Biopharma Commercial Strategies LAUNCH OR LICENSE: Taking Your First Drug To Europe Directly launching a drug in Europe is the most difficult path for US-based biopharma companies, many of which decide to out- license rights for that territory. But, for the right asset, it’s also the most rewarding. BY Alain J. Gilbert, Robert J. Easton, and Steven P. Breazzano

he task of commercializing a drug alone in Europe is a ■ Faced with the “launch or license” formidable one for a smaller company, and licensing decision for commercializing prod- out European rights avoids many of the operational, ucts in Europe, most US biotechs regulatory, and commercial challenges. As a result, and small pharmaceutical compa- for US-based emerging biotech and pharmaceutical nies opt for the latter, seemingly companiesT facing this decision, conventional wisdom says to sim- easier option. ply license the European rights for a royalty stream and milestone payments. However, directly launching a drug may be the optimal ■ For an inexperienced company, option for European market entry and may add significant value to running the European regulatory proprietary drug developers. For a forward-looking CEO, determining and reimbursement gauntlet is a formidable task, and carries sig- the right European strategy and path ahead is a defining decision, so nificant risks and expense. how should one evaluate this choice? To frame the European “launch or license” analysis and provide his- torical context for the discussion, we utilized the publicly available and ■ Launching one’s own drug in Eu- rope has represented an important comprehensive European Medicines Agency database. We analyzed all milestone en route to becoming the drug approvals over the last 11 years (January 2003 through March a global, fully integrated phar- 2013) and employed strict criteria to focus on the European launch maceutical company, and today’s versus license decision. To be included in the analysis, companies had improved market conditions can to be US-based and either currently marketing or planning to market make this a reality sooner. in the US at least one product (alone or with a partner). To minimize confounding variables, only companies where the lead or primary ■ As emerging drug companies drug was involved in the license or launch decision were included. A increasingly target orphan drugs total of nine companies fitting this description were identified for the requiring smaller commercial in- launch analysis. During the same time frame, a total of 16 companies frastructures to market to special- were identified that licensed their drugs in Europe for royalty and/ ist audiences, the rewards can be or milestone payments while maintaining co-promotion rights or substantial. launching alone in the US. (See Exhibit 1.)

■ Co-promotions and profit-sharing Financial Rewards agreements in Europe are under- With these two sets of companies in hand, we first looked at the ques- utilized deal structures that may add significant value. tion of overall success. Given the fact that nearly all of the launch and license companies were publicly traded leading up to and following European approval, we leveraged historical stock price information as a proxy for financial success. To account for longer-term value creation and to focus the analysis as much as possible, we examined the com-

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Exhibit 1 pany’s historical stock price over a two-year The Dataset: 25 US Biotechs Pursuing The European Market time frame, beginning one year prior to EMA approval through one year post-approval. Although it often takes some time before a COMPANY DRUG NAME APPROVAL YEAR drug is widely available in Europe following Abraxis* Abraxane 2008 approval, we believe this two-year window is appropriate given the forward-looking Alexion Soliris 2007 nature of the capital markets, and accurately accounts for pre- and post-approval launch Ariad Iclusig 2013 plans and execution. Performance was calculated net of the S&P 500 to normalize BioMarin Naglazyme 2006 for broader market fluctuations. For recent approvals, historical prices on November 1, Celgene Revlimid 2007

U NC H 2013 were used.

