$80 million upfront? About Average

So Synta’s PR firm were pushing today’s deal with GlaxoSmithKline at us as “one of the biggest product deals this year” and indeed “among the largest in the industry”…and it’s true, the $80 million cash up front deal for an anti-cancer compound that’s entering Phase III isn’t at all bad.

But $80 million up front isn’t off the scale, either. In fact, it’s looking about average these days for an asset on the cusp of Phase III—Merck in July paid Ariad $75 million up front for its cancer compound, Novartis put the same on the table for Antisoma’s similar-stage oncology asset in April, and outside of cancer, GSK paid $75 million for XenoPort's Phase III RLS compound in February, Shire that same magic figure for Renovo’s late Phase II wound care treatment in June.

Indeed, $80 million even begins to look measly alongside the $102 million that GSK forked out for Genmab’s Phase III antibody, or the $165 million that Johnson & Johnson coughed up for ex-US rights only to Vertex’s then-Phase IIa Hepatitis C gem.

Ok, so these were outliers. Genmab’s contained the antibody premium; Vertex’s was special, too. But the point is, three-digit up front payments for late-stage assets will soon be common, so don’t waste the hyperbole.

And don’t forget to look behind the curtain, either. Milestones: “Up to $1.01 billion in potential payments," our PR friends say. We all know this trick, though. That’s the if-everything-goes-to-plan-across-all-indications-and-the-moon-goes-blue (or biodollar) figure. Think $135 million in pre-approval milestones.

This, according to Synta’s CEO Safi Bahcall, is more than enough to cover the costs of the compound’s Phase III trials and US submission, which Synta stays in charge of.

And that—control—is the bit that’s interesting in this deal; more interesting than the amount of cash that’s changing hands (most of which GSK can capitalize, incidentally--so it doesn't immediately hit the P&L and thus crimp any R&D budgets). Synta will pay for and finish Phase III, and take the compound past the US regulators for metastatic melanoma. That allows the biotech to boast about the “confidence GSK has in our ability to conduct a pivotal trial and register the drug,” as Bahcall explained. But it also allows GSK to hedge risk and be absolutely sure the compound gets past regulators in the first indication before committing any of the $300 million of potential commercial milestones, or much of the $450 million in potential development and regulatory milestones in other cancers.

Still, Bahcall’s right in saying that “it’s unusual, given GSK’s experience, that they allow us to take the lead” in development and regulatory. Typically Big Pharma would want to take the reins, re-do the Phase III trial design and start talking to regulators. (Especially, you might think, given recent biotech casualties at FDA like the one that hit GPC Biotech when it tried to get satraplatin past.) Not this time—no doubt the compound’s fairly straightforward clinical trial design, with an objective end-point of progression-free survival, helped.

And if Synta gets the drug past regulators, it gains credibility in the next stage of the relationship: co-commercialization. That feature’s about average, too, for deals these days—many biotechs want to have their own sales forces, despite all the future problems and complexities and costs those forces bring.

In reality, pharma-biotech co-promotes are usually a nightmare, as we discussed in this IN VIVO feature. But Bahcall’s confident that the partners have learnt from what’s gone before, with specific prescriptions and conditions for how the co-promote would work, plus measures to ensure that Synta doesn’t lose out on the tiered profit share, thought to start at 40% and rise to 50%, based on annual net sales. (Profit shares can bite small partners if pharma ramp up their cost of sales to reduce what’s left to distribute.)

There are also provisions in the deal, according to Bahcall, allowing for Synta to assume more responsibility for commercialization in the future—once the drug has been out there for a couple of years, for instance (IN VIVO Blog speculation, not his comment). In other indications, the partners will share development in and outside US, with Synta eligible for double-digit royalties on ex-US sales.

Don't get us wrong: for all our talk of 'average', Synta’s got a good deal, all the more so given it’s the company’s first. Shareholders started celebrating earlier this week on deal speculation. They needed a party; Synta’s shares have done very little since its February IPO.

Co-promotes: No Longer Biotech’s Holy Grail

You could see it coming. Well, kind of. Idenix on Friday snuck out the news that it was bailing out of its US and European co-promote with Novartis on its Hep B drug Tyzeka (Sebivo in Europe).

