PharmaTelevision - 2. Out-licensing by big pharma: Pfizer, Roche and CoNCERT Pharmaceuticals discuss this hot topic (Part 2)

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Video title: 2. Out-licensing by big pharma: Pfizer, Roche and CoNCERT Pharmaceuticals discuss this hot topic (Part 2)

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What are the new out-licensing practices of large pharma? How can biotechs capitalise on these? Having the right business models and practices that match the new opportunities is key to success. The leading companies of our industry are acutely aware of this need and have implemented new ways of finding partners, doing deals and accelerate strategies. Dr Tibor Papp, Head of Advisory & Transactions of PharmaVentures asked a panel of leading executives what business development strategies and models they use to position themselves for competitive success. David Rosen from Pfizer, Robert Silverman from Roche and Jonathan Montagu from CoNCERT Pharmaceuticals offer their detailed company and personal insight into their business development models.

Opportunities in new proactive era of licensing and collaborative deals.

Tibor Papp:

In relation to just reflecting on what you said David and Bob and that's raised to biotech companies there with substantial skills and capacities as well you've mentioned that obviously you are considering or processing the number of products and there are various reasons for those and we all know that in previous years large pharma has kept these products close to their chest and now through this realization and willingness to open up your portfolio that is less needed possibly or less in your core do you think there is possible there is a new era coming and then new explosion of licensing deals or collaborative deals in which all of these products are finding new homes in companies such as Concert Pharmaceuticals or others that mature their skills and capabilities that are willing to collaborate with you and then with an explosion of deals and as more and more large pharma companies are willing to market actively their products. And the great example of course is Pfizer which probably has been the first to well openly come out to say we have a 100 products to out license come to us and talk to us. And just two, three-years ago some of the large pharma companies didn't do at all proactive marketing in these sense of product. So what do you think that there " is there gonna be an opportunity for that? Is it going to be a major process in large pharmaceutical companies or it's going to be orders on the side as something not core that you do because you can, because it's available, but otherwise it will not really generate substantial value for you?

David Rosen:

Well I think in the case of Pfizer I think in the case of Pfizer it will generate substantial value for us. The question is how much of that value comes early and how much of it comes late and Bob I think you can probably comment on that as well. And I think the type of structure that you develop as you put these assets out is going to determine how much of that value comes early and how much of it comes late you know so for example if you look at a very traditional type of out licensing deal in order to create a Newco or an asset going into a venture backed biotech type of company the value there is gonna come late, we all understand if it comes at all it's gonna come late. And I would perhaps compare that to something on the other side of the spectrum which would be to create a specialty pharma company and I think something that a Roche could do, something that a Pfizer could do you know other very large companies is to take a pool of commercial assets that are not strategic to company any longer and rather than just divesting up those molecules by themselves you know take those molecules align by therapeutic area or disease area and combine those with clinical development assets use the revenue from the commercial products to help feed the clinical development pipeline and then use that as a way to create value a great deal more quickly then through a process whereby you just kind of a wait and hold that the that one or more of those clinical development assets will turn into a product. In terms of how you know how does that translate into where we be doing more deals you know will the deals become more creative I guess my sense is that there might be a little bit more creativity to it but you know to a large extent we'll try and keep this as simple as we can and although the creative creativity may come in terms of how you combine the assets in terms of ways that we can get paid back, we really can only get paid back a few different ways and for these companies that are investing in the assets you know there is only so much money that they can put up front and the rest of that money is still going into the " into the development of a portfolio. I think may be the last point I will turn it to Bob, is that the market is really changed it's really evolved over the last six to nine months you know to a point where at least in my opinion there are kind of the haves and have not's in the capital world. And one of the things it's seems to me has happened over the last six to nine months is that it's gotten easier to raise the billion dollars then it has to raise 20 or $30 million. And so our thinking has evolved with that the point that we no longer think about may be one or two assets coming out into a Newco, but think about a way that may be we would move 10 or 15 or 20 assets into a Newco along with the substantial number of commercial products because there is somebody out there who is willing to write that cheque for a billion dollars where as that risk that the one or two clinical development assets is going turn into a product you know it's pretty significant and so that 20 or $30 million may get flushed, the billion won't get flushed we just don't know which are the clinical development assets other ones that are gonna turn into the product.

