Licensing - - BioPharm International



BioPharm International
Volume 1, Issue 8

In June 2003, GlaxoSmithKline signed a royalty and milestone-based licensing and development agreement with biotech company Pozen to develop and commercialize migraine therapeutics, combining triptans and NSAIDs under the brand name Trexima.3 The drugs to be developed were potentially very profitable because of the large market for migraine therapy. Migraines are a chronic affliction that may start in the teen years and extend into adulthood, and 28 million Americans suffer from migraine headaches.4

The agreement between GlaxoSmithKline and Pozen was a late-stage deal, signed during Phase II clinical trials that were showing a 50 percent improvement for sustained pain relief by the new drug over available treatments for migraines. By coming in at the late stage of drug development, Glaxo mitigated its risk of product performance and approval. Under the agreement, Pozen was responsible for drug development and associated costs, but Glaxo paid Pozen an upfront fee and an initial milestone payment that together totaled $25 million. Pozen can earn up to $55 million in additional development milestone payments if certain benchmarks are achieved in development and in regulatory submissions and approvals. Glaxo, meanwhile, has the exclusive right to sell the developed products in the US. Once the products move from development to commercialization, Pozen can earn up to $80 million in sales milestones payments if sales thresholds are met. In addition, Glaxo will pay Pozen an undisclosed royalty on sales.3

Alternative Approach: Cost and Profit Sharing

Let's look at an alternative approach, one in which the value exchanged between the parties is more directly related to drug development costs and the level of commercial success: cost sharing and profit sharing.

When the biotech firm Alnylam Pharmaceutical was founded in 2002, it was the first company to pursue the development of therapeutics using RNA interference (RNAi) to silence disease-causing genes that produce proteins that play harmful roles in disease. Alnylam's areas of research include age-related macular degeneration, respiratory syncytial virus (RSV), spinal cord injury, Parkinson's disease, and cystic fibrosis.5

In June 2004, Merck and Alnylam entered into a collaboration and license agreement to develop and commercialize RNAi therapeutics for ophthalmic diseases, in particular age-related macular degeneration, a condition that leads to severe deterioration of vision and may ultimately cause blindness.6 As was true for the Glaxo-Pozen medication mentioned above, there was a potentially large market for the drugs to be developed by Merck and Alnylam. The National Eye Institute estimates that more than 1.6 million Americans over 60 suffer from advanced age-related macular degeneration.7

The agreement between Merck and Alnylam was signed at the drug discovery stage before any clinical trials had commenced. The foundation for the agreement was cost sharing and profit sharing; except as noted below, costs and profits were to be split 50/50. As a result, the parties' interests were more closely aligned and intertwined throughout the process than was true in the Glaxo-Pozen arrangement. Merck was the lead commercialization party, responsible for developing the budget and preparing the commercialization plan; however, Alnylam would retain co-promotion rights in the US to sell commercialized products along with Merck.

Although the Merck-Alnylam deal revolves around cost sharing and profit sharing, Alnylam will still receive milestone payments (at seemingly lower levels than are customary) as development benchmarks are achieved. This may be because Alnylam does not have the monetary means of a larger biotech company to fully fund its share of costs without some subsidization. While the parties have chosen not to credit these milestone payments as advances against Alnylam's right to receive future profit payments, such a provision could be utilized by others in other deals.

One attractive feature of such a cost-and-profit-sharing arrangement is its flexibility to accommodate change. The deal contains safety valves and exceptions to the full cost-and-profit-sharing arrangement. These are: (1) a party may elect to reduce the level of shared expenses from 50/50, provided that the profit-sharing level is correspondingly reduced, (2) a party may opt out of development costs for a specific product; if the other party continues in the development and commercialization of that product at its own expense, the continuing party will pay a royalty to the other party, rather than share costs and profits, with respect to that product, and (3) Merck will pay Alnylam royalties on product sold outside of the US.6

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