Pullan's Pieces #166  January 2020

Dear Reader,

Happy New Year!  We hope you had a pleasant pause over the holidays and we hope that 2021 will be a good year for you. 

Please note, Jessica Carmen has chosen to pursue another opportunity and we will miss her, but will continue on! 



In This Issue

  • Linda:  Scope in licensing deals
  • Linda:   Microbiome, an infographic
  • Linda:  A BD view of Roche
  • Trevor:  Follow the Money
Linda:  Scope in Licensing Deals

This month, I thought I would explore the topic of scope in negotiations.  

Before we talk financial terms, we want to define the scope of the licensing deal.  "Price what is in the box".  

What is the scope of a licensing deal?  

The most obvious piece of the scope is what is in the license grant. This is most commonly the right to research, develop, manufacture and sell the Licensed Product protected by the intellectual property (patents and know-how).  (Often with rights to sublicense those rights).  But sometimes, there is no right to manufacture or there is only a right to sell not research and develop; these narrower rights often come up when there are different partners in different territories. 


The license grant is modified by "in the Field in the Territory".   The Field is most commonly "all human prophylactic and therapeutic uses" (as indication splitting is a no no, as discussed previously).  But there are exceptions where only a limited Field is provided because

  • that is all that will be exploited or
  • the parties anticipate a 2nd deal or
  • the different indications have a different route of administration and can be separated since sales for the different forms will be trackable (avoiding the biggest problem of indication splitting).  

But to think about scope you also need to think about exclusivity and retained rights.  Are certain rights co-exclusive or non-exclusive?  Is the originator able to do research with the licensed compound?  This can sometimes be important as a tool for comparisons for next-generation development.  If there are multiple territorial parties, can the originator or the partner in the rest of the world do studies or use a CMO for manufacturing inside the Territory for the product to be sold outside the Territory? 


Another modifier of scope is the non-compete clause.  Often the company in-licensing the drug does not want the originator to make a new improved drug that could compete with the licensed drug.  This makes sense when the two parties in the license will do research and development in a collaboration inside the license (a long-term relationship).  A non-compete clause often comes up even without a long-term relationship as the in-licensor wants every barrier-to-competition it can get, even though most of the real competition is likely by the many companies not in the partnership.  

Often the in-licensor has fear of missing out on the next great thing.  That can lead to additions to the scope, where the company asks for options on the next drugs coming from the originator.  Options to negotiation (or rights of first refusal) have value but that value can be hard to quantify. 

How to think about the value of options?

  • In investing, optionality is defined as the ability to have new decisions after an initial investment.
  • If the option had no value, why would the in-licensor want it? 
  • For the originator, providing the in-licensor the options will restrict the freedom to pursue certain growth paths and that has a cost. 
  • The value is proportional to the scope of the option, the intrinsic value today (which can be zero or near zero),  the potential value at option expiration, the risk for that value, and the duration of the option.   

In general, optionality is worth a lot and should not be taken lightly. For the growing young company, circumstances can change a lot in a short time, so the future cost of reduced freedom could be very significant.  

In negotiations, the full scope of the deal (with all the possible modifiers) often changes as talks evolve.   For the originator, the challenge can be that the scope creeps up but the financial terms do not change.  Having a written summary of what was previously agreed can help.  

The lessons from this bit of musing?  Every negotiation is unique and it is always a process of refining the understandings, but I think the lessons are to think about what you want in all the possible modifications of scope.  Expect that scope may change within the negotiation.  And write up the understandings along the way!  

A BD view of Roche
Roche today?  An oncology Antibody powerhouse
If we look at Roche top selling drugs for 2019, we see
  • The top 10 drugs are all well over $1B in sales in 2019
  • 9 of 10 are antibodies and the 10th is an ADC (antibody drug conjugate).  
  • 6 of 10 are in cancer, with 1 each in CNS, immunology, respiratory, and ophthalmology. 
  • The targets are all well-known, VEGFA, CD20, Her2, IL6R, PDL1.  
  • The top 3 are Avastin, Rituxan and Herceptin, all oncology antibodies, all off patent.  Actemra and Xolair are also off patent.  
  • The newest entrant is the anti-CD20 antibody for MS, Ocrevus, with very impressive sales shortly after its 2017 launch.  
  • The newest drug is Ocrevus​​​​​​​
Roche in 2026?  
If we look at the top 10 drugs of 2026 in the consensus forecast by analysts (GlobalData), we see
  • Off-patent drugs (shown in dashed lines) decline but are still >$1B
  • The top-selling drug is expected to be the PDL1 antibody Tecentriq
  • The top drugs include Ocrevus for CNS, Hemlibra for hemophilia, Evrysdi for spinal muscular atrophy and other CNS indications.  
  • There is a bispecific (Hemlibra) and a small molecule (Evrysdi) in addition to antibodies and the ADC (Kadcyla).   
Roche sales shifting to newer drugs
In Roche's November 2020 presentation at the Jeffries Healthcare Conference, Roche highlighted the shift to drugs launched after 2012, away from the power trio of Avastin, Herceptin, and Rituxan.  
Roche CNS franchise is growing.

