Takeda flexes its partnering muscles

Are the Japanese healthcare majors emerging as serious competitors to the largest North American and European pharmaceutical companies for the most partners for fast growing biotechnology companies? Japan’s largest pharmaceutical company, Takeda Pharmaceutical, the sixteenth largest pharmaceutical company in the world, certainly believes so.

Over the past two years Takeda has moved away from its previous strategy of focusing on partnering with smaller Japanese companies towards alliances with international partners to boost its development pipeline.

International alliances are seen as particularly important at a time when two of the company’s most important drugs are coming off patent. Takeda’s gastrointestinal drug lansoprazole came off patent at the USPTO in February 2007, and its USPTO patent for pioglitazone, used for the treatment of diabetes type II, is due to expire in 2011.

Takeda has not been able to fill the pipeline with drugs from other Japanese companies and so it is now forced to focus on alliances, partnerships and acquisitions outside Japan. In order to make it a more attractive partner Takeda has established a streamlined decision making process and a Global Licensing and Business Development Department that reports directly to the company’s President. Takeda now has alliance specialists in all the three key geographical regions: Japan, North American and Europe.

The volume of deals signed by Takeda over the past three years has been impressive. The company has signed a number of cancer-based alliances. For example, in late 2004 it signed a deal with BioNumerik Pharmaceuticals around the chemotherapeutic agent Tavocept. As part of the deal Takeda made a $52 million equity investment in BioNumerick. Takeda signed a three year alliance in April 2006 with Arius Research Inc to research antibodies for anti-cancer treatments and in July 2006 it signed a four year development and marketing agreement with Galaxy Biotech for a humanized anti-Hepatocyte Growth Factor monoclonal antibody.

Takeda has signed a number of deals in the CNS area including a co-development and co-promotion with H. Lundbeck A/S signed in September 2007 for compounds for the treatment of mood and anxiety disorders. Takeda made an upfront payment of $40 million to Lundbeck and will pay up to $345 million in milestone payments over the life of the partnership.

In the field of cardiovascular diseases Takeda has entered alliances aimed at several disease targets. In November 2006 it signed a deal worth up to $230 million with Xoma Ltd to jointly discover, develop and produce therapeutic monoclonal antibodies. In June 2007 it signed a three target agreement with Archemix Corporation focusing on the discovery, development and commercialization of aptamer-based therapeutics.

As well as signing co-development licenses Takeda has in-licensed a number of compounds from companies ranging from Merck KGaA through to Santhera Pharmaceuticals and Sucampo Pharmaceuticals.

In addition to partnerships Takeda is exploring equity based and risk finance driven relationships. A venture capital subsidiary, Takeda Research Investment, was set up in 2002 located in Palo Alto and tasked with looking for cardiovascular, cancer, urological, central nervous system and gastrointestinal research collaborations.

So far, TRI has invested in seven companies. Investments have included Serenex, a chemoproteomics-oriented drug discovery company focused on the discovery and development of novel therapeutics targeting cancer, and Receptor Biologix, a biotechnology company founded on the discovery of a new class of endogenous regulatory proteins.

Can Takeda succeed in its strategy? Maybe. It has a number of factors going for it. Access to the wealthy, rapidly aging Japanese market and Asian markets is a big selling point for companies interested in age-related conditions. Takeda also has a lot of cash to invest. With $16 billion in cash and short term investments, Takeda’s investment capacity is not significantly less than Pfizer’s, which has $22.75 billion in cash. Finally but, possibly most crucially, biotechnology investors fed up with quarterly results driven decision-making, may see real advantages in having a partner with the long-term perspective that Japanese companies famously bring to investments. Together these factors could be a winning combination in the battle for the partnerships that are going to shape the future of the pharmaceutical industry.

Big hopes from small technologies

Promising smaller, lighter, quicker and better-performing materials, components and systems, nanotechnology could open new opportunities for collaborations in a number of sectors ranging from pharmaceuticals to medical devices, chemicals, energy and technology. That’s what the proponents of the technology argue, anyway.

In fact nanotechnology is pretty much pointless unless it is applied to an existing technology. So collaboration between companies with nanotechnology-related patents and companies in other sectors will drive the success or failure of the nascent industry over the next few years. Nanontechnology executives have the job of convincing a wide range of industries that their technology means getter better, quicker, cheaper products to market.

The adoption of nanotechnology by industry appears to have begun, albeit in patches. Akzo Nobel, which specialises in healthcare products, coatings and chemicals and BASF, a chemical company formed an alliance based on BASF’s nanobinder technology. In April 2007 Akzo Nobel introduced a new facade coating based on the nanobinder technology. The coating is reported to absorb less dirt than conventional coatings and prevents fungal growth.

