Top Pharma Vs. Major Biotech
Who is Biopharma’s Favorite Alliance Partner?
Major Biotech has made a concerted bid to overtake Top Pharma as biotech’s Partner of Choice.
Back in 2002, the 6th annual Allicense Conference was themed “Becoming the Partner of Choice.” Top executives of 15 corporations made the case for why their employer was “Partner of Choice”. Thirteen of the 15 were major pharma companies, and only two – Amgen and Biogen – were biotechs.
Fourteen years later, it seems appropriate to revisit the question of biopharma’s “Partner of Choice”. As is clear from slides 1-3 accompanying this article, there are now two distinct camps: Top Pharma and Major Biotech. Since January of 2012, the 17 most active Top Pharma have commenced over 800 biopharma alliances, while the 14 most active Major Biotechs have contributed almost 200 biopharma deals. Collectively, these two camps have been responsible for 70+% of alliance payments made or promised by the 3,400 biopharma alliances that have commenced over this 4+ year period.
However, there are many deal types and structures that sail under the banner of biopharma alliance, and deal press releases only ever tell a small portion of the story. To look a bit deeper, BioSci has undertaken an analysis of SEC-filed biopharma alliances involving either Top Pharma or Major Biotechs that commenced from January 2012 through May 2016. As with most BioSci analyses, the tags to specific deal 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 227 SEC-filed biopharma alliances involving Top Pharma or Major Biotech that commenced since January 2012. For this analysis, we eliminated acquisitions and any asset purchases that didn’t also have a license component. We then distinguished instances wherein the Top Pharma or Major Biotech was the licensee (“In-License”) from deals wherein they were the licensor (“Out-License”). Instances of deals between Top Pharma and Major Biotech were treated separately, as noted below. In each instance, we assembled the alliance scope and key payment terms from the SEC-filed contracts plus 10-K/10- Q financial notes. For this analysis we also included tags of the commercial license granted, any field limitations, and any allocation of rights to price and/or book product sales within the licensed territory.
Our definitions of the various payment terms are as follows:
- Deal Size – a summation of all upfront, R&D and milestone payments, including any equity or loan amounts, to be paid to the licensor;
- Upfront – 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);
- Development and Regulatory Milestones (“Dev/Reg”) – the total milestone amount to be paid to the licensor through launch in all jurisdictions for the first product or indication;
- Sales Milestones (“Sales”) – the aggregate milestone amount to be paid to the licensor in the event that all specified commercial sales thresholds are met;
- Exclusivity – where available, we tagged the commercial license granted and classified it as Exclusive, Semi-exclusive or Non-exclusive;
- Field – where available, we tagged the licensed field of use and classified it as All Uses or limited by Disease and/or Type of Product; and
- Pricing/Booking – where available, we tagged the provision addressing each party’s right to price products and/or book sales in specific licensed territories.
N.B. With respect to the average and median amounts shown in the slides and tables, the Deal Size doesn’t closely correlate to the sum of the Upfront, Dev/Reg and Sales amounts for two reasons: (1) the Deal Size may include additional payment elements, such as sponsored R&D, equity, loans and/or milestones for additional products and/or indications; and (2) the average and median amounts for Upfront, Dev/Reg and Sales payments apply only to deals for which these amounts were known.
Major Biotech Outspends Top Pharma
As shown in slides 4-7 and the Summary Table, Major Biotech has recently paid more for biopharma alliances than Top Pharma on both an average and median basis. This is true overall and for most deal subsets – e.g. Exclusive Deals, deals for All Fields of Use, and deals signed at preclinical, Phase II or Phase III & later stages. The median payments show a different story from the averages, however, with respect to worldwide deals and deals signed at Phase I stage at signing.
Certain Deal Subsets Have Very Distinct Payment Terms
As shown in slide 8, the payment terms for non-exclusive in-licenses by Top Pharma are just a fraction of what is paid for Exclusivity, and the payments owed to Top Pharma for Out-licenses are also much smaller than typical in-license terms. For Major Biotech, slide 9 shows that Out-licenses to Top Pharma command a substantial payment premium, while out-licenses to all others are an order of magnitude smaller.
Biggest Contrast Between Top Pharma and Major Biotech Deal Terms
As shown in the final slide, the biggest contrast in payment terms were for alliances where (i) the field of use was limited by disease, (ii) deals at discovery or lead stage, and (iii) deals at Phase II stage of development. Top Pharma outspent Major Biotech for Disease-specific Fields and early stage deals, while Major Biotech outspent Top Pharma for deals done at Phase II stage at signing.
Pricing & Booking of Products
A surprising, if rare, observation of this analysis concerned the pricing and booking of licensed products. While worldwide and exclusive deal scopes dominated both the Top Pharma and Major Biotech deal sets, in seven instances the right to price products and book sales in certain licensed territory went to the licensor, rather than to the licensee as would typically occur. Five instances were Top Pharma alliances – Aduro/Novartis (Tag), Infinity/AbbVie (Tag), Galapagos/AbbVie (Tag), FibroGen/AstraZeneca (Tag), and Auxilium/GlaxoSmithKline (Tag) – and the remaining two instances were Major Biotech alliances – Galapagos/Gilead (Tag) and CRISPR/Vertex (Tag).
This analysis has shown that Major Biotech has made a concerted bid to overtake Top Pharma as biotech’s Partner of Choice. Although the frequency of alliances is still greatly in Top Pharma’s favor, Major Biotech has demonstrated a willingness to commit substantial amounts to secure products across the development spectrum. While both groups have similar interests with respect to deal scope, Top Pharma may still lead the way with respect to key concessions regarding field of use limitations and right to price and book products within the licensed territory.