PharmaVentures Nigel Borshell discusses co-promotions with Helen Wright.




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Video title: PharmaVentures Nigel Borshell discusses co-promotions with Helen Wright.
Released on: September 06, 2010. © PharmaVentures Ltd
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In this interview, PharmaVentures Nigel Borshell discusses co-promotions with reporter Helen Wright at the PTV studios, in Oxford, UK.
Co-promotion and differences between co-promotion and co-marketing
Helen Wright :
Hello and welcome to PharmaTelevision News Review. On today's program we'll be discussing co-promotions. Licensing deals often contain co-promotions clauses where the future commercialization of products might be handled by both parties. PharmaVentures Director, Nigel Borshell well has been keeping a close eye on co-promotions for some years now assessing their use and outcomes. Nigel Borshell , what's really meant by this term co-promotion?
Nigel Borshell :
Well it's a good question, I am not sure whether there is one single answer, it's a fairly broad church in terms of a category of deals and sometimes it's confused with co-marketing, so firstly the difference between a co-promotion deal and the co-marketing is supposed to be that co-marketing is where two companies are selling the same product with two different brand names, but co-promotion is two companies selling the same product in the same market space, but beyond that the nature of the deals goes from two big pharma companies operating in the same area, to deals that involve development stage companies that may be Phase I or Phase II very small companies that have no commercial operation of their own but have aspirations to move into that area and every which stage in between involving, sharing of the funding, and sharing of the risk between the parties.
Helen Wright :
And is this a fairly new phenomenon?
Nigel Borshell :
Well it's headquartered out of focus recently in that people of like myself have been looking back to see on the kind of incidence and prevalence and success rates of them, but I look back to 1996 and going back that far there were fewer back then, but on average there is around 10% of licensing deals have got a co-promotion element in them and that element could be the rights or it could be an option to take up in the future. This year it looks like it might be the greatest at about 12% but it's still you know there is a noise that's around the 10% mark I would say, so it's not something that's dramatically increasing.
Drivers behind co-promotion agreements
Helen Wright :
And so what's behind co-promotions, why do people want to enter into such agreements?
Nigel Borshell :
Well as I mentioned earlier I mean this is the broad church and there is lots and lots of reasons, but there is two main reasons, on the big pharma side two big pharma companies often go into co-promotion deals to maximize their relative strengths, so you might get a situation where one big pharma company is strong in primary care and another one in the specialty market and so between them they can maximize their market presence and those tend to be the later stage deals that are probably the most successful in the long run, because they both got something to gain and they are not in direct competition with each other. The other one which has probably the greatest prevalence is the development stage company that has aspirations to become a fully integrated pharmaceutical company someone who thinks that they would be the next Amgen and bring their product to market, but may be needs the licensing money to move the company on in a shorter-term and so they would set up a co-promotion deal so that they could retain some of the future rights through what they might see as a very lucrative blockbuster potentially in quite often in North America for instance where the biggest market they would like to see themselves getting a bigger share of the deal. So it's that aspiration to become something else which drives the majority of these co-promotion deals I believe.
The effects of co-promotion on deal structures
Helen Wright :
And what effect the co-promotions have on deal structures?
Nigel Borshell :
Yes, this is quite strange in that you would think because if a licensure is retaining more rights to the future profit then the deal itself is going to be less, but if you actually look at the chart and I think we can see from the chart here the upfront values on mean data shows that actually co-promotion deals have got higher upfront but I think this needs closer analysis and when you look deeper into the data the reason this higher upfront in co-promotion does is actually co-promotion does represent a higher value deal set and that's the reason why the licensure wants to try and retain the rights to a bigger chunk of the future profit. So it's not really apples and apples in terms of this comparison, the upfront money you would expect in a like for like deal would be less in a co-promotion deal, because the licensee is buying the right to a smaller share of the future profit and the licensure is retaining more of it, but that said there is a slight change in the risk profile when there is co-development in that a co-promotion deal that's got a co-development option within it whereby the licensure would be paying some of the development costs and sharing that cost with the licensee, that risk sharing is sometimes reflected in the licensure therefore getting a better deal in terms of upfront, so that balances slightly the reduced opportunity that the licensee has, he also has some risk sharing in the development pipeline.
Analysis on outcomes of co-promotion deals
Helen Wright :
So Nigel Borshell , from your analysis what are the outcomes of these co-promotions?
