Nycomed: licensing for long-term success

Jul 20, 2009
By Pharmaceutical Executive

Received wisdom is that R&D is '[…] unquestionably the most important part of the pharmaceutical business.'1 Yet, drugs don't sell themselves — users and payers need to be convinced, and in some markets this means convincing one doctor at a time. Furthermore, most markets around the world don't have the healthcare system infrastructure, physician knowledge, or means to pay for the most innovative drugs. Instead of jumping onto the R&D escalator and increasing R&D spend, Nycomed — a mid-tier firm with 2008 sales of €3.35bn, decreased R&D expenditure by 21% in 2008 from the previous year and has instead decided on a highly market-focused approach. Spending €224.7m (14.9% of sales) on R&D is not trivial, but this sum is dwarfed by the total sales and marketing expenses which, at €1.56bn in 2008, is an order of magnitude greater.

What, then, drives the innovation engine at Nycomed? "Licensing and M&A activity are at the core of the growth strategy for Nycomed," says Dr Carlos de Sousa, Vice President Licensing, based at the company's headquarters in Zurich, Switzerland. A dedicated in-house team identifies opportunities through a diverse array of methods such as attending partnering meetings such as BIO and BioEurope, initiating direct contact with companies, capitalising on an extensive professional network — built up over two decades in Dr de Sousa's case — and utilising Nycomed's own scientists to follow developments in key therapeutic areas such as GI, respiratory, pain, inflammation and tissue management.

Over the last decade Nycomed has been making significant in-roads into developing marketing capabilities in the emerging BRIC markets (Brazil, Russia, India, China), through a strategy of local and regional in-licensing — and the firm has positioned itself as a partner of choice in the Russia/CIS and Latin American regions. Yet the acquisition of the larger Altana Pharma in December 2006, brought with it, in addition to a strong commercial presence in Europe, an enhanced drug development capability, and the potential to seek early-stage assets for global deals. Dr de Sousa elaborates on this parallel in-licensing strategy: "Nycomed has an image of being well known in these [BRIC] markets. What are not so well known are our capabilities to pick up a product in pre-clinical or early clinical, conduct a global development programme, and engage regulatory authorities, not just in the Europe and the US, but worldwide, e.g. in Latam and in Russia."

Where are assets coming from? "In terms of global deals for products in development, our sources are mainly biotechs and mid-tier companies; however, at the country level, where we have a strong presence, there is a diverse source of originator compounds, including Big Pharma — and they often come to us," says de Sousa. A dedicated in-house team reviews assets and conducts due diligence, after which a deal can be structured in different ways with co-development deals, and risk-sharing option deals being discussed, particularly with cash-strapped biotech firms. UK biotechs are particularly vulnerable with 45% having less than one year of cash,2 yet still needing to progress assets to phase 2a before partnering in an option deal under pre-agreed terms, such that both companies share risk and the asset can move to the next milestone.

On the other hand, US biotechs are generally better capitalised and it is not uncommon for them to conduct beauty parades for cash-rich suitors wishing to acquire their well-packaged, attractive assets. However in de Sousa's experience, these events are one-dimensional: "In companies that privilege an auction process, management is thinking more in short-term financials, rather than the future of the compound. When you conduct an auction process, the deciding factor is the size of the pie, rather than how capable or good a partner you are. If it is a big, attractive project, then you have the big guys competing in the auction &'151; and we will not be able to pay as much as they can. We may be there, but it is not our preferred scenario."

Nycomed may not be able to compete with Big Pharma on cash, but it appears as if there are several reasons why firms choose to partner with them at the global and local market level, as de Sousa concludes, "First, every time we license a product, we take very seriously the expertise that the originator company has. They may not have the development capability, but we always have joint committees, and we always involve the partner. Second, when we bring a product in-house, it will be a core part of our portfolio and a partner won't have internal products competing for resources. We also don't have the same need for a return on a product as big pharma, looking at peak sales of a product. Furthermore, Nycomed has a reputation for being flexible, fast, and less bureaucratic compared to Big Pharma. As a mid-sized pharma you have direct access to top management — we only have one approval committee, so when we make decisions we make them very fast, we don't need to go through four or five committees. Finally, we don't have a commercial organisation in the US, so US rights is not a top priority for us. US companies, especially biotech, and in specialist areas, would like to retain commercial rights in the US, and we are fine with that — and this is a key differentiator."

As a new breed of pharmaceutical company, Nycomed appears to show that a focus on the commercial side of the business — licensing, marketing — rather than a pure focus on proprietary R&D is not incompatible with long-term success.


References
1. Malik, N. N., "Key issues in the pharmaceutical industry: consequences on R&D," Expert Opinion in Drug Discovery (4)1:15–19 (2009).
2. Smith, G. et al, "Wasting cash — the decline of the British biotech sector," Nature Biotechnology (27)6:531–537 (2009).