and find ways to develop needed new medicines while reducing risks. But the slowing of traditional alliances is concerning because these agreements play a key role in funding development of the biotech industry's most promising products.

Venture capitalists, who also play a crucial role in funding early-stage biotechs, have seen their traditional models upended by the long timelines involved in therapeutic R&D as well. Although life-sciences venture capital investment has been increasing—up 29.6% in the first five months of 2012 compared with the same period a year ago—funding for drug developers is flat compared with 2011. Most of the gains have come from investments in medical device and diagnostics companies.

To bridge the therapeutic funding gap, a host of initiatives are focusing on funding translational research and early-stage companies that bring together the public and private sector, particularly with the goal of building life-sciences centers in specific locations. The largest of these efforts, announced in early March, is a $760-million partnership between Russia's Rusnano and the US venture-capital firm Domain Associates that will invest in emerging life sciences technology companies, foster the transfer of technology, and establish manufacturing facilities in Russia for the production of advanced therapeutic products. As part of the effort, Rusnano and Domain expect to co-invest in about 20 US-based healthcare technology companies.

Other initiatives include an effort by the Welsh government to create a biotech hub through an $80-million commitment to what is targeted to be a $375-million fund; a $100 million R&D fund backed by Merck Canada, Lumira Capital, and other venture capital firms to attract pharmaceutical companies to Quebec; and a Wellcome Trust project to invest $317 million in emerging healthcare and life-sciences businesses and technologies in Europe in early-stage development with significant potential to grow.

Among the most unusual efforts is a $250-million initiative from Cleveland's University Hospital, which is establishing a nonprofit entity to fund and advise physician-scientists on translational research and a related for-profit accelerator that will develop selected compounds to proof of concept.

All of these efforts reflect a dramatic change in the way drug development is conducted and funded. They represent not only a search for new models to address a system that has become too costly to sustain, but also the involvement of a wide range of stakeholders that want to ensure they realize the benefits they have come to see in successfully bringing new therapies to market.

G. Steven Burrill is chief executive officer at Burrill & Company, San Francisco, CA, 415.591.5400, publications@b-c.com.