How Often are Co-Promotion Options Actually Exercised?
Executive Summary
Biotech licensers often retain an option to co-promote when out-licensing their products. But how often are these options actually exercised?
When biotech licensers grant marketing rights to their development partners, they often retain at least some commercialization rights—and even if they cede worldwide marketing rights, many will keep at least an option to co-promote the product in a key geographic or therapeutic market. The option to co-promote is even a negotiating leverage point for those biotechs that have little intention of building their own commercial capability: they may plan to monetize the right by sublicensing it to a third party, or trading it back to the original partner for another concession later on.
But how often have these licensing terms actually translated into an active co-promotion deal? To get a sense, we surveyed 59 development deals (those signed prior to NDA filing) between biotechs and Big Pharma going back to 1991 in which the biotech kept the right to co-promote, or at least an option to co-promote, and broke out the current status of those co-promotion rights in the charts below.
Exhibit 1 illustrates that the majority of the deals ended before co-promotion even became a salient issue: 36 of the 59 deals, over 60%, were terminated due to product failures or acquisitions of one of the parties involved. In fact, a number of the deal relationships turned to acquisitions themselves, as in the cases of Johnson & Johnson’s acquisition of 3-D Pharmaceuticals overriding the latter’s thrombin inhibitor deal with J&J unit Centocor Inc. [See Deal] [See Deal]; GlaxoSmithKline PLC’s buy of vaccines partner Corixa; and Pfizer Inc. ’s takeover of antibiotics partner Vicuron Pharmaceuticals, whose relationship can be traced back to a 1999 alliance between Vicuron (then Versicor) and later Pfizer acquiree Pharmacia & Upjohn. [See Deal] [See Deal] [See Deal]
But seven of the deals have blossomed into active co-promotions, including three that started out as options the licenser later exercised (see Exhibit 2). Underscoring the vagaries of drug development, however, is the fact that six of the seven candidates were already in Phase III at deal signing, while the earliest co-promotion option to come to fruition was for a therapeutic in Phase II: OSI Pharmaceuticals Inc. ’s erlotinib (Tarceva), to which OSI licensed global rights to Roche and Genentech Inc. in January 2001. [See Deal]
Notably, retained co-promotion rights were used as later bargaining chips in only two of the deals (labeled "other" in the charts below): Tanox Inc. traded back its co-promotion option to omalizumab (Xolair) in exchange for a 12% royalty [See Deal], while Vertex Pharmaceuticals Inc. exercised an option to repay an R&D loan to Novartis AG, granting the Big Pharma full rights to cancer candidate VX-680 to which it had retained a co-promotion option. [See Deal] Vertex has since re-licensed Merck & Co. Inc. full rights to the now-Phase II compound, retaining right of first negotiation to co-promote [See Deal]. (See "Novartis Out, Merck In, a Win For Vertex’s Aurora Kinase Program," IN VIVO, July 2004 (Also see "Novartis Out, Merck In, a Win for Vertex's Aurora Kinase Program" - In Vivo, 1 Jul, 2004.)).
Kevin Roche