LA Intermune Esbriet 2011 While both sets of companies had large variations in stock performance, the launch NPS Revestive 2012 companies clearly outperformed their licens- ing peers, and overall, this historical data ViroPharma* Cinryze 2011 clearly demonstrate that launching a drug alone may lead to significant financial reward Vertex Kalydeco 2012 and success. (See Exhibit 2.) Acorda Fampyra 2011 Overall, the majority of launch companies saw positive and meaningful share-price in- Amylin* Byetta 2006 creases, with an average share-price increase of 48% (median 46%) over the two-year period. Auxilium XiaPex 2011 However, the range was considerable, from –117% to 205%, highlighting the risk and Avanir Nuedexta 2013 reward trade-off of the decision. In particular, Ariad Pharmaceuticals Inc. was a significant Epicept Ceplene 2008 outperformer until recently, when safety risks Cubist Cubicin 2006 caused lead drug Iclusig () to be placed on clinical hold and pulled from the Incycte Jakavi 2012 market. InterMune Inc. has also suffered with lead drug Esbriet (pirfenidone) being rejected Ironwood Constella 2012 by FDA. However, on the other end, BioMarin Pharmaceutical Inc. is a clear success story Jazz Xyrem 2005 with its recombinant enzymes, following in LICENSE the footsteps of enzyme replacement therapy Medivation Xtandi 2013 pioneer Genzyme Corp. (now part of ). Millennium* Velcade 2004 For those companies that out-licensed Eu- ropean rights to a partner, the results reveal an NeuroGesX Qutenza 2009 overall performance in line with the broader S&P 500, with an average performance of 2% Optimer* Dificlir 2011 (median –15%). Similar to that for the launch companies, the range was considerable, with Seattle Genetics Adcetris 2012 performances ranging from –78% to 193%. Trimeris* Fuzeon 2003 Sorting stock market performances of the launch and license companies by rank order Vertex Incivo 2011 reveals clear differences between the two strategies. The launch company curve is both higher and steeper than the licensed company NPS repurchased ex-US rights to Revestive from Takeda Pharmaceuticals in March 2013. Vertex was included curve, reflecting a greater and more consistent for both Kalydeco and Incivo given the high profile and close development time lines for both assets. excess value creation. (See Exhibit 3.) *Acquired companies (Abraxis/Celgene, Amylin/BMS, Optimer/Cubist, Millennium/Takeda, Trimeris/Synageva Given the large disparity between the ViroPharma/Shire) two sets of companies, we sought to deter- SOURCE: EMA Database mine if the discrepancy may be explained

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by asset quality: is it simply that those bio- Exhibit 2 techs with a better or more valuable asset Measuring (Financial) Success: Two-Year Stock Price Performance* choose the launch option? Although it’s an inherently complex issue, we compared company-reported global sales data in the Launch Companies fourth year since European approval and Two-Year Stock these data appear to refute that hypothesis. Company Drug Price Performance For launch companies, the average or an- ticipated worldwide sales in the fourth year BioMarin Naglazyme 205% post-launch were approximately $535 million Abraxis Abraxane 112% (median $573 million). (We used consensus analyst projections from BioMedTracker for Alexion Soliris 100% newer drugs just entering the market and Viropharma Cinryze 56% we excluded the outliers: Celgene Corp.’s phenomenally successful drug Revlimid Celgene Revlimid 36% (lenalidomide) as well as Ariad’s Iclusig.) The comparable sales data for license companies Vertex Kalydeco 21% reveal an average fourth-year global sales of Intermune Esbriet –29% approximately $480 million, (median $470 million), comparable to that for the launch Ariad Iclusig –117% companies, especially given that Epicept’s (now Immune Pharmaceuticals Inc.) Ceplene License Companies (histamine, sold by Meda AB) and NeurogesX Inc.’s Qutenza (capsaicin, sold by Astellas Two-Year Stock Pharma Inc.) each sell under $5 million annu- Company Drug Price Performance ally. Thus, it is unlikely that asset quality alone NeuroGesX Qutenza 193% accounts for the large variation. In addition to a positive reception in the Incyte Jakavi 89% capital markets, the dataset also reveals ad- ditional insights with profound implications Seattle Genetics Adcetris 49% for the launch or license decision. Although Cubist Cubicin 41% many hold true broadly for the launch or license decision in all geographies, the mag- Vertex Incivo 26% nitude of differences in this dataset focused on the European decision is revealing. The Medivation Xtandi 17% data demonstrate that the capital markets re- Optimer Dificlir –13% ward successful launch companies with high valuations reflective of new-found global ca- Amylin Byetta –15% pabilities. These fully integrated, global com- Avanir Nuedexta –17% panies also possess significant optionality to either launch or in-license additional assets. Epicept Ceplene –27% The data also reveal that launch companies target disease areas served by specialists and Millennium Velcade –50% orphan indications, a fact that is unsurprising Acorda Fampyra –51% given the limited infrastructure required. Auxilium XiaPex –62% Billion Dollar Pharmaceutical Companies Ironwood Constella –75% A brief glance at the list of companies in the Trimeris Fuzeon –78% launch chart reveals many familiar names, including BioMarin, Celgene, Alexion Phar- was not included due do its private company status until 2007, and NPS Pharmaceuti- maceuticals Inc., and Vertex Pharmaceuti- cals was excluded from the analysis due to the license restructuring deal in 2013 following approval. cals Inc. Since launching, the vast majority of *Measured from one year prior to EMA approval through one year post-approval. Net of the S&P 500. For these companies have seen large increases drugs that launched in the past year, stock prices for November 1, 2013 were used. in share price (and market capitalization) reflecting their global reach. For many of the SOURCE: Yahoo! Finance