Co-promotes have until recently been most biotech’s holy grail, and co-promote options, at least, a sine qua non of much of recent licensing activity with larger pharma. It’s all part of that fully-integrated, ‘we-want-to-become-the-next-Genentech’ dream; we wrote about whether the dream made real-world commercial sense in IN VIVO in April.

We also pointed to data showing that barely more than a tenth of biotech-pharma co-promote plans become reality. When they do, they can be a nightmare--there was certainly no love lost between ICOS and Eli Lilly over Cialis before that (inevitable) acquisition.

Now of course, Big Pharma would say that co-promotes are a nightmare: they don’t like diluting their control over commercialization—which is, for all the talk of value inflection points throughout drug development, where the actual money comes from. But some of the arguments they put forward are sound: commercialization costs a helluva lot, even for so-called specialist sales forces, it’s increasingly complex as regulatory and reimbursement hurdles multiply, and, frankly, biotechs would make more profits by securing a good royalty share.

Idenix seems to have come to at least some of those conclusions, too. The biotech needed to rein in after the failure of its Hep C candidate a couple of months back, and this move will save it $40-45 million a year, apparently, by laying off the Tyzeka sales staff. “We have changed our agreement for Tyzeka to a royalty stream arrangement,” said Idenix CEO Jean-Pierre Sommadossi in the release outlining a wider re-structuring at Idenix.

In the original deal, outlined here, Idenix received sales-linked payments only in territories not covered by the co-promote. Neither those, nor the level of the new royalty stream, is revealed, but we’re certainly talking levels far from the single-digit tokens that grateful biotech used to have to put up with.

Funny, though, the timing: just a day or two before the announcement, Susan Koppy, SVP business and corporate development at Idenix, was on a panel at Windhover’s Pharmaceutical Strategic Alliances conference in New York. (Read here and here, for examples of what you missed.) She described the co-promote with Novartis as “a true co-promote,” in response to a question about which of the partners effectively had control (don’t forget that Novartis owns 56% of Idenix). But then, she added: “The relationship may well evolve as we go forward.”

Indeed it has. And it’s a fair bet that the evolution of other biotech co-promotes, real or planned, will go the same way. Biotechs are discovering and developing the drugs right now and benefiting handsomely from that. “Stick to what you do best” applies to them, as much as to Big Pharma.

Another Co-Promote Bites the Dust

When Merck and partner Neuromed yesterday pulled the plug on Phase II chronic pain treatment NMED-160/MK-6721, another co-promote bit the dust, too.

More proof, then, that most co-promote options built into today’s biotech-pharma licensing deals are just window-dressing—comfort cushions for biotech investors dreaming of drug revenues and spec pharma success. Earlier this year we laid out in IN VIVO some of the reasons why fewer than 10% of co-promotes actually turn into market-place reality.

That statistic reassures the Big Pharma partner—most of which hate the thought of sharing their commercial spoils with inexperienced biotech, even if some of them say otherwise. But the main reason co-promote promises don’t often become reality is product discontinuation, as in this case, which helps no-one.

Luckily for Neuromed, the aborted program, an N-type calcium channel blocker, wasn’t its lead. Not since April 2007 anyway, when the biotech licensed US rights to a Phase III extended-release opioid analgesic OROS Hydromorphone from Johnson & Johnson’s Alza.

This deal means Neuromed may yet fulfil its dream, shared with most other biotechs, of setting up its own specialist sales force. And Neuromed may yet get to co-promote products with Merck, since the 2006 deal granted the biotech the option to co-promote to US specialists any N-type calcium channel blockers emerging from the collaboration—and the partners say they’ll keep looking for others.

But with NMED-160/MK-6721 gone, at least in pain, Neuromed will miss out on at least $202 million in milestones, and possibly more. It also paid $30 million up front for OROS. That product had better make it onto the US market (it's approved in Europe, but still not in the US, seven years after an approvable letter ). Otherwise private Neuromed may be in danger of biting the dust, too.