In licensing, you don’t always get what you pay for

To access the right asset a licensor needs to be prepared to pay top dollar up front, not to mention agreeing to hand over significant fees as milestones are met. But how well are the industry’s bets panning out?

EP Vantage has looked at EvaluatePharma’s deal data for alliances done in the phase II licensing sweet spot – an analysis that reveals some expensive failures, as well as pinpointing ongoing projects to which analysts nevertheless have yet to assign any value. On the other hand, some big marketed drugs were picked up at phase II for a song (see tables below).

In the analysis EP Vantage has considered only those deals done at phase II since it is here that most is at stake, with projects yet to show definitive promise at phase III, but already able to boast safety and preliminary efficacy data. It is here that biotech frequently chooses to bow out, leaving big pharma to make the big phase III bet.

A project’s NPV, as determined by sellside consensus data compiled by EvaluatePharma, is then compared against the up-front fee paid to strike the deal. Deals where the signing fee has not been disclosed are, for obvious reasons, excluded.

An unexpected winner

Somewhat surprisingly, the top deal on this metric turns out to be a now largely forgotten 1997 alliance between GlaxoSmithKline – SmithKline Beecham as it was then – and the Virus Research Institute to develop the oral rotavirus vaccine that later became Rotarix. A year later Virus Research was acquired by Avant Immunotherapeutics (now known as Celldex).

Of course, this analytical approach is somewhat limited, given that it captures neither the subsequent milestone fees that the senior partner might have had to hand over, nor the often considerable R&D investment needed turn an idea into a marketed drug. However, the NPV expressed as a multiple of the total biodollar deal value does address at least this first point.

The top 10 NPV multiples for deals done at phase II
Product Licensee Licensor/originator Up-front fee ($m) Deal value ($m) Today's NPV ($m) Current status NPV multiple of up-front NPV multiple of deal value
Rotarix GlaxoSmithKline Virus Research Institute (Celldex) 0.5 19.0 2,126.2 Marketed 4,252.4x 111.9x
Tasimelteon Vanda Pharmaceuticals Bristol-Myers Squibb 0.5 40.5 253.3 Filed 506.6x 6.3x
Xiaflex Auxilium Pharmaceuticals BioSpecifics Technologies 2.5 15.5 555.7 Marketed 222.3x 35.9x
Rolapitant Tesaro Opko Health 6.0 121.0 1,149.1 Phase III 191.5x 9.5x
Cleviprex The Medicines Company AstraZeneca 1.0 6.0 92.4 Marketed 92.4x 15.4x
AZD4694 Navidea Biopharmaceuticals AstraZeneca 5.0 22.5 235.3 Phase III 47.1x 10.5x
Pacritinib Cell Therapeutics S*BIO 15.0 147.5 523.1 Phase III 34.9x 3.5x
Yondelis Johnson & Johnson Grupo Zeltia 20.0 20.0 647.1 Marketed 32.4x 32.4x
Seebri Breezhaler Novartis Arakis (Sosei)/Vectura 30.0 405.0 920.0 Marketed 30.7x 2.3x
Eylea Bayer Regeneron Pharmaceuticals 75.0 320.0 1,927.7 Marketed 25.7x 6.0x

Other marketed drugs that stand out include the long-acting muscarinic antagonist Seebri Breezhaler and the macular degeneration drug Eylea, which is set to breach blockbuster revenue this year yet was picked up by Bayer for $75m.

True, projects yet to be launched likely carry NPVs based on analyst forecasts that in the current biotech bubble are exaggerated. This might be the case for Tesaro’s anti-emetic rolapitant and Cell Therapeutics’ JAK-2 inhibitor pacritinib, both of which in any case need to be licensed out further (A few stars shine among the most valuable unpartnered assets, May 31, 2013).

Nevertheless, in the case of big pharma licensing projects from biotech, up-front payments do mark the stage at which the senior partner gains a grip on an asset, and as such the data highlight many of the oaks that have grown from tiny acorns.

Blunders and unrealised value

On the debit side, meanwhile, deals on several once promising but now discontinued agents feature prominently – none more so than Abbott’s costly blunder with bardoxolone (Reata bursts Abbott’s bubble, October 19, 2012).

The 10 costliest phase II deals by current NPV
Product Licensee Licensor/originator Up-front fee ($m) Deal value ($m) Today's NPV ($m) Current status
Bardoxolone methyl Abbott (AbbVie) Reata Pharmaceuticals 450.0 800.0 0.0 Abandoned - phase III
OBP-601 Bristol-Myers Squibb Oncolys BioPharma 286.0 286.0 0.0 Phase II
TC-5214 AstraZeneca Targacept 200.0 1,240.0 0.0 Phase II (failed phase III)
Lu AE58054 Otsuka Holdings Lundbeck 150.0 825.0 0.0 Phase II
JTT-751 Torii Pharmaceutical Keryx Biopharmaceuticals 120.0 200.0 0.0 Filed
Motesanib Takeda Amgen 100.0 275.0 0.0 Phase III Japan (failed elsewhere)
Fostamatinib AstraZeneca Rigel Pharmaceuticals 100.0 1,245.0 0.0 Abandoned - phase III
Ataluren Genzyme (Sanofi) PTC Therapeutics 100.0 437.0 0.0 Phase III
MOR202 Celgene MorphoSys 92.0 910.0 0.0 Phase II
RG1583 Roche Ipsen 91.1 569.4 0.0 Abandoned - phase III

However, perhaps more interesting are projects still in development that, despite being brought in for hefty amounts of cash, have no value assigned to them by equity analysts.

These include Oncolys Biopharma and Bristol-Myers Squibb’s anti-HIV compound OBP-601 and PTC Therapeutics’ ataluren, for which Genzyme paid $100m up front before handing rights back after a failed muscular dystrophy trial. MorphoSys’s MOR202 has yet to generate any human data, but despite this Celgene recently handed across €71m ($92m), largely on the strength of the results of Genmab/Johnson & Johnson’s competitor daratumumab.

Others, like Lu AE58054 and JTT-751, have no value assigned to them by analysts covering their Japanese licensees, who do not view them as significant enough. In the case of the former, analysts covering Lundbeck do assign sales equivalent to an NPV to the Danish company of $168m, and indeed forecasts could move higher with the project’s entry into phase III in Alzheimer’s disease (Lundbeck Alzheimer’s data justify Otsuka’s exuberance, July 17, 2013).

Unless a project has actually failed, a large up-front fee cannot be written off as wasted money, and all it takes is a subsequent success to reduce the disconnect between the cash staked and a project’s perceived potential. Investors in MorphoSys and Lundbeck will hope that the gap closes soon.

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com or follow @JacobEPVantage on Twitter

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