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Exhibit 3 Buying The Launch: Building Value By Going It Alone In Europe

Launch Vs. License

250%

200%

150%

100%

50%

0% 0 5 10 15 20 -50%

-100% Rank Order License Companies Two-Year Stock Price Performance (Net Of S&P 500) Launch Companies -150%

SOURCE: Yahoo! Finance

firms, launching their own drugs in Europe significant investment. It means building out received orphan drug designation. Absent helped to build out infrastructure and pro- new capabilities, including local distribu- are drugs targeting large patient popula- vide them the hallmark of a fully integrated, tion and manufacturing, in addition to sales tions treated by primary-care physicians. In global pharmaceutical firm. Given Europe’s and marketing. One way to mitigate that contrast, many of the companies that chose position behind the US in terms of branded investment is to build a modest sales force to license their drugs have assets that target pharmaceutical spend, launching in Europe is targeting a small number of high-prescribing indications with a larger number of prescrib- the logical next step after the US in becoming a global pharmaceutical company. “Virtually all the companies that made it big historically, made This important milestone creates addi- tional value beyond the asset in question, it on their own. You think of Genzyme, you think of and affords opportunities for the emerging company to pursue multiple strategies. Just BioMarin, you think of ViroPharma: they were the masters as this argument applies to commercializing in the US, it holds true in the global and of their own destiny and it worked very well for them.” European markets as well. For example, the sales force and related infrastructure may be – Francois Nader, CEO, NPS Pharmaceutical used for additional pipeline drugs in Europe, a long-term strategy successfully implemented physicians. At the extreme end of the spec- ing physicians. Of the companies on that list, by Idec Inc. (multiple sclerosis fo- trum, a company might market a drug for an only three (18%) have therapies designated as cused), BioMarin (orphan disease focused), orphan disease in which only a few specialists orphan drugs by regulatory agencies. and Celgene (oncology focused). treat patients. “Virtually all the companies that made it Orphan Diseases Not surprisingly, of the nine launch com- big historically, made it on their own,” says Building a sales force and a “bricks and mortar” panies identified in the EMA drug approval Francois Nader, CEO of NPS Pharmaceuticals operation across multiple countries requires search, eight (89%) have therapies that have Inc. “You think of Genzyme, you think of Bio-

