Newton Big pharma seeks partners, not purchases

October 4, 2010
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Large pharmaceutical manufacturers are changing their relationships with the small start-up research and development firms that have popped up across Michigan over the past decade, the keynote speaker told the West Michigan Science and Technology Initiative’s SUMmIT10 audience last week.

“Looking back into the early 2000s, if it wanted the technology, big pharma would buy you,” said Roger S. Newton, president and CEO of Esperion Therapeutics Inc. of Plymouth.

“Now I think what seems to be happening is big pharma is looking at doing strategic partnering, strategic alliances, as opposed to necessarily buying biotech. What they usually do now — and this has happened to a number of companies in the last, say, six months to a year — they are putting up front money of what you would need to take your compound through whatever stage you need to get to.”

That could run as high as $25 million to $50 million in investments from big pharma, plus additional investments as milestones are reached, he said.

“Eventually, they will market the product and you would get a certain royalty or revenue from having developed it for them with their money, using the talent of the biotech company.

“I think this makes a lot more sense because … it’s difficult to work in the context of a large organization and still be nimble, still be creative,” Newton said.

James J. Herrmann, COO and co-founder of Kalamazoo’s Tolera Therapeutics, said his company is seeking a partnership with big pharma.

“As a company that’s actively seeking such a partnership, we view it in our business model as a great way to expand the pipeline, in a sense,” said Herrmann, whose company is developing several products for use in transplantation and autoimmunity.

“You start this company and your investors want you to stay very focused. You can fall into this one trick pony trap,” Herrmann said.

“Partnerships are a great way to add pipeline, to provide working capital so on a broad base you can continue to move your programs forward. We think it’s a great trend, and we’re quite comfortable, as business people, to let them rent us to do what they can no longer do for themselves.”

The event’s panel discussion also included Kevin McCurren, president of Intervention Insights LLC; Justin Adams, president and CEO of mHealth Innovations Inc.; and Kathrin E. Kudner, a Detroit-based Dykema attorney and expert on the Patient Protection and Affordability Act’s impact on companies in the drug, diagnostic and device fields. Law firm Dykema was a sponsor of the SUMmIT10 event.

Kudner pointed to several health care reform provisions that impact life sciences firms, including:

*The qualifying therapeutic drug tax credit. One billion dollars has been set aside to provide income tax credits for up to 50 percent of the cost of qualifying biomedical research that meets certain criteria. Effective for investments made in 2009 and 2010, the credit is available only to companies with 250 employees or fewer. The credit can be converted into a grant for start-ups that aren’t yet in the black. However, the deadline was July 21 to apply for certification of qualifying investments.

*Another provision offers faster Food and Drug Administration approvals for “biosimilar biological products,” which are highly similar or interchangeable with a product that already has FDA approval. The act gives the original product 12 years for exclusivity in the marketplace.

* New “sunshine” rules cover relationships between manufacturers and physicians, which must be detailed and reported to the federal Department of Health and Human Services starting March 31, 2013. While there are exclusions such as payments that total $100 or less annually, product samples and in-kind contributions for charity care, the report must include items such as cash, stock, stock options, in-kind services, salary, education, consulting fees, royalty or licensing fees, gifts, entertainment and charitable contributions.

*A 2.3 percent excise tax on medical devices goes into effect starting in 2013. The tax will be paid by manufacturers, producers and importers. It does not cover hearing aids, eyeglasses, contact lenses or other devices purchased by consumers at the retail level.

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