Big Pharma or Vulture Capitalists

This is my summary of the deal structure with Medicxi:

In a standard licencing model with a big pharma Starpharma would benefit from a licence fee, and then bank progressively larger milestone payments as trials progress which enhances the balance sheet. If the drug program doesn’t progress as expected (gets terminated) Starpharma using this traditional model would still have had the benefit of potential receiving substantial cash milestone payments over the journey.

However in this Vulture Capital model, if the drug development is terminated at any stage, the value of the joint private company Petalion Therapeutics will almost certainly be slaughtered. So Starpharma will then own 22.5% of nothing (if they hadn’t already been diluted) and will have never received a single cent in licence fees or milestone payments. The Vulture Capitalists walk away and move on to the next scheme or opportunity.

Sure, if the partnership is ultimately successful, the payoff could be great. However upside is also substantial with traditional big pharma licence models.

The key and major difference and risk to Starpharma with this new Vulture Capital partnership is that Starpharma get zero dollars now, zero dollars progressively, and if the program gets terminated Starpharma end up with zero dollars at the end. I fail to see how this protects the downside for Starpharma. Whereas normally the cash would have come in through licence fees and significant milestone payments along the way.

It’s important to remember that most drugs fail during Phase One. I was labelled a heretic for suggesting that AZD0466 was no slam dunk to progress past Phase One. As it came to pass, all three Starpharma AZD0466 partnered programs with AstraZeneca were terminated during Phase One.

Starpharma in this partnership are giving away valuable IP for equity in a non-listed start-up company that they will have a minority share in, with no control, with the real potential to get diluted down the track through circumstances, developments and decisions outside of Starpharma’s control.

Back in 2015 a licence agreement was struck with AstraZeneca. This included a US$2m signature payment and potential development, launch and sales milestones worth US$124m plus royalties. Even though this deal is now unfortunately buried and cremated, I much prefer this type of business model which can generate cash.

If you think Starpharma’s disclosure to shareholders has been poor over the years, I can only imagine the silence forthcoming from the vagaries of a being a minority shareholder in a private company partnership with scant reporting requirements.

It is widely accepted that Proof of Concept is achieved during or usually at the completion of a Phase 2 clinical trial. It took Starpharma around 12 years to get a flaky proof of concept for DEP-Docetaxel which IMO will never be be subject to a bonafide licence.

It also took major pharma AstraZeneca about 12 years to go from a research agreement with Starpharma to terminating all three AZD0466 programs prior to the completion of Phase One and never achieving proof of concept.

But remarkably the vulture capitalists reckon they can have proof of concept with 3-4 years after starting from scratch. If you believe this then I have a monorail to sell you.

IMO, as a one off, this alternative partnership may have some merit, and may or may not pay off, but it significantly advantages the vulture capitalists rather than Starpharma.

I do not want any further no-licence fee and no-milestone deals such as this to be struck.

All IMHO.