Co-Promotion in Biopharma Agreements
Success is in the Details
How broadly has co-promotion been utilized in biopharma deal structures recently, and with what variants? To answer this question, BioSci has undertaken an analysis of co-promotion and related provisions in approximately 150 SEC-filed biopharma alliance
There has long been an aura of success associated with co-promotion agreements in the pharma industry. In the 1980s, Glaxo teamed up with Roche to bring Zantac to market in the US. This co-promotion alliance catapulted Glaxo to number two in the US, revived Roche after the patent expiration of Valium, and overtook SmithKline’s Tagamet to become the world’s top-selling pharmaceutical. Lipitor and Celebrex added an additional dimension to the mystique of co-promotion: After hugely successful co-promotion outcomes, these alliances provoked acquisitions by the co-promotion partner – Pfizer in both instances.
For several decades, these three pharma co-promotion deals have represented a “gold standard” in biotech’s deal-doing with top pharma. For example, the Zantac deal structure was revisited by Roche and Amgen in their 1988 European co-promotion alliance for Neupogen. Importantly, co-promotion has invoked an elusive “have-your-cake-and-eat-it-too” status on biopharma alliances: Rather than being an alternative to M&A, co-promotion might entice a later acquisition bid from a covetous acquirer. This indeed proved to be the case with Immunex’s Enbrel (co-promoted by Wyeth), Centocor’s Remicade (co-promoted by Schering) and ImClone’s Erbitux (co-promoted by Bristol-Myers).
However, for every co-promotion success story there have been dozens of less successful products and many more biopharma alliances that haven’t resulted in product approvals. Hence this question: How broadly has co-promotion been utilized in biopharma deal structures recently, and with what variants?
To answer this question, BioSci has undertaken an analysis of co-promotion and related provisions in approximately 150 SEC-filed biopharma alliances. As with most BioSci analyses, the tags to co-promotion provisions included in the analysis that follows are accessible directly via the links in the embedded spreadsheets. Subscribers to BiosciDB may also access the full biopharma alliance from which each provision was extracted.
BioSci’s analysts have identified approximately 150 SEC-filed biopharma alliances involving development and/or commercialization via co-promotion commenced since January 2006. For this analysis, we limited our search to biopharma licenses for therapeutic products or vaccines, excluding diagnostics and devices. We distinguished instances involving co-promotion of approved or near-approval products (“Standalone Co-Promotion”) from deals involving R&D obligations and payments post-signing, followed by a party’s right or option to co-promote (“R&D-Based Co-Promotion”). We also distinguished alliances with co-development obligations by both parties (“CoDev”) from alliances wherein all R&D post-signing was sponsored by the alliance partner (“Sponsored”). In each instance, we assembled the key economic and other deal elements, including tags where available to key co-promotion provisions, related to one or more of the following:
- Deal Size – a summation of all upfront, R&D and milestone payments, including any equity or loan amounts;
- Upfront Cash – the license fee plus any annual payments not based on events (upfront equity was not included, as it is typically based on the fair market value of the securities purchased);
- Upfront, Development and Sales Milestones Shares of Deal Size – the percentage of total deal size derived from upfront cash, development/regulatory milestones through the launch in multiple jurisdictions of the first intended product & indication, and sales milestones, respectively;
- Maximum Marketing Fee – the highest rate of compensation payable to the co-promotion partner by the party booking product sales;
- Co-Promotion Payment Type – the form of compensation payable to the co-promotion partner by the party booking product sales;
- Maximum Royalty Rate – the highest royalty rate specified as payable to the licensor under certain circumstances; and
- Maximum Profit Split – the highest profit split available to the licensor under certain circumstances.
For approximately 40% of these agreements, there was sufficient disclosure for BioSci’s analysts to tag and analyze multiple co-promotion attributes of each alliance. We discuss the results of this subset analysis with respect to Standalone and R&D-Based Co-promotion agreements below.
Typical Structure of Biopharma Alliances Involving Co-Promotion View all data
20% (30 of 152) of biopharma alliances involving co-promotion over the past decade have been Standalone Co-promotion agreements. By contrast, 80% (122 of 152) of biopharma alliances involving co-promotion over this same period have included some R&D sponsorship by the party obtaining commercialization rights. Of these R&D-Based Co-promotion agreements, 25% (30 of 122) had Sponsored R&D post-signing, while 75% (92 of 122) were CoDev because they entailed either an obligation or right of co-development by the licensor post-signing.
Standalone Co-Promotion Agreements View data
93% (28 of 30) of Standalone Co-promotion agreements involved US promotion rights only. 43% (13 of 30) included Upfront Cash or other one-time payments to the product’s originator, with average Deal Size of approximately $90 million ($48M median). 83% (25 of 30) of these agreements involved already-approved products, while 17% (5 of 30) were for compounds with NDAs filed with the FDA at signing.
