Ono sticks to strategy that has served it well so far

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Cash might be king, but a bit of bartering can go a long way – a stance that Ono Pharmaceuticals is not afraid to apply to its deal making. The Japanese company has in quick succession struck two transactions involving an exchange of rights to various products with Western drug makers, a strategy that has served it well in the past.

However, despite an impressive 19% rise in Ono’s share price this year, making it one of the best performing Japanese pharma stocks and giving a market value equivalent to $6.8bn, some see clouds on the horizon for the Osaka-based firm. The threats are mostly generic in nature, but a pipeline increasingly full of externally sourced and therefore less profitable products is also causing concern. Ono must prove its profits can be grown as impressively as its share price.

Hopes for the future

Robust earnings growth over the last couple of years driven by a slate of successful internally discovered drugs, coupled with a high dividend yield compared to other Japanese companies, has helped boost Ono’s shares. On top of this a successful launch of Glactiv, the DPP-IV inhibitor elsewhere known as Januvia, has built hopes for future growth.

New products are important for Ono, as its two current biggest products face generic competition – the blood thinner Opalmon and respiratory medicine Onon – putting 70% of the company’s revenues at risk from fiscal 2013, according to analysts at Morgan Stanley.

However, the potential for the Japanese government to implement increasingly persuasive measures to encourage greater use of generic medicines makes it hard to judge how tough the future might become for companies like Ono.

Unlike some of its larger domestic rivals Ono has remained focused on the branded segment of its home market and continues to invest heavily in proprietary research. Its internally derived pipeline is thoroughly mid-stage, with a handful of phase II and earlier assets.

Bargaining chips

Ono has confronted this challenge like many others – in-license products closer to the market. When possible it has also used its own novel agents as bargaining chips, as seen in the two most recent deals.

Announced yesterday was the sale of rights outside of Asia to oral MS drug ONO-4641, a sphingosine-1-phosphate (S1P) receptor agonist, to Merck KGaA – the deal demonstrating that the German firm is refusing to let the expensive failure of cladribine deter it from further research in this field (Merck’s curious MS move a gamble worth taking, September 19, 2011).

In the same class as Novartis’ much touted Gilenya, a global phase II study called DreaMS has recruited a targeted 376 patients with relapsing-remitting MS and should report data early next year.

Considering the high commercial hopes for Gilenya and the fact that ONO-4641 is one of only three follow-on S1P agonists in mid-stage clinical development, the €14m upfront sounds pretty cheap. And as part of the deal Ono gets Japanese co-development and co-marketing rights to Merck’s lung cancer vaccine Stimuvax for €5m.

A high risk project no doubt, but not a bad price for a phase III asset with significant potential.

Tacked on

Two weeks ago Ono expanded an existing agreement with Bristol-Myers Squibb over an anti-PD-1 antibody known as ONO-4538 or BMS-936558, the US rights to which were bought by Medarex in 2005. Broadened to include worldwide regions outside of Ono’s Asian markets, also tacked on was Japanese co-development and co-commercialisation rights to Orencia, BMS’s rheumatoid arthritis therapy.

With the intravenous formulation already on the Japanese market and a subcutaneous version in phase III, this deal could start adding to Ono’s coffers much sooner.

This swapsy-style deal is not new for Ono. Back in 2004 the company struck a similarly-structured two-way deal with Merck & Co over Japanese rights to the product now considered its most important growth driver, Glactiv; the successful DDP-IV is predicted to generate $3bn for the US company this year.

Launched in 2009 in Japan where Ono co-promotes with Merck, the drug generated sales equivalent to $130m in the country last year, and analysts have pencilled in sales of $481m by 2016. A strong launch has prompted that consensus forecast to rise by 64% over the last 12 months, according to archived consensus data from EvaluatePharma.

The 2004 deal was about more than Glactiv: at the same time Ono out-licensed a now abandoned experimental stroke treatment and a back-up compound, in return for rights to Glactiv and aprepitant, the successful anti-emetic currently being sold as Emend and which counts as Ono's third-biggest growth driver.

The Japanese company banked an upfront fee for the stroke drug, on top of rights to the two products; the deal has certainly yielded more in the long term for the Japanese company.

Ono has shown no desire to follow certain of its domestic rivals abroad, so swapping rights to products in regions it has no intention to travel to makes sense. But it now has to make a success of other companies' products, and repeat the trick with these new deals. 

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