Lilly and Merck Lead the Way With Asian FIPNet Strategies

There's a new acronym to learn:FIPNet--for fully integrated pharmaceutical network. Nowhere is the strategy more apparent than in Asia, where Big Pharma hopes to tap into the increasingly high quality research available in India and China--countries that also should prove to be a major source of future customers. Merck and Eli Lilly are two companies leading the FIPNet charge.

Being a FIPCO—a fully integrated pharmaceutical company—is so last century. Increasingly, many pharmas are adopting strategies that rely heavily on collaborations with multiple partners where those allies bear a much greater proportion of the development risk in exchange for a greater share of the economic reward. In the twenty-first century parlance, it’s about FIPNets—fully integrated pharmaceutical networks.

Nowhere is the strategy more apparent than in Asia, where Big Pharma hopes to tap into the increasingly high quality research available in India and China--countries that also should prove to be a major source of future customers. Indeed, in a panel discussion at the April BioMedical Asia Conference in Singapore, executives from Pfizer Inc., Bayer AG, and Johnson & Johnson discussed their companies’ evolving views regarding R&D partnerships. "We see Asia as a place where we can change the game of how R&D is done," said Alex Fowkes, Pfizer’s executive director and head of strategic alliances in Asia. "We’re focused on building networks and partnerships and seeing if we can deliver drug discovery through a virtual network of partners," he said.

But while Pfizer and Johnson & Johnson are talking about the importance of externalization, Merck & Co. Inc. and Eli Lilly & Co. are quietly leading the FIPNet vanguard with novel deals that alter the traditional risk/ reward ratio for the smaller player. In 2006, Merck inked a much overlooked deal with Advinus Therapeutics Pvt. Ltd., an Indian drug discovery firm specializing in metabolic disease. As part of the agreement, Advinus will develop compounds through the early clinical stages, at which time Merck will take them back for further development. [See Deal] This past November Merck announced a similar agreement with Nicholas Piramal India Ltd. Research and Development Ltd. (NRDL), which recently demerged from parent company Piramal Enterprises Ltd., to develop novel cancer compounds through proof-of-concept against two Merck targets. [See Deal] Just as IN VIVO went to press, Merck struck an analogous partnership—this time in the anti-infective space—with yet another major Indian player, Ranbaxy Laboratories Ltd. [See Deal]

Lilly, meanwhile, has collaborations across a swath of therapeutic areas with Indian firms Suven Life Science Ltd., NRDL, and Glenmark Pharmaceuticals SA [See Deal], [See Deal], and [See Deal]. Last August, the pharma also announced a tie-up with Chinese drug developer Hutchison MediPharma Ltd. that gives Hutchison an up-front payment, annual R&D support fees, and milestones of up to $29 million per drug candidate it develops for Lilly. [See Deal] Indeed, the FIPNet concept is so important to Lilly’s future growth strategy that it included the acronym on the opening slide of its December 2007 investor presentation.

"By transforming from a FIPCO to a FIPNet, we can better leverage resources in terms of capacity, dollars, and capability in order to keep our pipeline full," Robert Armstrong, PhD, Lilly VP, global external R&D told IN VIVO.

Lilly’s real push toward externalizing R&D started in 2002, when the company began experimenting with a number of alternative approaches, primarily through its now defunct e-Lilly initiative. One of them—its Chorus division—involved developing sophisticated software to advance compounds rapidly to proof-of-concept via a lean organization located outside Lilly’s labs. (See "Lilly’s Chorus Experiment," IN VIVO, May 2007 (Also see "Lilly's Chorus Experiment" - In Vivo, 1 May, 2007.).) "Chorus was one element of the FIPNet," says Steven Paul, MD, President of R&D at Lilly. Another element: offshoring R&D work to China via a CRO called Shanghai ChemExplorer Co. Ltd. That company, which is governed by the former director of the Shanghai Institute of Organic Chemistry, now boasts several hundred employees and has conducted research exclusively for Lilly since mid-2002. But both Paul and Armstrong argue that Lilly’s latest agreements with the likes of Hutchison MediPharma in China or NRDL in India take the FIPNet concept to yet another level. "They require more innovation and more investment—and more risk" on the part of the partners, says Armstrong.

