Deal of the Year 2011

For those of you with a better memory than mine, you likely remember last October’s Big Deal announced between Pfizer, the world’s biggest (annual revenues of $70 B plus) and most at-risk (due to patent expirations) pharma, and Biocon, India’s small (annual revenues of under $150 M), up-and-coming biotech company (Biocon, Biocon).  In it, Pfizer purchased marketing rights and supply contracts for four of Biocon’s generic insulin analogues as part of its strategy to backstop its branded (patent-protected) drug business, which has had a series of trial-stage failures (FierceBiotech article), and to have products for the emerging, middle-income markets like India and China.  Diabetes is a major global health problem; according to the WHO, 220 million are affected worldwide and 80% of the diabetes deaths occur in low- and middle-income countries (WHO fact sheet).  In Vivo, a bioindustry trade publication, thought highly enough of the deal to name it the Alliance Deal of the Year:  “the union of these two companies is, in fact, blatantly ambitious and could have far reaching implications. It demonstrates a new way of doing business for pharma, touching on an battery of industry hot topics: biosimilars, pricing flexibility, diversification and emerging markets.” (In Vivo blog).

The specific dollars involved were relatively modest.  Pfizer paid Biocon $200 M upfront and will pay $150 M when certain milestones (e.g., at approval or sales levels, “additional amounts linked to Pfizer’s sales of any insulin products” according to the Wall Street Journal, WSJ article), but apparently not royalties.  In comparison, GlaxoSmithKline paid Acetlion $150 M upfront and up to $3 B later for an insomnia treatment in 2008 only to pull the plug on disappointing Phase III data early this year (FierceBiotech article).  Thus is the power of a patented but unproven product (and for a non-life-threatening condition of the developed world) to command big bucks.

Biocon also could have done better on the marketing terms.  Pfizer will have exclusive rights to commercialize Biocon’s drugs globally except in Germany, India, and Malaysia, where Biocon will have co-exclusive rights, but more co-exclusives would have been better since Biocon sells other products in 27 countries and, since the deal is not exclusive to Pfizer, Pfizer can shop for cheaper sources.  Biocon also has the task of getting approvals for the products which, although is good experience for a growing company, is expensive.  Biocon has also said it will be spending $300 M over three years to build manufacturing capacity to supply Pfizer (WSJ article), a good investment but major commitment.

The four products are all biosynthetic analogues of human insulin, the mainstay of diabetes control since Lilly came out with the first version, Humulin, in 1983.  Worldwide sales of such products is about $14 B annually (Bloomberg article).  Specifically the products are:

Product Stage Branded Product
Recombinant Human Insulin Approved in 23 countries Humulin by Lilly, Novolin by Novo Nordisk
Glargine Approved in India Lantus by Sanofi-Aventis
Aspart Preclinical Novolog by Novo Nordisk
Lispo Preclinical Humulog by Lilly

For Biocon, the deal provides capital to grow now, income as the lead product gets approval in the EU (2012) and US (2015), and international recognition as a player.

Of course, behind every great company there is a great woman and Biocon is driven by Kiran Mazumdar-Shaw, whose story is a primer on entrepreneurship.  As described in a recent article (Bloomberg article, Bloomberg article), Ms. Mazumdar-Shaw, whose father was a brew master like my grandfather, started Biocon in a garage in 1978 with a few thousand dollars, overcame gender discrimination and starting up in a low-resource environment, has ably guided the company to a market cap of more than $1 B, and has a personal wealth of $900 M (Economic Times article).  Biocon is diversified (more than 40 products, contract manufacture and research services [Biocon fact sheet]) and innovative with two novel drugs in late development, including an oral insulin (IN105) (Biocon pipeline).  Ms. Mazumdar-Shaw also is trying to change the equation in global health care through the Biocon Foundation which was started in 2004 with the mission “to provide sustainable and affordable healthcare/educational services to under-served rural and urban communities in India” (Biocon Foundation).  In health care the Foundation has two main projects:

  • an insurance plan called Arogya Raksha Yojana which in 2005 had about 70,000 member paying less that $3 each per year (ARY), and
  • a chain of seven clinics which served 22,000 in 2008-09 (ARY clinics).

The foundation’s big plan is “to set up large ‘health cities’ in every state capital and large hospitals in every district” creating “at least 20,000 beds within the next 3-5 years in various parts of the country.”  Its partner is India’s (and maybe the world’s) largest pediatric hospital, Narayana Hrudayalaya, which is both profitable and charitable (Wikipedia article and UNDP case study).  I like the concept of a biotech/pharma selling directly to a hospital chain at low but profitable prices to serve a social good, and I guess that is what Biocon and Narayana Hrudayalaya are thinking.  As for the Deal of Year 2011, I hope Pfizer realizes the value of a partner like Biocon and gives them a fat option fee for IN105.  If any of my former Wyeth BD colleagues survived the Pfizer takeover, I hope they can see that tie-ins with innovative, emerging market companies are good hedges against getting stuck at the bottom of a patent cliff.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s