Judith Kulich, Ben Hohn and Cody Powers contributed to this blog post.
In recent years, we have seen an uptick in the number of “first launches”—defined by ZS as a company’s first marketed asset with FDA “novel” status. While earlier in the decade we saw just a handful of first launches each year, over the past three years we’ve seen the rate of first launches roughly double that. More pre-commercial companies are choosing to take their assets all the way to market compared to earlier in the decade.
Still, deciding whether to launch can be a daunting decision for pre-commercial companies as it requires a huge amount of additional capital and risk. In light of this, we often see pre-commercial companies pursuing three potential launch strategies in parallel:
- Go it alone: Retain sole marketing rights within the geography
- Co-promotion: Launch with a commercial partner within a specified geography
- Out-license/sale: Relinquish marketing rights in return for cash or royalties
Over roughly the past decade, the predominant launch strategy for U.S. first-launch companies has been to go it alone. According to ZS research, of those companies that played a role in the commercial launch of their first asset, 86% (48) chose to go it alone while 14% (8) chose to co-promote with a partner.
Though a less popular strategy, co-promotion agreements can bring unique benefits to pre-commercial companies pursuing a launch, and they’ve produced multiple success stories including Pharmacyclics and its blockbuster Imbruvica (eventually acquired by AbbVie for $21 billion). And while the obvious trade-offs abound—including revenue-sharing and operational complexities—better understanding the potential benefits and best practices of co-promote agreements can help pre-commercial companies make more informed decisions on launch strategy and strengthen negotiation positions during active deals.
To illustrate some of the benefits and best practices of co-promotion agreements, we took a look under the hood of the eight recent first launch co-promote deals for assets launched since 2011.
First Launch U.S. Co-Promotes, Launched 2011-2019
A look at the details behind these agreements shows:
1. First-launch co-promote deals can happen at any stage during the product life cycle, although they tend to happen while the product is still in development and include a co-development component. The benefits of entering into an agreement during the development phase include cost-sharing and de-risking of assets, financing via up-front and milestone payments, and the ability to leverage the development capabilities and expertise of partners.
2. First-launch co-promote partners tend to be midsize to large pharma companies, with deep experience in the therapeutic area. The benefits of partnering with large, established companies can include the ability to leverage and learn from developed commercial teams; the ability to leverage the established brand name of market leaders; the opportunity to scale field footprint (where applicable); greater access to capital; or the potential to simplify global agreements via the ability to leverage the ex-U.S. infrastructure of the U.S. co-promote partner.
3. First-launch co-promotes do not always consist of profit-sharing financial terms with the more established company booking the revenue. We observed cases where financial terms were based on royalties ranging from 10 to 35% of net sales, and cases where the revenues were booked by the emerging pharma company. The preferred revenue model often depends on cash flow considerations and priorities: Royalties may allow for smaller cash outlay if bearing a smaller proportion of commercial effort or spend, and revenue booking may signal a greater magnitude of value to investors and generate buzz around the industry. However, companies must weigh these benefits in the context of the broader scope of partner negotiations.
While these examples illustrate trends and best practices for first-launch co-promotes, it can be helpful to see an example of how these agreements can play out in the real world to drive value for both parties. For this, we can go back to our example of Imbruvica to see how this all came together for Pharmacyclics and Janssen.
In 2006, Pharmacyclics acquired ibrutinib and other small molecules from Celera for $2 million up front, plus up to one million common stock shares, up to $144 million in milestones, and single-digit royalties. As Pharmacyclics approached the later stages of development for ibrutinib, the organization wanted to commercialize in the U.S. but faced significant challenges. The company had never commercialized an asset but forecasted a huge opportunity (high stakes), and it faced significant complexities and expenses to bring Imbruvica to market via development in several disease areas. In addition, it faced competition in the space from established players.
A partnership with Janssen before phase III trials gave Pharmacyclics a cash injection and the ability to leverage world-class commercial and developmental expertise—potentially accelerating time to market and uptake across indications—all while sharing worldwide commercial profits 50/50 and development costs 40/60. Through the agreement, Janssen gained access to revenue from a $5-billion-per-year product, including exclusive ex-U.S. commercialization rights.
Pharmacyclics’s eventual exit to AbbVie for $21 billion demonstrates that emerging pharma companies can realize a spectacular value from the remaining stake even after sharing a portion of proceeds through a co-promote agreement.
While not the norm, co-promotes can offer valuable benefits for companies desiring enhanced commercial or developmental capabilities, improved short-term cash flow, or the ability to re-focus resources into additional programs.
While there are a few trends and best practices, it’s clear that co-promotion agreements take many forms and there’s no right way to design them. Parameters are circumstantial and subject to negotiation, and it’s important for a company considering a co-promotion to understand what it wants to get out of a potential co-promote before coming to the negotiating table.
By understanding the factors in play and potential upsides, we hope that pre-commercial companies can make more informed assessments of whether a co-promote makes sense in each geography based on specific commercial requirements, capabilities, finances and future goals.
This article is based off material presented by Judith Kulich, Ben Hohn and Cody Powers at a ZS-hosted dinner event at the 2020 JP Morgan Healthcare Conference in San Francisco.
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