Considerations that impact whether a deal is signed and what type of a deal it is also drive the structure of a deal. “In a hot space, you can have an early-stage asset getting relatively big dollars, even if the asset is not in the clinic yet,” Rozelman noted. He cited as an example last year’s licensing by Vertex of worldwide rights to two preclinical hepatitis C candidates from Alios Biopharma for $60 million up front. The deal covered ALS-2200 and ALS-2158, and Alios is eligible for an additional $715 million in R&D milestone payments and up to $750 million in sales milestones. Vertex said at the time it expected to pay approximately $35 million in development milestones last year itself.
The major bucks tend to be shelled out more for later-stage drug candidates, though. Once a firm’s done early Phase II work and you’ve seen at least some early positive efficacy signals in your clinical trials, “that typically starts to attract some of the larger pharma,” Rozelman explained. “That’s where you start to see the big dollars, with $100 million-plus up front and a billion-dollar-plus total milestone opportunity.”
Most commonly, firms generate a lot less from a licensing collaboration. “It’s typically in the tens of millions of dollars,” Glorikian noted. “Typically, we’ve been seeing companies that want things that are later on in the pipeline, as opposed to earlier in the pipeline. They seem to be willing to have the smaller companies take the risk of things that are earlier in the pipeline.”
To defray this risk companies often enter discovery alliances where they contract the discovery, research, and preclinical work out to firms focused on these stages of drug development. In exchange for conducting this high-risk work, companies get research funding and milestone fees and of course the stamp from larger firms that their technology works.
Big pharma is also gradually warming up to open collaborations as another way to gain innovative research without making the biggest investment. These open innovation programs have often focused on diseases that do not easily offer the promise of quick profits.
GlaxoSmithKline spent $8 million in 2010 to seed-fund research in tropical diseases through a not-for-profit foundation when it launched its first “Open Lab” outside Madrid. Last fall, Eli Lilly expanded its open-source effort beyond its two-year-old Phenotypic Drug Discovery (PD2) initiative, in which molecules can be submitted by scientists outside the company for screening. Lilly also launched a new target discovery program and expanded its TB Drug Discovery Initiative to screen molecules for their ability to fight MDR-TB.