Take Lilly’s recently expanded deal with NRDL, for example. Back in 2007, the two companies brokered their first tie-up: NRDL would develop a number of Lilly’s preclinical drug candidates from IND-enabling studies through Phase II human clinical trials. In return, Lilly granted NRDL a call-back payment and pledged to pay the Indian company milestones up to $100 million, plus royalties on sales following a product’s launch. In February 2008, the two companies expanded their agreement and added a twist. Both NRDL and Lilly would perform early clinical development studies on two different candidate compounds directed against the same target. Based on data from proof-of-concept studies, Lilly would select one or more of the compounds for pivotal trials. (According to Sagar Gokani, manager of investor relations at NRDL, even if the Indian company’s compound doesn’t make the final cut, it will still be eligible for milestone payments.)

Lilly scientists might have been threatened at first, admits Paul. "Now they are convinced that the growing FIPNet strategy can dramatically enhance and better leverage—even amplify—our internal R&D resources and investments," he says. Moreover, "there’s nothing more exciting for a discovery scientist than testing a compound in humans. This relationship offers a quicker way to do that," he claims. In the industry’s new math, it’s akin to "one plus one equaling three or four, instead of two," says Paul.

Merck signed its recent deals with Advinus, NRDL, and Ranbaxy for much the same reasons. "These collaborations enable Merck Research Labs to expand its R&D bandwidth and advance multiple programs in parallel instead of in a sequential manner," says Mervyn Turner, PhD, SVP, worldwide licensing and external research at Merck. Turner notes that many of the India-based companies are trying to move beyond a CRO-only business model. "I think you have to embrace the idea that this is a win-win for both companies as opposed to the CRO approach, which is a very one-sided model," he says.

Back in November Merck signed an important partnership with NRDL to develop oncology drugs against two different targets selected by Merck. In exchange for taking the compounds through early clinical and proof-of-concept studies, Merck will pay NRDL up to $175 million per target plus sales royalties. More detailed financials weren’t disclosed, but Turner notes that "we have built in the proper incentives to keep both sides motivated."

The recent Ranbaxy deal is structured similarly: Ranbaxy scientists will search for promising anti-bacterial and anti-fungal compounds, taking them through the first two phases of human testing before handing them back to Merck for Phase IIb studies and commercialization. Merck will pay Ranbaxy, India’s largest pharmaceutical company and the world’s tenth largest generic maker, an undisclosed up-front payment and milestones that could total more than $100 million. "We hope to build our anti-infective strategy candidate by candidate by tapping into Ranbaxy’s expertise," says Turner. As the partnership gains full steam, Merck may turn to another Asia-based partner for help: MerLion Pharmaceuticals Pte Ltd. In March, Merck announced it was extending it 2003 agreement with the private company, which has operations in Germany and Singapore, to focus on anti-infectives. [See Deal] Interestingly, news of both the Ranbaxy tie-up and the Merlion deal came just days after Merck announced it was dissolving its own 50-year-old natural products division, headquartered in Spain.

Fueling pipeline growth may be the primary driver for these novel partnerships, but it isn’t the only one. As both India and China become wealthier, pent-up demand for better healthcare means the pharmaceutical markets in these two countries are enjoying double-digit growth at a time when sales are starting to slow in the US and Europe. Thus, for Lilly and Merck another factor in inking these relationships appears to be market access. "Although our FIPNet collaborations are primarily designed to augment our pipeline, we also hope for a market advantage down the road. Having compounds developed in China and India by researchers knowledgeable about local markets will certainly help," says Lilly’s Paul.

Ellen Foster Licking