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Deal-making activity in pharma has experienced a significant and sustained increase over the last decade. And when it comes to striking co-marketing deals, there is no end to the choice available

SweetsDeal-making activity in the pharmaceutical industry has experienced a significant and sustained increase over the last decade. Much of this growth has resulted from transactions between established pharma companies and the plethora of research-driven biotechnology firms that have been created over the last 20 years.

As the biotech industry has matured, the larger, better-funded firms in the sector have been able to take their potential products further along the drug development and commercialisation value chain. This, in turn, has altered the nature and composition of the deals entered into with pharmaceutical majors.

Deals that once centred on the straight out-licensing of developmental (often preclinical or phase I/IIa) products to a pharma company that would assume responsibility for advanced development, registration and sales and marketing, have tended to give way to deals cut in the later stages of the product life cycle.

As such, the emerging company is able to participate in the marketing of the product and retain a greater share of the commercial returns from the product. This growing trend has led to an increase in the number of pharma-biotech alliances that include a co-promotion and/or co-marketing element.

In it together
An analysis of the transactions recorded in PharmaDeals Agreements, PharmaVentures' database of pharmaceutical industry deals, shows that, in total, co-promotion and co-marketing agreements more than doubled between 1997 and 2004.

Over this period, co-promotions accounted for an average of 58 per cent of all deals that included a co-promotion and/or co-marketing element, a proportion that remained relatively steady throughout the eight years. The total number of deals by global pharma companies also remained steady.

What changed dramatically, however, is the number of co-promotion and/or co-marketing deals entered into by start-up companies; the number of such deals more than quadrupled between 1997 and 2004.

In 1997, deals involving start-ups accounted for just one-third of all co-promotion and/or co-marketing deals; this proportion had risen to three-quarters by 2004. The majority of this growth came from an increase in the number of deals taking place between global, or other established, pharmas and start-ups.

However, it is noteworthy that from 1999 the number of co-promotion and/or co-marketing agreements between early-stage companies increased from a negligible level to account for around one-quarter of all such transactions in 2004.

Over the past eight years, the stage at which companies would strike up deals involving a co-promotion and/or co-marketing component shifted. In 1997, around 60 per cent of all such deals concerned products in phase III development. By 2004, this proportion had fallen to about 40 per cent, the balance being accounted for by an increase in the frequency of deals involving products in earlier stages of development.

This trend is entirely consistent with the strategies of many better established biotech companies that want to achieve greater forward vertical integration and realise greater returns on their R&D by participating directly in the sale of their products.

Cross border activity 
Co-promotion and co-marketing agreements tend to be limited in geographical scope. Since 1997, agreements that pertain to the US, or Europe, alone have outnumbered those that are worldwide by a factor of three to one.

Between 1997 and 2004, there were eight times as many US-only deals than Europe-only transactions. While this seems quite a high figure, the gap has narrowed somewhat over the last few years.

Co-promotion deals are usually restricted to the licence-holder's domestic market in multi-faceted alliances concerning developmental products. This is especially true in the large, homogeneous US market, and in particular when the product is targeted at the hospital market and requires a relatively modest salesforce.

In September 2004, Roche and US-based Protein Design Labs (PDL) entered into such a deal for Zenapax (daclizumab), an immunosuppressive humanised monoclonal antibody approved originally for the prevention of acute organ rejection in kidney transplant patients. The product has also received positive phase II trial results in patients with moderate-to-severe asthma.

Under the terms of the agreement, PDL received a $17.5m upfront payment and could receive up to $187.5m in a development and commercialisation milestone payment. Roche and PDL agreed to co-develop Zenapax globally for asthma, share development expenses and co-promote the product in the US. Outside the US, PDL will receive royalties on net sales of the product in asthma.

In the same month, Merck & Co and Nastech Pharmaceutical struck a deal relating to Nastech's phase I potential product Peptide YY 3-36 nasal spray for the treatment of obesity. As with Roche and PDL, the licensee secured worldwide rights but granted the licenser the option to co-promote the product in the US.

In both deals, the co-promotion element of the deal was agreed in the early stages of product development.

The deal
Deals agreed when products are still in the development stage provide an important means for established pharmaceutical companies to supplement the outputs of their own internal R&D efforts and build portfolios of innovative, on-patent products that will underpin their revenue generation longer term.

Given that true blockbusters are few and far between, pharma companies have become highly proactive in tracking down and securing rights to promising (if 'sub-blockbuster') new products emanating from the biotech sector. In some cases, the need for upcoming products is so great that companies will agree a deal regardless of the inconvenience and lost revenue potential of a co-promote in certain territories, most often in the US market.

However, companies that take this route can take solace from the fact that when the product does eventually reach the market, its biotech partner may decide not to exercise its co-promote option or enforce its negotiated co-promotion rights; the duration of a phase III trial represents a long time in the strategic plans of many biotechnology companies.

Yet, biotechnology companies do not represent the only external source of new products for pharmaceutical companies: established regional players may also see advantage in entering into such agreements.

