Glaxo emerges as big spender as external pipeline grows

Analysis

Alongside interim results this morning GlaxoSmithKline boasted that it expects more than 30 read outs on 14 phase III assets by the end of next year. That is an awful of lot of data to emerge from what is now one of the industry’s largest drug pipelines, amassed by one of the most prolific deal makers.

In terms of the amount of cash paid out up front to seal a deal, Glaxo has been one of the top four spenders every year since 2007, according to an analysis of EvaluatePharmadata. The company paid out $1.24bn in signing fees, a figure almost matched by similarly frenetic activity from Sanofi (see tables). With Glaxo also promising today greater disclosure on its R&D spending and the returns generated, it will interesting to see in the coming years if this spending spree translates into greater commercial success.

Embracing the external

In the last three months Glaxo has won US approval for epilepsy therapy Potiga, European approval for Benlysta for Lupus while Japanese regulators nodded through childhood vaccine Rotarix.

None of these products emerged exclusively from Glaxo’s research labs. Rotarix was licensed from the Virus Research Institute, back in 1997, Benlysta is being sold with partner Human Genome Sciences while Potiga was licensed from Valeant Pharmaceuticals a couple of years ago.

While all big pharma companies have increasingly been looking beyond their own labs for future sales growth drivers, Glaxo has certainly embraced this tactic more than some others. The company has been prepared to strike deals at all stages, from early research stage collaborations to collaborations over drugs already on the market, and the effects of this can already be seen on the source of its sales.

As the table below shows, sales from organically derived products are on the decline while in-licensed products are becoming increasingly important.

GlaxoSmithKline Pharma Sales by Strategy
2006 2008 2010 2012 2014 2016
Organic 57% 56% 60% 56% 54% 50%
In-licensed 11% 10% 10% 12% 15% 18%
Company Acquisition 11% 13% 9% 9% 7% 6%
Product Acquisition 5% 3% 3% 3% 3% 2%
Joint Venture - - 1% 1% 1% 1%
Total WW Product Sales (Products Module) 84% 82% 83% 81% 80% 78%

Intriguingly, Glaxo also said today it plans to increase disclosure on the returns on R&D investment, a move that will be welcomed as this is a notoriously hard figure to calculate. In February the company estimated an 11% return, which it wants to grow to 14% and claims is better than industry average over the last 10 years.

The company plans to provide the percentage of externally sourced assets in the pipeline as a “key performance indicator” in the future. It will be interesting to see if this figure continues to rise, in the wake of the buying spree of the last few years – and whether any correlation to return on investment can be detected.

Big Spenders

As the table below shows, unsurprisingly big pharma features heavily in the league tables of big spenders, in terms of the amount paid upfront, to secure assets from partners. Sanofi, which has paid out $986m over the four years, has also clearly embraced this strategy.

Clearly, one or two large deals could mean a place in the top ten for any one company, using upfront payments as an indicator. However, it is clear that Glaxo and Sanofi are also playing a numbers game, to a certain extent. The number of products they have struck these deals over is also much higher than many others.

AstraZeneca, Merck & Co and Pfizer also were prolific deal makers, appearing in the top 10 list three out of the four years. Pfizer spent more than $1bn over the period, but understandably took a year off from big licensing activity in 2009 to buy Wyeth.

2010 Upfront Fee ($m) Total Deal Value ($m) Product Count 2009 Upfront Fee ($m) Total Deal Value ($m) Product Count 2008 Upfront Fee ($m) Total Deal Value ($m) Product Count 2007 Upfront Fee ($m) Total Deal Value ($m) Product Count
1 Abbott Laboratories 550 1,050 6 Johnson & Johnson 507 1,711 8 GlaxoSmithKline 374 6,753 31 Pfizer 469 2,423 39
2 GlaxoSmithKline 310 1,889 14 Roche 399 2,157 8 Pfizer 360 2,163 16 Sanofi 279 2,107 22
3 Merck & Co 289 289 5 AstraZeneca 374 2,819 11 Sanofi 317 3,452 11 GlaxoSmithKline 232 6,969 31
4 Pfizer 214 862 9 GlaxoSmithKline 325 3,510 50 Bristol-Myers Squibb 267 1,764 6 Merck & Co 213 3,274 22
5 Cephalon 130 1,830 3 Astellas Pharma 306 1,496 10 Takeda 250 1,695 11 Eli Lilly 205 2,061 8
6 Celgene 130 130 2 Sanofi 267 3,399 23 Dainippon Sumitomo Pharma 225 605 6 Johnson & Johnson 194 1,695 12
7 Sanofi 124 3,483 15 Novartis 233 897 14 Forest Laboratories 150 415 3 AstraZeneca 159 2,589 17
8 Takeda 110 1,330 5 Abbott Laboratories 200 419 5 Amgen 100 520 1 Shire 150 1,630 5
9 AstraZeneca 107 1,605 7 Forest Laboratories 175 175 4 Lundbeck 100 607 3 Celgene 125 834 20
10 Bristol-Myers Squibb 102 1,054 6 Merck & Co 175 1,595 16 Endo Pharmaceuticals 85 110 1 Novartis 105 1,939 16