Tibor Papp:

Thanks.

Roche's externalisation of assets.

Robert Silverman:

So, yeah I think one of differences probably between Roche and Pfizer from what I am hearing now is Pfizer has a very large a very large basket of products that have potential to be externalized. I think we have just a smaller basket Roche likely. So most of our work with externalizing our assets well we work with venture capital groups and like are really with late preclinical, early clinical stage assets we have a few, we I mean not all of them are gonna work and we know not all of them are gonna work, we have a few. What we try to do is focus our efforts that we are working with groups who were networked with they know what's new in what processes, it works " our bigger successes have been where we move the assets out to the companies where somebody is in the company who actually had touched and felt the asset at some point in the past, examples are Evotec [PharmaDeals ID = 24561] you know we've had a series of licenses licensing deals with Evotec where we have actually externalized quite a number of technologies, compounds, libraries and even products Evotec, we've recently now licensed one back that's a huge success for us. Synosia [PharmaDeals ID = 26167] is an example of a company that formed out of Versant Ventures, the CEO is actually a former ex-Roche person who had a deep understanding of the basket of CNS assets and we are looking to actually to generate our return from that " from the actual development of the assets over there, we don't have upfronts it's not a heavy owners deals in terms of the value that we received early but clearly as the assets develop we believe that we will get value, we've actually constructed rather a elaborate deal with them in terms of what assets we have rights to, what assets we have preferential rights to what assets we have really have nothing over than a royalty stream another group is a Flexion which is also one out of Versant Ventures you know kind of is going to prefect that idea hopefully going beyond CNS and other indications but for us the return comes on development, we find that we are generally you know in our small basket we generally not correct when we try to predict that asset A is the one that's to get development versus asset B so we really let the market tell us which one should get developed, we do not let option processes for those types of programs, we are really looking for capabilities and vision to kind of develop the asset and somebody again championship in making sure that somebody has had some type of touch or feel to the asset makes a huge difference in our experience.

Tibor Papp:

Right. Thanks Bob then just before we get Jonathan just so it appears to me that Pfizer is has become a lot more proactive in out licensing that you are trying to reduce this risk by allowing internal champions to take this products out, this is more likely a traditional way. And did you think that Roche will probably pick up on this new trend to identify products in the portfolio that cannot fund, who don't want to fund, because obviously Roche you are in better position in terms of earnings than most other large pharma companies so you are less squeezed on where you spend your R&D money, but do you see that, that could be a trend for you as well to be more open and to the market to look?

Robert Silverman:

Yeah again we've never really been hold our asset to close to our vest, so you know we have a very long track record of doing this but it's for us at least our successes have always been - when we look back our successes have always been because we the assets end up with a group that knows a lot about the asset coming in and so that I think flavors our influences how we operate. I think the other thing we've recognized is that we have a portfolios that we are gonna fully fund ourselves and then we have a lot of assets that are toxic or just not developable there is a basket that sits in the interim in the middle of there which are not at the top of our priorities but actually or probably in the middle or maybe on that broader line based upon some very judgmental reasons, no good reason or bad reason why that one make the cut this one didn't make the cut. And that's the area where you know we are most proactive actually.

Tibor Papp:

So that you are open to suggestions particularly for companies to go into"

Robert Silverman:

Absolutely, absolutely. And we..

Tibor Papp:

Who have capabilities that provides a company?

Robert Silverman:

Provided have capabilities and a planner of vision for the products that we will not dictate that have a product to get developed because we don't have all the great ideas, so yeah you know there are lot of great people out there who can really do just as well a better job then we can.

David Rosen's perspective on risk sharing financing model.

Tibor Papp:

And so this so David Rosen you are now.

David Rosen:

Right, I can just add to one comment around the Flexion model in this risk sharing financed type model. In speaking with the Versant guys a couple of weeks ago and the folks at Flexion they've changed their model, you know one of the things again that has has changed I think in terms of deal making we saw that in some of the slides at the beginning in the meeting was that the number of deals in Phase II is going down and one of the things that Flexion was concerned about was that their model was based on quickly getting from FIH to POC doing the key experiments that one needed to do is quickly and cost effectively as you could and then essentially flipping that molecule back to a large pharma and seeing what's happening in the deal space now over the last year, year and a half they've recognized that they could end up holding these molecules long past POC without the cash to be able to move them into Phase III and without a partner to take those molecules of their hands. And so they've turned into Flexion AG which will be a CNS company that will work on you know three to five molecules in what will largely I think end up looking very much like a biotech model rather than this risk sharing financed type (indiscernable), so I think the world changes you know pretty much every day as we look at not just the capital markets but also as the " as we look at the deal flow and the number of companies like Pfizer's and the Roche's who can put up the kind of cash that you know these small companies are expecting once they've delivered POC for a particular molecule.