Partnership potential
In October last year, Eli Lilly & Co and Merck KGaA entered into a deal concerning EMD 281014, a 5HT2 antagonist heralded as a potential breakthrough treatment for insomnia. At the time, the compound was in phase I clinical development and Merck received an upfront payment of Ä22.5m and stood to benefit from future development and commercialisation milestone payments, as well as from royalties on eventual product sales.

Lilly secured exclusive worldwide development and marketing rights and Merck retained co-promotion rights in certain countries.

EMD 281014 was an exciting and unexpected discovery from Merck's internal research activities, but it fell outside the company's main therapeutic areas of oncology and cardiometabolic care; out-licensing the product to Lilly, a leader in the CNS area, while retaining an option to participate directly in the sale of resultant products, made perfect strategic sense.

Eastern promise
Japanese pharmaceutical companies, by virtue of their limited sales and marketing capabilities outside their domestic market, have historically provided a rich source of licensing opportunities for US and European firms (the corollary is of course also true).

The licensing arrangement between Yamanouchi and Boehringer Ingelheim is a typical example of such a transaction.

Under the deal, Boehringer secured US marketing rights to Flomax, (tamsulosin HCl) for the treatment of the signs and symptoms of benign prostatic hyperplasia, for which it has been marketing the drug in the US since 1997. However, in a rather less orthodox move, in August 2004 Yamanouchi's US subsidiary entered into an agreement with Boehringer under which the Japanese firm would start to co-promote Flomax in the US, 12 years after the drug was first launched in Japan.

The two companies also co-promote in Japan Micardis (telmisartan), a treatment for hypertension discovered and developed by Boehringer.

The recent developments of the Flomax deal may serve to underline that few arrangements, co-promotional or otherwise, will remain unchanged over an extended timeframe and that such revisions may be easier to effect when the contracting parties' relationship has been a long and multi-faceted one.

Although the norm is for smaller companies to license their products to larger companies, the traffic in products for co-promotes is not just one-way. In other instances, pharmaceutical marketers may see advantage in using the capabilities and enthusiasm of smaller drug marketers to co-promote their products.

In February, Schering-Plough and PediaMed Pharmaceuticals agreed a deal for the co-promotion of an undisclosed respiratory treatment to the paediatric medical community in the US.

PediaMed, a privately held speciality pharmaceutical company focused exclusively on the health of children, is assembling a portfolio of products in the respiratory/allergy, anti-infective, gastrointestinal and pain areas, and may be expected to work hard to capture greater share of voice and drive sales of the co-promoted product. As a sales and marketing-focused company, Schering-Plough's respiratory product may be expected to provide a useful supplement to its portfolio.

For other, smaller, firms, co-promotion of a product obtained from big pharma can be seen as more of a means to an end. A case in point is the recent agreement between GlaxoSmithKline and Adolor Corporation, which represents something of an exemplar with regard to big pharma-biotech co-operation.

Textbook case
In January 2005, Adolor entered into a two-year agreement to co-promote GlaxoSmithKline's (GSK) antithrombotic agent Arixtra (fondaparinux sodium) in the US.

The company announced that it would begin recruiting 30 surgeon-focused sales representatives to collaborate with GSK sales reps in a combined national effort to co-promote the drug.

Under the terms of the agreement, GSK is to provide cost reimbursement to Adolor for its promotion of Arixtra. While Arixtra certainly has merit in the prevention and treatment of deep vein thrombosis and pulmonary embolism, the real significance of the co-promote, as openly acknowledged by the two companies at the time of the deal, is in providing a stepping stone to the establishment of a specialist collaborative salesforce for the anticipated subsequent promotion of Entereg (alvimopan).

Entereg is a peripherally-acting µ opioid receptor antagonist undergoing development with Adolor that is intended to block the adverse side effects of opioid analgesics on the GI tract, without impeding their beneficial analgesic effects. The product is the subject of a marketing application in the US for post-operative ileus and is under investigation for two other indications.

The two companies' arrangements with respect to Entereg date back to April 2002, when Adolor entered into a collaboration agreement with GSK for the exclusive worldwide development and commercialisation of Entereg for certain indications.

In the US, GSK and Adolor intend to co-promote Entereg, while in other territories, GSK will sell the product and Adolor will benefit through a royalty on sales.

The recent agreement in relation to Arixtra appears to be an excellent example of a major pharma company demonstrating in a very tangible form its commitment to supporting its collaborative partner in achieving the latter's strategic objective of forward vertical integration into pharmaceutical sales, in turn helping it to maximise its returns in the US.

As the subjects of other companies' co-promotion agreements advance to a similar point in clinical development and registration, the co-operation between GSK and Adolor may serve as a useful template.

As the pharmaceutical industry continues to evolve and the distinction between research-based drug discoverers and fully integrated pharmaceutical companies continues to blur, we can expect the frequency, but more importantly the variety, of co-promotional and co-marketing arrangements to increase. The examples cited here perhaps hint at some of the diversity that has yet to come.

The Author
Bob Fishleigh is a consultant at PharmaVentures

2nd September 2008

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