Standalone Co-Promotion Terms View Tags
Of the 30 Standalone Co-promotion agreements identified, BioSci analysts have tagged and analyzed multiple co-promotion attributes for 24 agreements based on the completeness of disclosure of these terms. We obtained all but one of these agreements via Freedom of Information Act (FOIA) requests made to the SEC. With respect to the type of Marketing Fee paid to the co-promoter, 71% (17 of 24) involved a royalty on sales, 21% (5 of 24) paid a percentage of gross profits, and 8% (2 of 24) consisted solely of one-time payments. Most common was for a royalty on sales to be paid on incremental sales above a baseline (10 of 17), although a royalty was sometimes paid on sales to the co-promotion segment (4 of 17) or on all sales (3 of 17). 41% (9 of 22) of the agreements had a combination of one-time and sales-based payments.
In terms of analyzed Standalone Co-promotion deal structures, 58% (14 of 24) granted co-exclusive rights to the co-promoter, 29% (7 of 24) granted non-exclusive promotion rights, and 13% (3 of 24) granted exclusive promotion rights to a specific physician segment. The duration of co-promotion was life of patents in 8% (2 of 24) of the agreements, while the average co-promotion term was 3.7 years for the other 92% (22 of 24) of deals. 29% (7 of 24) of these agreements permitted use of contract sales organizations (CSOs) while 63% (15 of 24) prohibited such use. 67% (16 of 24) provided that residual or “tail” payments be made after the co-promotion term. Finally, 42% (10 of 24) of analyzed Standalone Co-promotion agreements provided a right of early termination in the event of change of control (CoC) of an agreement party.
R&D-Based Co-Promotion Agreements View data
For the 122 biopharma alliances commenced since January 2006 and identified by BioSci’s analysts as involving development and a right or option for commercialization via co-promotion, the average Deal Size was approximately $570 million ($440M median). Of this amount, the average Upfront Cash was $60 million ($40M median). 46% (56 of 122) of these R&D-Based Co-promotion alliances were at Phase II or later stages of development at signing, while 33% (40 of 122) were Phase I or preclinical stages, and the remaining 21% (26 of 122) at lead or discovery stages.
CoDev Vs. Sponsored R&D Agreements View data
With respect to the 75% (92 of 122) of the R&D-Based Co-promotion agreements that were CoDev, the average Deal Size was approximately $596 million ($443M median), and the average Upfront Cash was $70 million ($41M median). By comparison, for the 25% (30 of 122) of the R&D-Based Co-promotion agreements that were Sponsored, the average Deal Size was approximately $488 million ($420M median), and the average Upfront Cash was $34 million ($25M median).
R&D-Based Co-Promotion Terms View Tags
There was sufficient disclosure for BioSci’s analysts to tag and analyze the specific co-promotion attributes of 39 R&D-Based Co-promotion agreements. 22 of these agreements were obtained via FOIA requests made to the SEC, and the remainder, though redacted, had sufficient disclosure to be useful analytically. As compared to all 122 R&D-Based Co-promotion agreements, the analyzed subset of 39 had an average Deal Size of $565 million ($434M median), with average Upfront Cash of $46 million ($35M median). 79% (31 of 39) of the subset were CoDev, while the remaining 21% (8 of 39) were Sponsored R&D-Based Co-promotion agreements.
Unlike the analyzed Standalone Co-promotion agreements, wherein the compound’s originator (“R&D Co”) always books the product sale, in 85% (33 of 39) of the analyzed subset of R&D-Based Co-promotion agreements, the alliance partner (“Client Co”) books the product sale in all licensed territories, including co-promotion territories. Conversely, the R&D Co books the product sale in the co-promotion territory in only 15% (6 of 39) of analyzed instances. With respect to the type of payment made to the co-promoting party, there was a split of net profits in 36% (14 of 39) of alliances, payment of a detail fee in 36% (14 of 39), reimbursement of sales force expenses in 26% (10 of 39), and a stepped-up royalty in 5% (2 of 39). Most common was a 50/50 US profit split, which was specified in 28% (11 of 39) of the analyzed R&D-Based Co-promotion agreements.
In terms of analyzed R&D-Based Co-promotion deal structures, the duration of co-promotion was life of the product in 56% (22 of 39) of the agreements, life of patents in 21% (8 of 39), and a specific number of years after launch in 21% (8 of 39), for which the average co-promotion term was 4.9 years. 31% (12 of 39) of these agreements permitted use of contract sales organizations while 49% (19 of 39) prohibited such use. Finally, 56% (22 of 39) of analyzed R&D-Based Co-promotion agreements provided a right of early termination in the event of change of control of an agreement party.
This analysis has shown that there are many variants in biopharma alliances involving co-promotion provisions. Very basic deal elements, such as which party will book co-promotion sales, vary from deal to deal, as do the core economics (royalty, profit split, fee for detail, reimbursement of sales costs) and key structural aspects, including duration and impact of third party involvement. Given such variation, parties contemplating a biopharma alliance with co-promotion aspects would benefit significantly from a careful analysis of the wide range of co-promotion deal structures now in practice, and emulation of those structures which seem most conducive to successful alliance outcomes.