Working on developing big pharma products

Tibor Papp:

Well it sounds like all good news for the markets and thus the gap is closing with this willingness in place. Jonathan Montagu, would you as a well financed biotech company would you consider taking this products on for you know on the side of next to your core products? Would you work to get a good large pharma to develop their products that they have they might be willing to do to?

Jonathan Montagu:

I mean certainly in theory absolutely yes. I think historically there have been real challenges with out- licensing assets from big pharma companies, first of all there is always a question in the mind of the BIO what is wrong with it these assets if they haven't meet the internal cut, why they are being out licensed. Now I think you can get some comfort with that if an entire therapeutic area or a bundle of assets is being spun out especially if the management team is coming with it, but I think that's a real concern. I think there are also been issues around expectations around deal terms. I think that at least early on there was a desire for the pharma companies to retain a call option or some sort of call back on the assets and that is just not a model that sits well with VC's they have no interest in making 3X returns or this capping of 3X, they really have to have the option to make you know the more like this of 10X multiples. And I think that you know what we have seen is pharma companies really horn their abilities around out licensing in the last couple of years and I think that's a great thing and that seems there is a tremendous amount of innovation that's probably sitting on the shelves in big pharma. And certainly Pfizer and Roche have you know already done this straighted ability to spin assets out. I think also when you think about it some biotech companies are on the pressure to spin out assets and I think if you specially the publically traded companies in the " in the age of sort of activist investors you know just refer a few names out ImClone, PDL, Enzon, Myriad are all companies that have come under a lot of pressure to spin out their loss making development R&D assets and keep those cash generating assets in a holding company. So I think that it is not a uniquely big pharma issue, but something that pharma the small biotech's are also gonna have to think about as well. But bottom-line I think there is tremendous amount of innovation in big pharma companies the question is just, just getting it out. And it can be a bid of a thankless job I think for the individuals within big pharma who are tasked with doing this because the that what it's gonna be very frustrating if a big pharma misses that billion dollar drug it does happen all time actually, but you've certainly would not want that to be on your resume if you were the person who out licensed that drug.

Focus or diversify

Tibor Papp:

Thanks Jonathan Montagu, obviously there is a lots of question about risk sharing and role of private equity in risk sharing, but conscious of time and I would like to leave some time for the audience to ask question there is one last question which relates to the original title of this session focus or diversify. And of course traditional theory and this any investor say that we want every pharmaceutical company to focus on something either biological or on a certain therapy area or on a market and they should leave it up to us to diversify, we should - we want to have their ability to pick the stock and we should diversify they shouldn't do that at all. But of course the other argument is that we have seen from our pharmaceutical companies especially and biotech companies as well that were diversified and they managed to get some growth out of their diversification itself, had they not diversified they would be in trouble and now what is your perspective on that obviously Pfizer is more diversified, Roche is very focused increasingly focused and biotech companies in traditional ways are very focused, but as you go and they are very well financed you develop your platform you want to use the cash sometimes to acquire assets to get IP, to diversify their IP portfolio, but you know obviously there is a conflict between management, pharmaceutical companies and biotech companies and investors so what is your perspective on this?