Medical devices are one sector where nanotechnology is making an impact. Zyvex Corporation, a molecular nanotechnology company specializing in micro-electro-mechanical systems and Diabetech LP, a medical device company, formed an alliance in February 2006 to develop an active implantable device developed by Zyvex. The Glucose Nanobiosensor Implant involves a wireless sensor implant that picks up the blood glucose levels in the body and transmits this information to a hand-held device that displays real-time glucose levels. The data can also be automatically relayed to Diabetech’s clinical management system. The device will enable diabetic patients to avoid the procedure of pricking their fingers on a regular basis through the day to collect readings.

Siemens Medical Solutions is also getting into the nanotechnology space. For the past two years Siemens and Xintek Inc, a nanotechnology manufacturing company, have been jointly investigating the possibilities of bringing nanotechnology and X-ray technology together for diagnostic X-ray imaging. The alliance moved forward one step in September 2007 when the two companies entered an agreement to establish a joint venture company, XinRay Systems, based in Research Triangle Park, North Carolina. XinRay Systems will develop a multi-pixel X-ray source technology for a range of diagnostic imaging applications.

Nanotechnology in the pharmaceutical and biotechnology space has shown the most promise – so far – in drug delivery technologies. pSivida is one company in this space. The Australian company is developing drug delivery products in the healthcare sector, initially in ophthalmology and oncology. pSivida has licensed its eye treatments for chronic eye disease to Bausch & Lomb. pSivida’s next generation product is licensed to Pfizer for ophthalmic applications and Alimera Sciences for the treatment of Diabetic Macular Edema. The deal with Pfizer was valued at US$165 million. Pfizer has a 3% shareholding in pSivida.

pSivida’s BioSilicon nanontechnology was developed by QinetiQ, a company set up by the United Kingdom Government Defence Evaluation & Research Agency in 2001. BioSilicon was trialed at the Singapore General Hospital and in June 2004, QinetiQ exchanged its stake in the technology for shares in pSivida Limited in a deal that valued the company at the time at £40 million (US$80 million). QinetiQ holds 3.50% of shares of the company.

The equity markets have been less impressed with pSivida’s prospects. The company is quoted on NASDAQ. Despite the Pfizer deal, the company’s shares have fallen from a price of US$10.50 in January 2005 to less than US$1 in September 2007. The company is capitalised at US$40 million. pSivida’s finances are not pretty. The company had negative operating cashflow A$21 million (US$ 18 million) in the nine months to March 2007 and cash in hand of just A$7.40 million (US$6.40 million).

Nanotechnology seems unlikely to live up to its early hype. But the technology, much like the internet, will gradually become integrated into the research and development model of whole slews of research-based industries including pharmaceuticals, medical devices, chemicals and electronics. Whether the early startups in the industry can survive that long is another matter.

Bristol Myers-Squibb expands partnerships

In April 2007 Bristol-Myers Squibb began collaborating with Pfizer to develop the anticoagulant drug Apixaban. Terms of the agreement include an upfront payment of $250 million by Pfizer to Bristol-Myers. Pfizer will fund 60% of all planned development costs and Bristol-Myers will fund 40%. Bristol-Myers may also receive additional payments of up to $750 million based on development and regulatory milestones.

Discovered by Bristol-Myers Squibb, Apixaban is currently being studied in phase II and III trials for the prevention and treatment of a broad range of venous and arterial thrombotic conditions. Clinical trials comparing the drug with standard treatments have shown the drug to reduce deaths and clots in the legs and lungs of patients who have undergone orthopaedic surger. Last year the drug began to be tested in phase III trials for the prevention of strokes among people with atrial fibrillation, or irregular heartbeat. Should the trials be successful Bristol Myers-Squibb and Pfizer are hoping to file for US regulatory approval of Apixaban for prevention of venous thromboembolism in the second half of 2009, with filings planned for additional indications in 2010. If approved the drug could become a possible blockbuster replacement for Bristol’s poorly tolerated but widely used medicine Coumadin (warfarin). A similar drug called Rivaroxaban, which is slightly further along in testing, is being co-developed by Bayer AG and Johnson & Johnson.

At the same time that the apixaban deal was signed, Pfizer and Bristol Myers-Squibb entered a separate research and development partnership focused on metabolic disorders using Pfizer’s ongoing discovery programme directed towards diabetes and obesity. Pfizer is responsible for all research and early-stage development activities and will share responsibilities with Bristol Myers-Squibb for any phase III development and commercialisation activities. Under the agreement Bristol-Myers Squibb was to make an upfront payment of $50 million to Pfizer. All development and commercialisation expenses are to be shared bettween the companies together with profits/losses on a 60%-40% basis, with Pfizer assuming the larger share of both expenses and profit/losses.

