Tracking Big Pharma's Appetite For Regional Deals

A review of Big Pharma regional dealmaking in 2006-2010 shows a slower uptick in the number of alliances than the steady year-over-year growth seen from 2001-2006.

Thanks to globalization, the world is now flat. Thus, emerging markets such as China, India and Latin America have become ever more important strategic sources of drug sales because of their burgeoning middle class populations. Given the competition for validated late-stage assets, one might expect this geographic expansion would result in an uptick in regional dealmaking. After all, the rise of a robust Brazilian or Russian market represents a new opportunity to capture additional value for assets, as companies cut finer and finer licensing deals around markets that were once considered ancillary.

There's theory – and then there's practice. When Elsevier Business Intelligence last evaluated regional dealmaking in 2006, the data clearly showed an increase in geographic carve-outs, with worldwide rights to top assets no longer a given. ( See "The Rise of Regional Dealmaking," IN VIVO , September 2006 (Also see "The Rise of Regional Dealmaking" - In Vivo, 1 Sep, 2006.).) Big Pharma adapted accordingly; to survive and compete with other licensees, companies accepted deal terms that were limited to individual countries or specific regions. For example, in-licensers have paid dearly for worldwide rights excluding the US – a territory that was once a deal breaker if not included. In 2006, Bayer HealthCare LLC spent $75 million up front and potentially up to $110 million in development and regulatory milestones for Regeneron Pharmaceuticals Inc.'s ocular fusion protein VEGF Trap-Eye. [See Deal] More recently, stand-out alliances include Abbott Laboratories Inc.'s $450 million in up-front and near-term cash payments for ex-US and Asian rights to Reata Pharmaceutical Inc.'s chronic kidney disease candidate bardoxolone, and the 13-year co-promote agreement between GlaxoSmithKline PLC and Amgen Inc. for the latter's postmenopausal osteoporosis drug denosumab. [See Deal] [See Deal] Worth up to $120 million in commercialization milestones, the denosumab agreement covers only Europe, Australia, New Zealand and Mexico.

Interestingly, despite the increasingly global focus of the biopharmaceutical industry, the markets that historically were the most valuable – the US, Europe, and Japan – continue to remain the arenas commanding the greatest interest from dealmakers based on an analysis of licensing transactions from 2006 to 2010. In this study, START-UP searched Elsevier's Strategic Transactions for products licensed by Big Pharma that included a geographic carve-out (such as the US, Europe, or Asia). Device and diagnostic companies were omitted from the analysis, as were transactions in which Big Pharma out-licensed a product. The net result: 131 regional alliances penned from 2006 to 2010.

As shown in Exhibit 1, this total reflects a slower uptick than the steady year-over-year growth in regional dealmaking observed from 2001 to 2006. Pharma alliances involving specific territories sunk to a low of 17 deals in 2007, but activity seems to be picking up again – not quite reaching the levels of 2006, but rising nonetheless. ( See Exhibit 1.)

Even with the jump in regional alliances, large local markets continue to be singled out. Most often, Big Pharma licensed US rights – for a total of 38 collaborations – making North America the most heavily carved-out region. ( See Exhibit 2.) Big Pharma's interest in US deals has been consistent, despite the challenges put on the drug industry by health care reform. In one of the bigger US-only arrangements, AstraZeneca PLC agreed to exclusively co-promote Abraxis' breast cancer drug Abraxane (paclitaxel) for five and a half years starting in April 2006. [See Deal] Abraxis received $200 million in up-front cash, but two years later revised the deal terms, taking back the US rights in order to develop the product in other cancer indications. Expansion of Abraxane's use outside of breast cancer, as well as the potential of the drug's sales both in the US and Europe (where it is approved) and abroad, were some of the key influencers when Abraxis was acquired by Celgene Corp. in 2010 for $2.9 billion. [See Deal] ( See "Celgene Flexes Its Muscles," IN VIVO , March 2011 (Also see "Celgene Flexes Its Muscles" - In Vivo, 1 Mar, 2011.).)

Like the US, Japan remains a heavily sought after territory, with companies willing to cede product rights in this country to domestic players who have greater sales and marketing expertise. Asia altogether accounted for 55 licenses, 15 of which were specifically centered on Japan. Takeda Pharmaceutical Co. Ltd. (a Japanese-based firm that we classify as a Big Pharma) was the in-licenser on two of the biggest Japan deals. In 2007, it received exclusive development and co-promotion rights to H. Lundbeck AS's neurology compounds – including two antidepressants – in Japan and the US in exchange for $40 million up front and up to $345 million in development milestones. [See Deal] And the following year, Takeda paid Amgen $200 million up front and pledged $340 million in development costs and milestones, $362 million in sales milestones, and double-digit royalties for Japanese rights to 12 clinical-stage assets and the marketed product Vectibix (panitumumab) for metastatic colorectal cancer. [See Deal] ( See "Perlmutter: We're Not Abandoning Japan," The IN VIVO Blog , February 4, 2008 .)

Somewhat surprisingly, given the avid interest in emerging markets, regional dealmaking in two other Asian markets – India and China – still hasn't caught on. In the five years analyzed, only seven agreements specifically called out China – Bayer HealthCare Pharmaceuticals AG' 15-year license to SciGen Ltd.'s SciLin (recombinant insulin) is one example – and six in India, including GSK and Daiichi Sankyo Co. Ltd.'s co-promotion of hypertension product olmesartan medoxomil. [See Deal] [See Deal]

– Amanda Micklus and Ellen Foster Licking