David Rosen:

So I think what you've seen Pfizer do over the last six to nine months is to change from a company that was in a 11 or 13 therapeutic areas depending on whether you are lumper or a splitter down to seven you know we've announced that we are they were getting out of a number of therapeutic areas and I think Jonathan to the point that you were raising earlier you know in the lot of the therapeutic areas the reason that we are getting out is not because we weren't convinced that those were good therapeutic areas, we got out of or we getting out of cardiovascular or metabolic disease except for diabetes, but I can guarantee you that we will be opportunistic and if somebody came to us with the really good offer of drug you know we will be back and trying to figure out how to develop that to the end if we really thought that had legs you know the decision that we made was based on you know where do we think we can invest in a portfolio that's late and upstage that we can develop the medicines that we believe we need to develop in order to yeah create value for patients and also create value for our shareholders. Seven doesn't sound like a lot of focus but I think compared to 11 or 13 it's really a tremendous amount of focus. In terms of small molecule versus large molecule there I think you know will be diverse if being in two areas of molecular discovery and development can be considered diverse, but you know we are not going to bet on either of those " either of those horses, I think you know what we understand about biology today and science today tells us in some cases a large molecule is gonna be a better approach in another cases the small molecules gonna be a better approach. And you know we're gonna do most obviously what makes the most sense for the disease area, the indication and the science that we've got backing it.

Robert Silverman's perspective on issues of focus and diversifications.

Robert Silverman:

So I think the reality is people, companies make decisions based upon the moment and time what's right for the moment and time. And if you ask the same question 10 or 20-years ago we probably would have had a completely reversal of answers from the Pfizer side versus the Roche side, but in today 2009 Roche is clearly focused in one sense which is focused on diagnostics and pharmaceuticals to deliver healthcare to patients. And again within pharma we are focused on a few different disease areas or therapeutic disease biology areas what we call them, we have five of them oncology, CNS, metabolic disease, inflammation disease and inflammatory disease of course is a broad range and urology, did I said that one early is five of them. And, but then within that " within those areas then we diversify our approach to innovation. So we are constantly looking for different ways of challenging ourselves within organization and of course our external partners make a big difference in this in terms of being able to work with different technologies can help us get to the end game of delivering, transforming the technologies and delivering products to patients to improve their lives. So we are focused on a broad sense right now we are diverse on an innovation from innovation sense right now. And I think where the real opportunity we have in terms of managing our portfolio how do we help us to put this altogether is actually working with the venture capital community who can both benefit from our assets which in general Pfizer asset or Roche assets pretty well characterized by the time it gets up to the point where to (indiscernable) or Phase 1 it's a pretty good well characterized asset and for example an area at Roche a pain compound from area like Pfizer like a cardiovascular compound, those are probably good compounds actually to develop companies around and what we ask for in return to our venture capital goods is, is also why you are investing in well characterized compounds that have some risk reduction associated with them, please also pay attention to the technologies and remain true to your core as the venture side of investing in technologies that are going to fundamental change our industry. How do we deliver drugs across selves? How do we you know " how can we create " how can we get RNA high delivered properly those are the that's what we really want the venture guys to you know also focus.

Strategies of focus and diversification

Tibor Papp:

Thank you. Jonathan Montagu, your perspective about it?

Jonathan Montagu:

Okay. I think there are very few product company sorry development product platform development companies that have really made a successful transition to product development companies. And we are acutely aware that at Concert Pharmaceuticals in many ways we have one of the most difficult issues with focus because deuterium chemistry can really be applied to any small molecule and frankly large molecule for that matter. So we have to be very smart about where we take our bets, more over Concert Pharmaceuticals you know we have a very experienced management team and none the less, we don't have any specific biologies that we earn and therefore we are being opportunistic about where we apply the deuterium chemistry but really now trying to focus in two or three disease areas where we think we have very strong value propositions for the deuterium chemistry. On the flip side I think from a financing perspective we are trying to diversify where we seek our sources of capital and as I explained earlier I think today a large pharma licensing risk sharing deal would definitely be on the table for us, but also the extent of which we can get support from disease foundations and our " by our defense that would be of high interest to us too. So I would say that you know we are focused from a therapeutic perspective but very diversified from our financing perspective.

Tibor Papp:

Thank you very much Jonathan. Well what I am getting from my panels is really the messages. I think at least from the panel members and of Pfizer, Roche and Concert Pharmaceuticals there is an increasing willingness to do these risk sharing deals to have an open mind and involve multiple parties and of course this is not just a personal perspective but it comes from the Senior Management of these companies. And we know for a fact that in PharmaVentures that there are other companies that are not so willing to talk, but I think this is the first sign and the glimmering in the darkness that the industry is changing and perhaps you remember that slide when the number of deals were coming down and perhaps we are gonna see a rise of this deal making intensity and activity now there are different kind of assets and different kind of opportunities and many of these opportunities will come from these companies. Right, I'd like to thank our panel members David Rosen from Pfizer and Robert Silverman from Roche and Jonathan Montagu from Concert Pharmaceuticals. Thank you very much.