Worth up to US$1 billion, Bristol Myers-Squibb’s collaboration with Pfizer is seen by a number of analysts as a shrewd move on the part of Bristol-Myers Squibb to fend off a potential merger in the wake of its shaky financial status sresulting from ongoing patent lawsuits and government investigations for its best selling blockbuster blood-clot drug Plavix, and the ousting of its Chief Executive, Peter Dolan, in September 2006 because of his mismanagement of the patent negotiations over Plavix. More than a fifth of Bristol Myers-Squibb’s revenue is at stake in the patent dispute over Plavix. Plavix was the world’s second-bestselling medicine in 2005 with sales of US$5.9 billion.

The deal with Pfizer is one of a number Bristol Myers-Squibb has signed with other large pharmaceutical companies for primary care drugs in recent years. In 2004 Bristol Myers-Squibb signed a deal with Merck and Co for the co-development of the phase III antidiabetes drug Pargluva (muraglitizar), worth up to US$375 million in upfront and milestone payments. While the drug has subsequently failed, the deal brought Bristol Myers-Squibb US$100 million in upfront payments which helped defray some of the drug’s development costs.

In January 2007 Bristol Myers-Squibb entered an agreement with AstraZeneca for two late-clinical stage diabetes drugs for diabetes type 2 which provides Bristol Myers-Squibb with an upfront payment of US$100 million and a further US$950 million if it achieves pre-commercial and sales milestones. Discovered by Bristol Myers-Squib the two drugs, Saxagliptin and Dapagliflozin, are currently in phase II and III trials. Should it complete clinical trials successfully, Saxagliptin will be filed for US regulatory approval during the first half of 2008 and could compete with Merck’s recently approved diabetes drug Januvia and Novartis’s Galvus, which has been held up by the FDA. Dapagliflozon, the drug in Phase II trials, is currently on track to be a first-in-class drug.

According to Roger Longman, the managing partner of Windhover Information, such deals by Bristol Myers-Squibb share more similarities with collaborative strategies pursued by biotechnology companies than traditional pharmaceutical companies. By selling off late-stage clinical products that have been taken to proof of concept and not taking them to market, Bristol Myers-Squibb can potentially unlock cash and value that otherwise would take years to accumulate. Rather than expending energy on marketing and sales the company is able to concentrate its efforts on discovery and early stage development to bolster its product pipeline.

It remains to be seen how successful its recent partnering strategy will be for Bristol Myers-Squibb and whether it will prevent a potential acquisition by Sanofi-Aventis which for the past few months has been discussing the possibility. For the partners of Bristol Myers-Squibb such alliances are valuable assets at a time of research set backs and increasing generic competition. The fact that companies like Pfizer and AstraZeneca are beginning to invest such huge sums of money in the discovery and early development efforts of companies like Bristol Myers-Squibb shows how desperate the competition is for big pharmaceutical companies to fill their product pipelines.

In the case of Pfizer the deal with Bristol Myers-Squibb could help fill the gap in its pipeline left by the halting of its phase III trials for Torcetrapib in December 2006 when a 60% increase in deaths was observed among patients taking the drug in the trial. Torcetrapib, a cholesterol-ester transfer protein inhibitor, was one of the costliest drugs to develop and was eagerly looked upon by Pfizer as a means of boosting its revenue once its blockbuster cholesterol lowering drug, Lipitor, which generates US$12 billion a year, loses US market exclusivity in early 2010. In May 2006 the Food and Drug Administration had also refused to approve a dosage of the insomnia drug Indiplon, a drug Pfizer had licensed to co-develop and market from Neurocrine Biosciences in 2002. Many within Pfizer were looking to the drug as a competitor for similar drugs already on the market, such as Ambien (Sanofi-Aventis) and Lunesta (Sepracor). The alliance with Bristol Myers-Squibb could provide a much needed boost to Pfizer which is currently cutting back 10,000 jobs, or 10 percent of its work force, and facing a great shake-up in its senior management team, with the resignation of its chief exectutive in October 2006 and its Head of Research and Development in May 2007 because of the Torcetrapib affair, and the exiting of it Chief Financial Officer in the wake of disclosures of corruption in the finance department of Pfizer India in May 2007.