In its Jeffries presentation, Roche highlighted the new emphasis on expanding franchises, including new indications in oncology but also including a big list in Neuroscience.    
Can't see a big shift to CNS in preclinical and Phase 1 drug pipeline  
The shift to bolster the CNS franchise is less apparent in the number of drugs at preclinical and phase 1, where oncology is still dominant, almost 4x the number of CNS drugs.  
Oncology previously dominated partnership deals by the numbers. 
Looking back at 3 years from 2015 thru 2017, 48% of all partnership deals were for the oncology therapeutic are, with CNS 2nd at 10%.   
An apparent shift in deals in 2020 (albeit small numbers) 
  • In 2020, the share of the deals for oncology is not much different than in prior years
  • But the share for CNS has almost doubled. 
  • And the share for infectious disease has tripled. 
The increases have come at the expense of metabolic, immunology, and musculoskeletal -- not at the expense of the oncology franchise.  
So what were the CNS partnerships in 2020?

1.  Roche out-licensed several drugs for seizures, trigeminal neuralgia, and Tourettes to Noema Pharma. 
2.  Roche and its subsidiary Spark Therapeutics will use the Dyno Therapeutics AAV capsids for gene therapy for CNS and liver delivery.  
3.  Genentech expanded its collaboration with Kineta, focused on an antagonist a9/a10 nAChR for chronic neuropathic pain.  Kineta will take the drug through Phase 1.  
4.  Chugai did a marketing deal for marketing bromazepam (a psychoneurotic agent) for Japan.  
5.  Jnana Therapeutics will have a multi-target small molecule drug discovery collaboration with Roche, focused on the solute carrier family of metabolite transporters for immunology and CNS.  
6.  Icagen expanded its collaboration on small molecule modulators of ion channels to include a second target.  
In conclusion, there may be a significant shift to neuroscience with increasing sales and franchise commitment, but the early pipeline for CNS is still much smaller than for oncology and the 2020 CNS deals are small in number and are very diverse.   

It is hard to judge how big the shift to neuroscience really is.   
Trevor: Follow the Money-
2009 had nothing on 2020

Remember that time long, long ago… way back during the first decade of this millennia when there was a monumental cascade across financial markets which history came to refer to as The Great Recession, aka The Great Financial Crisis, or (as everything apparently must need these days), it’s abbreviated acronym, The GFC…?  No?  Of course not. That’s because it was a bleeping blip.  



To this author, the graphical representation in the explosion of central bank money-printing (above) defies lexiconic description.  Paraphrasing a chemistry professor, this chart leads one to “ponder, ponder, ponder”, while another chart (below, courtesy of the St. Louis Fed) shows us doing our darndest to run the M1 money supply to something approaching Avogadro’s number. 


The M1 measure of the money supply was used here, as the COVID stimulus has been driven straight into wallets and purses by way of direct payments to citizens.  Suffice to say that M2 – which is considered to be more of a measure of central bank monetary policy than is M1 – has a similar, “good phase 2 data” hockey-stick trajectory.

Now, all that money has to go somewhere, and the biotech sector has been a happy recipient over the past decade as money has poured in through the stock market…


Can the trend continue for biotech and pharma to outpace the broader market as shown above?  If it does then, wow. 

The chart below shows how the S&P has fared relative to the central bank printing presses and even a halving of biotech’s superior performance vis-à-vis the broader indexes would still translate to several legs up remaining. 

Pullan Consulting (www.PullanConsulting) provides advice and execution for biotech partnering and fundraising, with outreach to partners and investors, help with the shaping of presentations, evaluations and market analysis, preliminary valuations and deal models, and negotiations from deal prep to term sheets to final agreements.      
We have extensive scientific and financial experience, with many deals signed.  Check out the website for more on clients, tasks, CVs, etc.  And don't forget to look at the resources with whitepapers and decks to help. 

Send us an email or set up a call if you want to explore how Pullan Consulting might be of help!     
Linda Pullan                     Linda@pullanconsulting.com 
Trevor Thompson             Trevor @pullanconsulting.com