David Rosen:

Thank you.

Robert Silverman:

Thank you.

Jonathan Montagu:

Thank you.

Jonathan Montagu

Director of Business Development Concert Pharmaceuticals

Dr. David Rosen is currently the head of out licensing at Pfizer Inc. In his role, Dr. Rosen is responsible for the externalization and partnering of non-progressing research and development programs that are no longer strategic to Pfizer. He joined Pfizer in 2003 as the head of Strategic Alliances in St. Louis, Missouri and during his 15 year career in business development has had increasing levels of responsibility in both large pharma and the biotechnology industry. He recently completed the divestiture of Pfizer's research assets in Nagoya, Japan resulting in the creation of a new life sciences company. Prior to joining the pharmaceutical industry, Dr. Rosen was a practicing veterinarian and practice owner. Dr. Rosen received a Bachelors degree in Bacteriology from the University of Wisconsin in Madison and a Doctor of Veterinary Medicine Degree from Iowa State University. He received a specialty Board Certification in feline medicine in 1998. Robert Silverman is currently the Global licensing Director at Pharma Partnering RocheJonathan Montagu is presently Director of Business Development at Concert Pharmaceuticals. His previous roles include New Product Development Manager at Ortho-McNeil Pharmaceuticals and Business Development Intern at Biogen Idec.

Pfizer

Good health is vital to all of us, and finding sustainable solutions to the most pressing health care challenges of our world cannot wait. That's why we at Pfizer are committed to applying science and our global resources to improve health and well-being at every stage of life. We strive to provide access to safe, effective and affordable medicines and related health care services to the people who need them. We have a leading portfolio of products and medicines that support wellness and prevention, as well as treatment and cures for diseases across a broad range of therapeutic areas; and we have an industry-leading pipeline of promising new products that have the potential to challenge some of the most feared diseases of our time, like Alzheimer's disease and cancer. To ensure we can continue to deliver on our commitments to the patients, customers and shareholders who rely on us, we are focused on improving the way we do business; on operating with transparency in everything we do; and on listening to the views of all of the people involved in health care decisions. Through working in partnership with everyone from patients to health care providers and managed care organizations to world governments and non-governmental organizations, our goal is to ensure that people everywhere have access to innovative treatments and quality health care. RocheRoche plays a pioneering role in healthcare. As an innovator of products and services for the early detection, prevention, diagnosis and treatment of diseases, we contribute on a broad range of fronts to improving people's health and quality of life. Roche is providing the first products that are tailored to the needs of specific patient groups. Our mission today and tomorrow is to create added value in healthcare by focusing on our expertise in diagnostics and pharmaceuticals. Responsibility at Roche we are committed to meeting high ethical standards and complying with all applicable local, national and international laws wherever we do business. Our ethical standards are embodied in our Corporate Principles. For more than 110 years Roche has played a pioneering role in healthcare. Concert Pharmaceuticals Founded in April 2006, Concert Pharmaceuticals is a clinical stage biotechnology company dedicated to creating new medicines through a novel scientific approach utilizing the naturally-occurring element deuterium. Concert applies its innovative precision deuterium chemistry platform to modify specific properties of validated drug molecules, yielding a rich pipeline of new chemical entities (NCEs). Concert leverages decades of pharmaceutical experience to create novel drug candidates with potential for best-in-class efficacy and safety, while greatly reducing R&D risk, time and expense. The Company has over 100 patent applications for new drug candidates addressing a broad range of therapeutic areas, including HIV/AIDS and renal disease, among others. In 2009, Concert's first patents were granted by the USPTO. In June 2009, Concert announced a strategic partnership with GlaxoSmithKline to develop and commercialize deuterium-containing drugs, including CTP-518, a protease inhibitor for the treatment of HIV. CTP-518 is currently in Phase 1 testing. Concert is a rapidly growing company based in Lexington, Massachusetts. The Company is led by an experienced management team and Board of Directors, and is supported by top-tier venture capitalists and leading institutional investors. Concert has raised $110 million since its inception. Concert was co-founded by Richard Aldrich, Roger Tung and Christoph Westphal