AstraZeneca’s collaboration with Bristol Myers-Squibb will significantly strengthen AstraZeneca’s late stage pipeline and is an important tool for its externalisation strategy and pipeline refocus. The deal with Bristol Myers-Squibb, which could be worth over US$1 billion, is one of ten large partnering deals AstraZeneca has made since 2005 which by January 2007 had led to a total of US$1.6 billion upfront payments alone.

Balancing control and trust in alliances

Trust is one of the most important components of a successful alliance. It is also one of the most difficult aspects of the partnership to get back into balance when the alliance starts to go off the rails.

So we were interested to see an article published in August 2007 by the Association of Strategic Alliance Professionals and titled Alliance Governance: Balancing Control, Trust, and Risk. The authors of the article were Ard-Pieter de Man and Nadine Roijakkers. The article points to two contrasting perspectives on alliance management. The first views alliance partners as potential opportunists who could cheat the other and therefore need careful control through detailed contracts and strict rules agreed between the partners in order to succeed. The second promotes the idea that the creation and exploitation of trust is critical to successful alliances. From this perspective the natural motivation of each partner to make the alliance work lessens the potential for opportunistic behaviour from each side and so reduces the need for strong formal controls.

The authors argue that the degree to which control or trust benefit the alliance hinges on the context in which the alliance is set up and the risks it faces in terms of relationships and performance. ‘Relational risk’ is defined by the authors as the extent to which partners might deceive each other. ‘Performance risk’ is defined as the degree to which the business objectives of the alliance can be achieved. The authors argue that trust is more important where the business environment is unstable and the performance risks are high. In this situation formal control agreements can be overtaken by changing events and trust increases in importance. Trust is essential to each partner knowing the other side will respond appropriately and without prolonged negotiations to the shifting circumstances. Formal control they assert is more suitable in situations of low performance risks and a stable environment.

Overall the authors argue that companies need to make a careful assessment when deciding to rely on either control or trust approaches in their alliance governance structure and that no one size fits all. In some cases the alliance will benefit from a combination of both approaches rather than a reliance on one or the other. One approach does not necessarily undermine the other. According to the authors, the use of formal controls with clear and detailed agreements, for example, can increase each party’s faith in the alliance.

The authors use three case studies to support their arguments, one from the Dutch financial sector, one from the Dutch coffee sector and one from the Dutch retail sector. Case studies have become common in business schools in order to teach MBA students. However, as the authors acknowledge, the difficulty with cases studies is the question as to the validity or otherwise of extrapolating from individual case studies to generalised hypotheses that hold true in most circumstances. To put it at its most simply, how do we know that what holds true in a particular situation in the Dutch coffee sector is also true in other situations in the Dutch coffee sector much less in the Japanese biotechnology sector or the Tiawanese semi-conductor industry?

Learning from game theory

Research by Silico Research and IBM¹ has found that a respondent’s assessment of the partner’s openness to knowledge sharing and new ideas, and the cultural compatibility between the two partners showed a strong correlation with the success of the partnership as reported by the respondent.

Why would the partner’s openness to knowledge sharing and new ideas play a more important role in the respondent’s assessment of the success of the alliance than, for example, the quality of the partner’s staff or the partner’s delivery on commitments?

A number of things seem to be happening here. First, the respondents place a particularly high premium on knowledge sharing because this sends signals to the respondent that the partner places a high value on the partnership and the relationship over and beyond the strict terms of the contract. Second, a flow of ideas back and forth between the parties leads the respondent to believe that further value may arise out of the partnership through new opportunities or new partnerships. Third, knowledge sharing between the parties and an openness to new ideas means that the respondent is led to believe that the partner is more likely to take an open approach to any problems that may subsequently arise in the partnership.

These findings are in line with game theory that now accepts that in a situation of co-operation, including commercial partnerships, the stability of the relationship is enhanced by sharing information and by treating information as a communal asset. On the other hand the relationship is destabilized by asymmetrical information, in other words where one party treats information as an asset to be hoarded. In such situations conflict is more likely to occur.² The Prisoner’s dilemma, as originally framed by Merrill Flood and Melvin Dresher, shows that co-operation and information sharing is a rational strategy only in situations where the party sharing information believes that the other party will also co-operate and share information to the same extent. Otherwise the most rational strategy would be to withhold information and gamble that the other party will put himself at a disadvantage by sharing information. This demonstrates the fundamental importance of trust between parties to successful partnerships.

1. BioPartnering 2006, Silico Research and IBM Business Consulting

2. Chen F and Fan L (2006), Analysis on stability of strategic alliance: A game theory perspective, Journal of Zhejiang University, 2006 7(12):1995-2001