When Small Biotech Met Big Pharma

Australian biotech firm Biota's experience with licensing an antiviral candidate to Glaxo provides a cautionary tale for both small biotech R&D companies and the larger pharma firms to which they license compounds.

By Heidi Parsons, Managing Editor

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Good chemistry and common interests may launch relationships, but communication is what ultimately makes or breaks them. That's true with businesses as well as individuals, and the ongoing litigation between Biota Holdings Ltd. and GlaxoSmithKline (GSK) is a case in point.

Biota is a small (Aus. $51.3 million) biopharma R&D company based near Melbourne, Australia. Back in 1990, Biota licensed a promising anti-influenza drug candidate, zanamivir, to UK-based Glaxo. As time passed, Glaxo grew through mergers and acquisitions – morphing first into Glaxo Wellcome (1995) and then GlaxoSmithKline (2000) – and in mid-1999, the U.S. Food and Drug Administration (FDA) approved zanamivir (brand name Relenza) in July 1999. Meanwhile, avian influenza had begun showing up in humans in Southeast Asia, and as more cases (and deaths) were reported in subsequent years, global concern about the potential for a “flu pandemic” increased. The U.S. government began buying huge quantities of flu vaccine from various suppliers. In this ostensibly favorable climate, Biota’s management found Relenza’s sales to be underwhelming. They filed suit against GSK in 2004, charging that GSK had failed to use "best endeavors" to market the drug.

At the recent BIO show in Boston, Pharmaceutical Manufacturing Managing Editor Heidi Parsons met with Peter Cook, Biota’s CEO and managing director, to discuss what went wrong in his company’s relationship with GSK and what the implications are for both small biotech firms and large drug companies that are looking to establish partnerships.



PM: You originally partnered with GSK in 1990 and filed suit against them in 2004, asserting that GSK failed to use "best endeavors" to market Relenza. Have you noticed repercussions throughout the drug industry as a result?

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Cook

PC: Well, the basic structure of the industry hasn't changed. The small biotechs still license their products out, and ultimately, the people who control the marketing environment are Big Pharma. Very frequently, small biotech companies tend to feel that any offer is an appropriate offer, and in reality, you have to be a lot shrewder than that.

[As a result of our litigation against GSK,] performance obligations will now be there. We know that everybody is much more cautious – both small biotechs and large drug companies. Big Pharma has realized that “catch-all” performance obligations are difficult to fulfill. Typically, Big Pharma lays out milestones for its partners to meet. Now, small licensors are saying, "There will be milestones from your side as well."

PM: What expectations did your company have that have not been fulfilled?

PC: Relenza should be a billion-dollar product. [To date, Relenza is one of only two specific anti-influenza drugs recommended by the World Health Organization for global stockpiling to protect against pandemic influenza, including avian flu.] In 2004, we sued GSK because we believed it was the only way to retrieve the value inherent in the product for our shareholders. Since then, the situation has been compounded by GSK’s failure to properly tackle worldwide concerns over the threat of avian flu (see Box, below, for details).

PM: Given the difficulties that arose in your relationship with GSK, what advice would you give to other biopharma development companies considering partnerships with large pharmaceutical companies?

PC: The worry for small biotech companies is that Big Pharma will acquire a product and then “park” it – that is, they'll wait a long time to develop it or never develop it because their intention was to take it out of the competitive arena. They have greater leverage in terms of capital and legal resources, and they know it.

The nature of these deals has been that if [licensees] do nothing, it costs them nothing. Unless there's a performance obligation stipulated in the contract, significant money doesn't come to the licensor.

Both sides need to be more transparent in their concerns and their expectations. The small biotechs must spell out clearly what their performance expectations are. Contracts need to consider how a licensee reports to a licensor over the life of the product. This level of transparency is good for both parties, because both parties' interests can change over time.

PM: Do you think the corporate changes that Glaxo has undergone have factored into the way it handled Relenza’s commercialization?

PC: It’s possible. Our original deal was with Glaxo, which became Glaxo Wellcome, which merged with SmithKline Beecham to become GlaxoSmithKline.

With mergers and acquisitions in life sciences and other industries, there have always been risks in terms of loss of corporate memory. That's especially true with mergers, as those are done for some economic driver. A merger invariably means that core activities will be reviewed and rationalized. Priorities change, and [if you're a small company that has licensed a drug candidate to one of the firms involved in a merger], then who knows what may happen to your candidate?

This is another factor that behooves licensors to put in performance clauses. In the pharmaceutical industry, mergers and acquisitions are quite common, so product development processes are always at risk.

PM: Despite your disappointing experience with Relenza, you’ve established other partnerships. What are you doing differently in your approach to those relationships?

PC: We've done two licensing deals since the deal with GSK – one with MedImmune and one with Boehringer Ingelheim. Both candidates were licensed at the preclinical stage, and each is now approaching its first milestone.

We will do a lot more of the collaborative aspects of development with MedImmune and Boehringer Ingelheim than we did with GSK. As a licensor, being more involved in the development of the product keeps you in better touch with the program. It makes sense for biotech companies to do that because you understand your project best.

Background Information on the Biota Case

Biota initially filed suit against GSK in May 2004. The trial is scheduled to begin Apr. 1, 2008. On Mar. 29, 2007, following a two-year review of more than 200,000 GSK documents, Biota filed an Amended Statement of Claim with the Victoria (Australia) Supreme Court detailing its allegation that GSK consistently mismanaged its legal obligation to develop and market the antiviral drug Relenza (zanamivir).

The issues in the case relate back to the development of Relenza (including the selection of the delivery device and the clinical trials), the launch of Relenza in countries around the world following regulatory approval and the marketing and promotion of Relenza to the seasonal and emerging pandemic stockpiling markets.

Relenza was first in a new class of antiviral flu drugs, approved for prescription in over 70 countries. Biota’s statement says that soon after Relenza’s worldwide launch in 2000, GSK withdrew its support for the product, adopting and implementing an “exit strategy,” with the result that Relenza now holds only a small portion of the estimated US $2 billion annual global market for antiviral flu drugs, including the stockpiling market to combat the threat of an avian flu pandemic. Biota is entitled to receive a blended royalty on GSK’s sales of Relenza, of approximately 7%.



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