Mind the Gap

Section I.H.? Budgets? ?With the emergence of co-development alliances in the early 2000s, deal budgets came under the purview of biopharma BD&L.? Contractually defined R&D expenditures crossed all three aspects of what had become, at least on the pharma side, a fairly specialized division of BD&L function between finders (competitive intelligence), grinders (deal negotiation) and minders (alliance management).

The “who pays, for what, at what rate, for how long, and with what contingencies” became the stuff of intense negotiation and resolution in the alliance R&D budget.? Even if the alliance only envisioned an option for the originator to co-develop, there were new types of personnel to consider, and so potentially significant differences in the cost of full-time equivalents (FTEs), as seen in the 2010 Xoma/Servier Phase II alliance for a monoclonal to IL-1 beta:

Once a biotech originator stepped-up firmly to the co-development plate, however, the alliance R&D budget became the demarcation between an upfront payment that was enriching and what pharma termed the “round tripping” of cash back into project R&D.? For example, here’s a snapshot of Endocyte’s 2012 Phase III Co-Co alliance with Merck for Vintafolide to treat ovarian and lung cancer:

Endocyte received a $120 million upfront payment, but agreed to plow back approximately $46 million (75% of $61M budgeted) into Shared Development Costs for the Initial Indications.? All additional development costs were Merck’s, including Phase III for lung cancer and Additional Indications.? Good thing, too, since the definition of Development Costs included Merck’s internal FTEs.? Here’s Endocyte’s co-development obligation:

Fast forward to 2018 and the Phase II Co-Co alliance between Theravance and Janssen for JAK inhibitors to treat inflammatory diseases.? Here’s the snapshot:

This is an example of what I call TPC (tide pool co-development).? The parties intended to share all development costs, but they did so with heavy reliance on projected costs to commercialization.? The $100 million upfront payment plus the $200 million paid on Janssen’s Opt-in, might have been just enough to cover Theravance’s share of development costs, first to get to the Triggering Data Package that provoked the Opt-in, and then to cover Theravance’s 1/3 share of Phase III development costs, expected to total $530 million.? Here are the key elements:

For biopharma BD&L, the bottom line is this:? When the finders identify a promising clinical project, the grinders must weigh in regarding the R&D budget, so that the minders can keep pace monitoring multi-year projections against the actual clinical progression and cost of drug development.

You can see the introduction to this ongoing series of articles about best practices in biopharma licensing, or go directly to links to previously posted articles of the series here.