“Competition fierce” as big pharma moves to early stage deals

February 21, 2014 ctheodoropulos

In a meeting ahead of BIO-Europe Spring® 2014, Editor of BioCentury, Susan Schaeffer, posed a provocative question to the panelists for the session she will moderate entitled, “Who will finance early stage drug discovery?”

After presenting the recent volume of early stage drug discovery deals she asked, “Why are we talking about early stage financing when the data says there is plenty of capital?”

“Our information supports her data,” said Jason Coloma, the Global Head of Venture and Innovation at Roche Partnering. “The number of late-stage deals has been dwindling and the competition is becoming fierce in early stage programs. We have already seen this competition pushing up prices, sometimes with hundreds of millions being put into what are still very early non-validated technologies.”

Jason Coloma, the Global Head of Venture & Innovation at Roche Partnering

Jason Coloma, Global Head of Venture and Innovation at Roche Partnering

The heated competition generated a series of mega bio-buck deals in the past year:

* Pfizer cut a USD 635 million deal with CytomX on armed antibody technology;

* Celgene delivered USD 200 million upfront to Forma in the field of protein homeostasis with more than USD 1 billion in milestone payments;

* AstraZeneca agreed to pay a record USD 240 million upfront for an mRNA deal with Moderna, which was followed hotly by another deal for Moderna with Alexion Pharmaceuticals;

* Gilead Sciences paid USD 30 million to MacroGenics for antibodies against four undisclosed cancer targets in a total deal valued at USD 1.1 billion.

“It is still very early to see which way these will go,” said Coloma, who predicts the deals will continue to flow as pharma companies scramble to build discovery stage pipelines.

“Yet there remains that critical step of translating ideas out of academia into a new company. The challenge in the ‘Valley of Death’ remains a struggle. It is less of an issue where companies have already been created, or where good ideas have been well-validated by venture capitalists,” he said.

The Valley of Death looms larger at the earliest levels of innovation with the traditional source of financing for academic research in the United States jeopardized by cuts to the budget of the National Institutes of Health.

In part this explains the concerted competition by major pharma companies for creating early innovation programs to identify targets and pathways that will really differentiate a program. Examples include:

* Pfizer’s open-innovation partnering model, called the Centers for Therapeutic Innovation (CTI), puts bricks-and-mortar on the ground to interact with academia;

* Johnson & Johnson’s Regional Innovation Centers—opened in Boston, San Francisco, and San Diego—bring together scientists with business development and corporate venture people in the same offices;

* Lilly’s Phenotypic Drug Discovery Initiative (PD2) for screening molecules gives the company a first-mover advantage to negotiate a collaboration or licensing agreement;

* GlaxoSmithKline’s USD 200 million investment agreement with Avalon Ventures augments discovery capabilities with an option to acquire funded companies.

At Roche as recently as 2011, potential partners were told that the majority of deals would be made at the Phase II level of clinical development. Roche Partnering has since led an effort to increase the focus on early stage dealmaking, establishing a distinct model for fostering discovery efforts.

“We understand the competitive environment and in the past year there has been a dramatic shift in how many early stage deals Roche has done,” Coloma said.

Roche also made headlines last year with the announcement that John C. Reed, the high-profile chief executive of the Sanford-Burnham Medical Research Institute in San Diego, would move to Basel to lead Roche’s Pharma Research & Early Development (pRED) group.

“A key pillar in our approach is being more integrated in how we partner with academia,” said Coloma, who stepped into his new role as head of Venture and Innovation at about the same time, and began focusing people, dedicated resources and fresh budget toward the goal of accessing early innovation.

Key elements in the integrated approach at Roche are the Academic Relations & Collaborations (ARC) group, the Office of External Drug Discovery (OEDD) and the Extending the Innovation Network (EIN) initiative, all aimed at discovering and creating opportunities to interact with partners in academia, venture and biotech.

“With ARC we are looking for real engagement at a scientist-to-scientist level, funding postdoctoral work, as well as scouting for innovation and research collaborations,” he said. “The EIN aims at funding ideas coming out of academia that could eventually be interesting programs or technologies that can be used for discovery. The key overall goal is to leverage external scientific expertise and technology breakthroughs to rapidly develop clinical candidates aligned with our R&D strategy.”

“We found that many programs can end up being islands unto themselves, not connected to leadership and the core strategy.  Taking an integrated approach means linking new programs to what is core to our scientists and core to what we eventually want to internalize,” said Coloma.

“Early stage is core for Roche, innovation access is fundamental to what we are doing,” he said.

The strategy will play out across meetings at BIO-Europe Spring in Turin.

“When we come to meetings, we are able to bring key scientific leadership, the decision makers who can not only start a relationship but make instant decisions on whether or not we should pursue something. It shows how important this is to them, and assures partners that they will not be interacting with one small part of Roche,” he said.

The focus for Roche meetings at BIO-Europe Spring breaks out roughly with a third devoted to ongoing relationships, another third focused on active negotiation and, according to Coloma, “one third where we are being opportunistic. We have to spend more time filtering through that last third, but I can tell you we have found programs over the past year that quickly moved to a high priority status.

“There is a camp that says we are Roche and eventually we will see everything. I don’t belong to that camp,” he said. “As things become more competitive in the early stage, the emphasis has to be on proactively finding opportunities. We have people who do a great job of focusing on meeting requests and evaluating them with our scientists in order to respond to the companies.”

 

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