In December 2011, Phosphagenics’ CEO, Esra Ogru provided an insight into the company’s licensing intentions for the oxycodone patch. Post Phase III was considered the most desirable time for executing a deal, with earlier partnership only being considered if deal terms were “exceptional”.
Prior to starting Phase 3 trials, companies may give Phosphagenics an opportunity to de-risk the project by offering to do a deal before the final trials commence. With Phosphagenics having raised the necessary funds to complete these trials, it would take an exceptional deal to tempt Phosphagenics to enter a partnership before the completion of the clinical trials. The Acrux experience has shown that the rewards for consummating deals after Phase 3 trials are usually considerably greater than those finalised earlier. As a result we consider post Phase 3 to be the most desirable timing for executing a licensing deal, although Phosphagenics will of course consider partnership relationships at any time if they are sufficiently attractive.
One year on, and the company now appears to be favouring an earlier deal, perhaps at the “prior to starting Phase III” time point identified in the December 2011 announcement (in which case, the time is fast approaching!)
(We) will aggressively pursue the clinical development program and the possibility of an early licensing deal. (Jan 16, 2013)
If indeed this statement reflects a shift in thinking, a reason is not given. Have clinical trial delays and lower than expected personal care revenues combined to exert financial pressure on the company to strike an earlier, but perhaps less rewarding deal? Or has an interested pharma already shown willingness to put an exceptional offer on the table, subject to successful PK trial outcomes?
As the pharma deal landscape is constantly changing, I thought it might be worthwhile to read up and report on current licensing trends and considerations. This is what I found:
• Most large pharmas have been and are still in-licensing to help boost depleted pipelines. GSK, Merck, Novartis, AstraZeneca, Pfizer and Roche have all nominated in-licensing as a core part of their business strategies. (1)
• In 2011, licensing agreements were up 14% on 2010 and 178% on 2000 (2)
• In 2011, pharma executives were anticipating a majority of later-stage developments to be added to their pipelines over the following two years. However, in 2012, the majority of top licensing deals were actually in pre-clinical stage. (2) This would suggest to me a growing shortage of Phase III + products in pharma pipelines.
• In the US, prescription use is sizeably dominated by the 65+ age group. Consequently, target areas of choice for big pharma are conditions such as diabetes, osteoporosis, Parkinson’s disease and other chronic illnesses. (1)
• New innovative drugs entering the market are expected to be not only better than competitor products, but also differentiated enough from generic alternatives to justify a price premium.(1)
• Of particular importance to pharma over the next few years will be novel action or delivery mechanisms in major disease areas to accommodate those patients for whom current methods are unsuitable.(1)
• Royalty rates for big pharma licensing deals vary considerably, and therefore averages are no accurate predictor.(3)
• Only slightly more than 1% of all deal-related headlines report actual royalty rates, although these may easily represent most of the value generated by the innovation in the market. For big pharma, the disclosure rate is only 0.62%.(3)
• Although obviously impacted by prevailing market conditions, the actual value of a deal is fundamentally a function of a product’s net present value enhanced by a licensee’s strategic need for that product. (3)
• P?zer’s licensing activity showed a signi?cant upturn in 2010 after reaching a low in 2008 but then declined slightly in 2011 although not to the levels seen a few years previously. 63% of the deals made by P?zer between 2007 and 2011 were with start-ups. Not one of them involved the disclosure of specific royalty rates.(3)
• There is increasing concern about the ever rising cost of healthcare. Signi?cant downward pressure on pharmaceutical pricing and reimbursement will likely impact company pro?ts and hence royalty rates and other deal components. (3)
In summary, Big Pharma is still keen on using in-licensing as a way to boost its pipeline in the face of patent cliff. Phase III is considered an attractive time to strike deals. POH’s patch should be highly attractive to Big Pharma on several crucial counts. In addressing chronic pain, it targets exactly the market currently favoured by Big Pharma. Significantly, POH's patch is demonstrably better than its competitors and differentiated enough to command a price premium. It also meets pharma’s desire for novel delivery mechanisms. The size of any deal will likely be determined not only by the net present value of the patch, but also by the strategic need of the licensee. As argued in previous posts, there is more than one big pharma with high strategic need.
The possible cloud looming on the horizon would appear to be the growing global-wide pressure on pharmaceutical pricing which might negatively impact the value of any deal. Also, in my opinion, Big Pharma is likely to hold any signatures until there is some more certainty surrounding FDA response on opioid prescription restrictions and non abuse-deterrent generics. Increased uncertainty about how future sales may be impacted by decisions on pharmaceutical reimbursement might also be expected to reflect in lower upfronts and initial milestones as pharma seeks to reduce its risk. However there is a case for any lower front end payments being offset by higher royalty rates as compensatory reward.
(20min delay)