In our last out-partnering post, we suggested the possibility that out-partnering could spur a wholesale change in business model, using Pfizer and the potential virtues of spin-outs as Exhibit A.Today we turn to out-partnering as biotechs are learning to do it…and as, we (humbly) suggest, Big Pharma should too.
Take Alnylam, a biotech more than usually cognizant of the diminishing value of its core technology.
Alnylam’s strategy is to do everything it can to more durably asset-ize its RNAi platform’s temporary tech value. In terms of dealmaking, that’s largely meant selling the platform for cash (viz deals with Novartis and Roche) while RNAi technology is still rare. (In other words, before companies like Dicerna and maybe MDRNA catch up and dilute Alnylam's partnering value).
But more recently Alnylam's been selling the platform for money and potential products – the point of its Takeda deal (see our discussion here). Along with $100 million up-front and $50 million in near-term fees, Alnylam gets a reciprocal first right of negotiation on any project Takeda decides to shop in the US and more importantly, opt-in rights for 50/50 co-dev/co-commercialization deals in the US on up to four Takeda programs of its choosing (exercisable all the way through the start of Phase III).
Despite its sparse infrastructure, negative cash flow and infinite PE multiple – all hallmarks of biotech -- Alnylam is in fact acting kind of like a Big Pharma – providing value to its partner in return for downstream commercial rights.
Which leads to this question: why isn’t Merck doing the exact same thing with the RNAi platform it got from Sirna? Merck certainly knows it can’t possibly exploit all that technology itself, as does Alnylam, but it isn’t pursuing the logical next step, selling it to another company in return for downstream rights.
There are probably a thousand practical reasons for not doing it. Among them: Merck isn’t set up to do it; it's expensive; and technology isn’t really packageable. But the real reason is strategic habit. Drug companies do not share, even when it’s against their interests not to. Drug companies still believe that owning a broad swathe of discovery-stage territory confers on them some temporal or intellectual advantage, despite the fact that 99% of discovery programs will fail. Which means that if you’ve got the chance to let someone else farm some of that territory, you should.
If we were Emperor of Pharma (or if we were merely responsive to shareholders’ growing concerns that we were maximizing their research investment – or at least making it repay its cost of capital, which it most probably isn’t) we’d get cracking on figuring out which companies might, in exchange for downstream product rights or perhaps some other valuable trinket, be interested in playing with our discovery toolkit. Might not be too radical, for example, for GlaxoSmithKline to maybe open up a sirtuin target or two to Pfizer (whom we understand though cannot confirm made a last-minute bid for Sirtris). Or maybe Bristol-Myers Squibb could more profitably exploit its adnectin platform, acquired with Adnexus, by letting someone else take a crack at it.
Keeping their new technologies to themselves, GSK, Bristol and Merck aren’t going to get a dime back on these early-stage investments for years – in the best case. Maybe never. Seems to us the more sensible approach would be to structure some out-partnering deals that increase the likelihood that something will come out of these technologies, and, as Alnylam has done, secure a share of any lucky results.