Nigel Borshell :
Well I've looked at about a 100 deals, I've been following since 2000 at the Phase I, II and III stages and of those one hundred 22 products have reached the market that's not to say 78 have failed although a significant number have failed, but there are still some in the development pipeline. And of the 22 only 14 of them or just over half have actually auctioned at the co-promotion, and I suppose the obvious question is well why what's happened to the other ones? And this really reflects part of the risk that the licensure takes, one of the obligations on the licensure to co-promote is to help fund that promotion aspect and co-promoting a potential blockbuster product can mean having to come up with a significant amount of money before any revenue stream occurs. And there are cases where some of the co-promoting companies have had to sell back their rights, their rights that they've retained to co-promote the product because they couldn't afford to see through their obligations and often when you look into the contracts, if you analyze the contracts filed with the SEC you will see that some big pharma companies will put in terms to say the obligation is and we agree that the upfront with that the amount of money in promotions will be up to you know a 100 million or whatever from both parties, so significant amounts of money because they recognize that if a small partner doesn't have the money is going to cause a problem. Now from the licensure's perspective the inability to see through their obligations in terms of co-promotion often means they have to sell back those rights to the licensure and really they are selling back the rights sort of point of weakness and so are likely to get less money from selling back the rights than they would have got licensing out those rights at the beginning of the process, but that's the risk they take, but as a financial risk it's one that should people should really take a close look at what their obligations are and where they are going to get the money from before doing this otherwise that would be better off as getting the deals sorted out as a straight licensing deal upfront. Even within some of the deals that have been actioned in terms of co-promotion though there are cases where five-years after the products reach the market the large pharma is making a profit from that and the smaller co-promotion partner in that goal to become a FIPCO have seen through their obligations but are still not making money from it, so it's still you know a risky area for them.
Future of co-promotion deals
Helen Wright :
So bearing in mind those risks you've just outlined and thinking of the broader challenges that pharma is facing at the moment, do you see that co-promotions are going to continue into the future?
Nigel Borshell :
Well, I said at the beginning we've seen these noise around the 10% level. I think probably 10% of deals may well still have a co-promotion element in them, the numbers of deals seem to be going down slightly at the moment and so that would say yes there will be fewer co-promotion deals. I think if you were to separate the two and say are we likely to see co-promotion deals from big pharma, big pharma where we get the combination of strengths maximizing the presence in the market, I think very much that they are the success story in this and will likely see more of those, but I would expect to see fewer of the small development company with a FIPCO goal fully integrated pharmaceutical company ambition far fewer of those and that's because there is some stress around in the licensing arena at the moment and so the requirement to get maximize their upfront money would probably be more than their requirement to become a FIPCO, I think that there is fewer and fewer examples of small development companies seeing write the way through the pipeline of bringing products successfully to market and so I think that the thing to learn from this as times goes that there is a 50% chance of the co-promotion being auctioned and even then there is a risk that you are not going to be profitable after significant number significant time then the people agreeing these deals should be looking carefully at this date and saying well hang on does it really makes sense for us to be giving or retaining these rights and giving something away in terms of risk and financing at the early stage, and so those ones are I would expect to see fewer of they will never go away because a small company can come up with the next big blockbuster and can secure resources to see through their obligations, but I think the ones that are just driven by emotion and not kind financial or practicality will probably disappear.
Helen Wright :
Nigel Borshell , thanks for joining us.
Nigel Borshell :
Thank you.
Helen Wright
Presenter
Helen Wright has worked as a broadcast television journalist for several years, covering general news, business and politics and currently involved with PTV news of Pharmatelevision.com. Helen Wright has also worked as ITV News education correspondent and covered disability affairs. She has reported from Europe and the US. She also researched, directed and presented films for a Yorkshire TV regional documentary programme. Helen Wright began her journalistic career in local radio in Bradford. She has a BA Honours Degree in English.
Nigel Borshell
Nigel Borshell has over 30 years experience in Life Sciences including senior international commercial management roles in diagnostics and biotechnology gained at drug testing specialists Syva Company, Hoechst's Behring division, US diagnostics giant Dade Behring, and as European Business Development Director for California-based Cepheid. Nigel Borshell is the author of numerous Pharmaceutical/Biotech Industry reports, papers and articles. At PharmaVentures , Nigel Borshell specializes in valuation methodologies, deal structure modeling, and pricing policies.
PharmaVentures
PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialisation.
PharmaVentures
PharmaVentures is a company that has proven success in deals and alliances. PharmaVentures offers: Over 18 years of healthcare industry experience Experience gained from working with in excess of 1000 clients in 38 countries, and conducting more than 450 assignments Over 40 specialist advisors, analysts and researchers Skills honed in many countries - 80% of its business comes from outside the UK.