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Marin, you think of ViroPharma: they were the ensure that safe and effective new medicines eled by widespread and increasing optimism masters of their own destiny and it worked can reach the market without lengthy delays. for the sector. This has far surpassed the 45% very well for them.” Overall, examining FDA approval times performance of the S&P 500 over the same between our launch or license companies time frame. Furthermore, in the first nine European Entry Strategy does not reveal any meaningful differences. months of 2013, more than 30 biotech com- What does all this mean for management On average, for both datasets, the EMA ap- panies have gone public, raising over $2.5 teams facing the launch or license decision? proval lags FDA approval for the majority billion, with several companies remaining in We believe that under the right circum- of companies by approximately six to 12 the registration queue. (See “On The Road And stances, a solo launch in Europe may drive months, suggesting that launching a drug Through The Window: Inside Three Biotech IPOs” significant value for an emerging biotech alone is not prohibitively difficult. — START-UP, November 2013.) Encouragingly, or pharmaceutical company. Although the For emerging biopharma companies with nearly all these companies are trading above overall European entry decision and imple- an eye on European marketing, there are a their IPO prices, some substantially so, though mentation steps are fairly straightforward number of concrete actions that can be taken most have fallen significantly from their stock and familiar to most executives, we recom- to ensure a reimbursed European launch. It market peaks. Even so, companies with both mend looking at the big picture, and placing has long been the case in Europe that regula- early- and late-stage development assets are regulatory or pricing and reimbursement tory approval does not guarantee reimburse- able to raise significant amounts of capital risks in context. ment and outcomes data compared with at reasonable valuations. This gives more We firmly believe that despite budgetary standard of care are becoming increasingly emerging biotechs than ever the option of raising capital to further their development “Although Europe is an attractive market, the decision to pipelines as well as build out commercial infrastructures at home and abroad. partner our first drug in Europe was purely financial, but Financial limitations will always impact the launch or license decision, even for otherwise now several years later, with a strong balance sheet and strong companies. “Although Europe is an attractive market, the decision to partner our an enhanced team, we are now ready to go on our own.” first drug inE urope was purely financial, but now several years later, with a strong balance – Michael Bonney, CEO, Cubist sheet and an enhanced team, we are now ready to go on our own,” says Michael Bonney, pressures, certain European markets remain important. This is increasingly true in the US CEO of Inc. healthy. According to the recent Finding Value as well. In fact, companies now looking to in Europe report by LEK Consulting, the EU5 enter the European market may readily le- Innovative Implementation countries (United Kingdom, Germany, France, verage these capabilities being developed Once the launch decision has been finalized, Italy, and Spain) combined will continue to for a US launch, given that these similar further refining the sales force requirements represent slightly less than 20% of the brand- outcomes data are becoming increasingly and determining precise personnel needs ed global market spend in 2016, behind only important. The increased investment needed are essential to ensure a smooth rollout. But North America (~44%). More importantly, for acquiring European-specific capabilities is above all, the launch requires a management EU5 spending per-capita is still likely to be incremental, but understanding team with the knowledge, experience, and high and supportive of novel therapies with the differences and requirements between ability to execute. Fortunately for emerging demonstrated safety and efficacy. For novel the individual European countries and the biotechs, there are now numerous executives drug developers, this is critical for premium- US early in the drug development process with the knowledge and skillset required to priced therapies potentially benefiting niche is essential. launch alone in Europe, many having had patient populations. prior roles in Big Pharma or former emerging Although a recent article published in the Access To Capital biotechs such as Biogen or Genzyme. New England Journal of Medicine found Traditionally, many US-based biotechs turned We believe there are cost-effective and that on average the FDA approved new to licensing agreements for European or rest- efficient ways to access the required infra- drugs faster than the EMA (approximately of-world rights as a source of capital to fund structure to support the launch, including two to three months faster), minimal atten- US operations or pipeline development. The innovative virtual strategies designed to solve tion was paid to an important point: in the market for biotech IPOs and secondary stock these operational issues while minimizing US, significantly fewer drugs were approved offerings has been quite subdued over the costs and commitment obligations. Recently, in the first review cycle. In the dataset ana- past decade, further supporting the decision Inc. re-launched lyzed (2001–2010), the FDA approved 62% to use European rights as a source of capital. radiological drug Zevalin (yttrium-90 labeled of novel therapeutic agent applications in In the past two years (November 1, 2011 to ibritumomab tiuxetan) in the EU after acquir- the first cycle versus the EMA’s 96%. This November 1, 2013), however, biotech valu- ing its rights from Bayer AG. By utilizing a demonstrates the EMA’s willingness to work ations, as measured by the Biotech bespoke contract sales force trained for the with drug developers through the process to Index, have soared an impressive 116%, fu- specific task of marketing a radiological drug,