Big spenders in 2011

However, a look at the size of upfront deals paid by companies for assets in the year to date rather interestingly shows that only three out of the top ten companies are big pharma. This could well reflect a pull back from spending and a focus on cost cutting reported by many of the large pharma groups.

Conspicuous by its presence in the league table this year is Eli Lilly, which has made an impressive debut this year with its $410m payment for rights to Boehringer Ingelheim's diabetes products.

The group struck the deal in its efforts to become a one stop shop for diabetes products, by combining its long-acting insulin drugs with DDP-IV inhibitor Tradjenta and SGLT-2 inhibitor BI10773 (Lilly-Boehringer diabetes deal seeks safety in numbers, January 12, 2011). The investment, however, might turn out to be a costly one given concerns that the adverse effects seen with Bristol-Myers Squibb and AstraZeneca’s SGLT-2 dapagliflozin might turn out to be a class effect. Tradjenta too is expected to struggle to make its mark in an increasingly crowded DDP-IV market dominated by Januvia (Therapeutic Focus - Dapaglifozin set back could impact SGLT space, July 20, 2011).

What is notable about the upfront fee is that it represents almost a third of the total deal value. This high looking ratio could say more about Lilly’s desire to execute its strategy of continued investment in its pipeline, rather than diversification to help it get over patent expires of key product Zyprexa and Cymbalta by 2014 (Eli Lilly reaffirms commitment to innovation but needs to deliver, July 1, 2011).

Astellas Pharmaceuticals spent most of its money on two products, albeit in two separate deals. Pushing its spending up was the $125m it paid to Aveo Pharmaceuticals to in-license kidney cancer drug tivozanib, for which there are high hopes; if impressive progression-free survival times are maintained it could well become a front line therapy (Astellas taps into tivozanib's potential with billion-dollar deal, February 17, 2011). The other notable deal struck by the Japanese group was the $68m upfront paid to Optimer Pharmaceuticals for its Clostridium difficile-associated diarrhea drug, difimicin.

Of the smaller companies striking impressive deals Allergan has led the charge, scooping up Molecular Partners phase II age-related macular degeneration product MP0112 for an upfront fee of $45m and MAP Pharmaceuticals' filed migraine drug Levadex for $60m on the table with potential milestone payments of $97m (Allergan sees dosing potential in Molecular Partners' AMD candidate, May 5, 2011). However, the relatively small upfront fee for Levadex, which had been one of the most valuable unpartnered assets in phase II development, reflects the fact that the drug uses inhalation technology, some that many believe will mean its path through the regulators could be a long and difficult one.

Abbott Laboratories, one of last year’s big spenders has so far this year been a lot more parsimonious, shelling out only $85m at the half point for one product, compared with the $550m it spent over the whole of 2010. The one thing that has made it unloosen the purse strings this year has been Biotest’s rheumatoid arthritis drug, BT-061, which it has essentially purchased to continue its dominance in the field.

Conversely, Valeant Pharmaceuticals International has continued on its seemingly unstoppable spending spree, which has seen it pay out over $1bn to acquire dermatology companies, by in licensing four products for a total of $85m. But of that total the majority, $75m, has been in upfront payments. Two out of four in licensed drugs are dermatological products, in line with the group’s strategy of becoming a dominant player in the highly fragmented space. 

 But with only another five months to go before the end of the year, 2011 is looking as if it could be the year for mid size pharma groups to lead the way in finding and executing some of the biggest deals in the industry.

Top 10 companies paying upfront fees in H1 2011 Upfront Fee ($m) Total Deal Value ($m) Product Count
1 Eli Lilly 410 1,262 8
2 Astellas Pharma 203 1,874 3
3 Allergan 105 577 2
4 Abbott Laboratories 85 85 1
5 Valeant Pharmaceuticals International 78 85 4
6 Salix Pharmaceuticals 60 350 2
7 Vertex Pharmaceuticals 60 1,525 3
8 Sanofi 50 663 8
9 Human Genome Sciences 50 495 1
10 Purdue Pharma (Mundipharma) 50 50 1

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