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the company increased the speed of execu- concerns), there are operational strategies for Inc.) partnered the drug platform tion while it minimized risk, since the sales overcoming these barriers, including the use that produced Nexavar (sorafenib) with Bayer team was contracted and could be readily of third party vendors with experience and in 1994, but retained US co-promotion rights adjusted. Furthermore, by contracting with a expertise in implementing EAPs. as well as a 50-50 profit-sharing deal abroad third party to handle regulatory issues, Spec- (excluding Japan), of which Europe is the Innovative Strategies trum was able to avoid building a bricks and primary market. As a result of the 50-50 profit mortar European headquarters altogether. Beyond direct launches and licensing sharing, Onyx is responsible for some of the agreements, there are other European entry costs of the launch without the requirement Early Access Programs strategies that merit consideration. Although to develop the sales and marketing infra- Prior to marketing authorization in Europe, seldom used internationally, co-promotion or structure, but it participates in the economic initiating an early access program (EAP) is profit-sharing agreements are widely seen upside. one strategic tool that can increase aware- in the US between emerging biotechs and Despite all the headline and macroeco- ness and, in certain circumstances, generate pharmaceutical firms. These partnerships nomic risk, Europe is still an attractive market revenue ahead of the official launch. These provide many benefits of a licensing deal, for novel therapies with convincing efficacy country-specific regulatory tools grant mar- including risk mitigation and access to Big ket access ahead of official launch, providing Pharma regulatory and commercial expertise, and safety profiles. However, the launch or they fulfill certain criteria. A major benefit of while retaining significant financial upside. license decision for European market entry an EAP is the ability to build relationships Regeneron Pharmaceuticals Inc. has suc- is a major strategic choice, and one with with customers and understand how the cessfully implemented this strategy to create potentially lucrative rewards. For the right drug is being used in the real world prior to value. The big biotech struck a worldwide companies, a focused and targeted European the full-scale launch. co-promotion deal with Sanofi (building on entry strategy may be the ideal option. And Such programs are not reserved for rare a previous deal with forerunner Aventis), and with renewed optimism in the biotech sector, diseases only, but can be initiated for any retains approximately half the profits from the market might just reward them. disease considered life-threatening that any drugs that make it to market. In addition, A#2013800207 IV cannot be treated satisfactorily by currently Sanofi provides significant funding for clinical authorized medicinal products. Previously, development, and only upon commercial Robert Easton ([email protected]) and EAPs have been used in HIV/AIDS, neurode- success does Regeneron reimburse these Alain Gilbert ([email protected]) are co- generative disorders, auto-immune diseases, expenses, minimizing Regeneron’s risk. chairmen of Bionest Partners, based in New and cancer. Alexion, which sells one of the This innovative deal structure has certainly York and Paris, respectively; Steven Breazzano most expensive drugs in the world (Soliris contributed to the company’s $26 billion ([email protected]) is a consultant [eculizumab]), successfully utilized an EAP market capitalization. Another example is Hu- with Bionest Partners in New York. to drive premium pricing. Its long-term EAP man Genome Sciences (purchased by Glaxo- provided revenue and additional data ahead SmithKline PLC). Worldwide co-promotion of the official launch, which occurred only rights for key drug Benlysta (belimumab) RELATED READING when it was clear that premium reimburse- supported a significant market capitalization “On The Road And Through The Window: Inside ment would follow. and ultimate acquisition price of $3 billion, Three Biotech IPOs” — START-UP, November 2013 [A#2013900217] Although there are considerable chal- despite modest drug sales. In one similar deal lenges to overcome (significant amounts of that has since created significant value, Onyx Access these articles at our online store www.ElsevierBI.com paperwork, distribution channels, and safety Pharmaceuticals Inc. (recently acquired by

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