Crucell: Revving the R&D Engine

You have to feel sorry for biopharma R&D chiefs these days. As cash flow and profit-and-loss sparing efforts become de rigueur, it sure seems like the CFOs are in the drivers' seats with the R&D heads strapped into the passenger seat along for a very bumpy ride.

There's no question folks like Pfizer's wonder twin powers, Martin McKay and Mikael Dolsten, and GSK's Moncef Slaoui are being asked to do more with a shrinking R&D pool. AstraZeneca, too, is rethinking its R&D approach, putting greater emphasis on externalization thanks to a restructuring to create 8 innovative medicine units (or I-Meds, a very Apple-like parlance).

To be fair, when a company like Pfizer announces its winnowing its R&D budget from $11 billion to $8 billion, there's still some serious cash going to internal programs. But it's an interesting example of cognitive dissonance when R&D heads admit "yep, we're all about innovation AND we're shrinking R&D."

Thus, it was practically shocking to hear a public mid-sized company--European no less--vocally declaim its intention to plow signficant cash resources back into its R&D efforts on the same day that GSK offered more clarity on coming pink slips.

The company revving it's R&D engine? Dutch vaccine maker Crucell, who reported on its Feb. 9 year-end earnings call cash and short-term liquidities of about €428 million. Given the company's laden coffers (continued strong operating cash flow in CFO-speak), Crucell's CFO Leo Kruimer told investors: "We've made a conscious decision to increase R&D spending and development spending especially by as much as one-third vis-à-vis this year, while we maintain a very healthy operating profit."

Say WHAAAT? You mean there's no dividend? (Maybe that's the reason the stock was off even after the company reported better than expected numbers.)

Crucell, unlike many other biopharmas, has had a very good year. For starters, vaccines are a hot commodity as nearly every big pharma sees the importance of diversifying into this arena. Crucell has leveraged the interest into a number of lucrative partnerships, including a $70 million contract with NIAID/NIH to develop infectious disease vaccines, and the big kahuna, an alliance with Johnson & Johnson in September 2009 that included an 18% equity stake worth $443.5 million for Crucell.

Indeed, it's the partnership with J&J--now undeniably Crucell's big brother--that has removed the quarterly earnings pressure (at least for a little bit), allowing more resources to flow to R&D. Calling the balance sheet "magnificent" Crucell CEO Ronald Brus said, "With the right investments and the right people we should be able to do things quicker...and why we did invest a lot in new leadership in that R&D arena." (For those keeping count, Crucell increased R&D personnel by 120 in '09.)

But it likely won't be just internal R&D that benefits from the cash. Most analysts predict Crucell will bolster capabilities via acquisitions (sound familiar?) as it tries to out-gun competitors such as Panacea Biotech and Shantha Biotechnics.

Brus dodged a direct question on the matter from Needham analyst Alan Carr, averring,"We're not looking for acquisitions to fill our pipeline because I think our pipeline has never been as full as it is today." Instead the focus will be on deals that "could significantly improve revenues and profit of the longer run."

In a follow-up interview with Reuters, Brus clarified Crucell's current thinking. "If we would make an acquisition, it would be of a profitable product or products that are very close to being launched on the market rather than a pipeline product," he said.

Ah.

It will be interesting to keep tabs on Crucell in the coming months, especially if future deals vault the biotech into Big Pharma's realm of must-have acquisition targets. The great irony, of course, being that much of Crucell's new found vigor is a direct result from being left at the M&A altar in early 2009.

Till then, you science types looking for new digs? Try Crucell, who's apparently not afraid to burn some R&D rubber.


(Image courtesy of flickrer shyha used with permission through a creative commons license.)

Hard to Get Excited about BI's Flibanserin

You might have missed the 12th Congress of the European Society for Sexual Medicine in Lyon, France, this week. If you did, US Phase III results for Boehringer Ingelheim's flibanserin might have passed you by, too.

The drug--a serotonin 5-HT1A receptor agonist, 5-HT2A antagonist and partial dopamine agonist--is in development for Hypoactive Sexual Desire Disorder among pre-menopausal women. The condition is characterized by a decrease in or lack of sexual desire "that causes distress to the patient, may put a strain on relationships, and is not due to the effects of a substance....or another medical condition."

So we're not going to downplay the importance of this condition, despite suspecting that many might be surprised to learn that it is one--including most women suffering from it, according to Dr. Sheryl Kingsberg of University Hospitals Case Medical Center in Cleveland, Ohio. (Prevalence may, according to Kingsberg, be as high as one-in-ten.) We won't downplay it, even while predicting it will provide more fodder, if ever there was fodder, for industry critics seeking evidence that pharma invents diseases.

But we can't help raise some red flags when it comes to the likelihood of getting this drug past the regulators (let alone the reimbursers) for HSDD. Aside from whether the disease exists (and granted, we mustn't forget that depression was ignored/denied for many years), there's the issue of highly-subjective scoring and accounts in the trials. (How else to run a study measuring how many 'satisfying sexual events' (SSEs, another new acronym for you) a woman has, and just how satisfying they are, aside from asking her to write it into her e-diary?)

Then there's the issue that the pooled data from these two, six-month Phase III trials among a total of over 1,300 pre-menopausal women wasn't exactly compelling (at least to our untrained eye...): women in the highest-dose flibanserin group enjoyed an increase of only about one SSE per month compared to those on placebo. (And it doesn't appear from the release that there was even a statistically significant increase in primary endpoint SSEs in the European flibanserin trials.)

Meantime, and here's the real crunch, 15% of women in that same high-dose flibanserin arm dropped out due to side-effects (versus just 7% on placebo) which included daytime sleepiness, dizziness, fatigue, anxiety, dry mouth, nausea and insomnia. Not to worry, said lead study author and professor of psychiatry and neurobehavioral sciences at the University of Virginia, Anita Clayton, MD, on a webcast announcing the results. "These are side-effects often seen with CNS-acting medications, which affect the brain. They tended to be transient."

For the women, we can only hope those discomforts were worth it for the additional SSE. As far as the regulators go, we reckon it's unlikely that they wave through a centrally-acting drug (in the same broad class as Arena's Phase III obesity candidate lorcaserin, or Sanofi Aventis' insomnia hopeful eplivanserin, which received a complete response letter in September) whose complete mechanism of action is unknown, and which leads to considerable (if not apparently too serious) side-effects, for an indication that took 20 minutes to describe on a recent webcast announcing the results. (Flibanserin is thought to affect the sexual desire/drive component of HSDD, by acting on brain neurotransmitters.)

We're not saying this drug candidate will never be approved; we're just saying we think it's unlikely to happen fast. (Fortunately, Boehringer has other, far bigger, fish to fry.)

Granted, there aren't currently any FDA-approved drugs for HSDD among pre-menopausal women, explains Anita Clayton; couples counseling is about it. And if the SSE data wasn't that exciting, women did report significantly improved sexual desire & functioning, and less distress related to low sexual desire.

image from flickr user michelle brea used under creative commons license

Sticker Shock May Open Innovation in Pharma

Proposals advocating “open” or “collaborative” innovation in pharma R&D are suddenly cropping up throughout the pharma industry in a variety of forums and iterations. J&J’s head of global R&D Paul Stoffels talks about it, as does GlaxoSmithKline’s Andrew Witty. Not that collaboration itself is news – business development is a mainstay of pharma strategy.

These new ideas, however, refer to collaborations in areas where pharma previously feared to tread--at the earliest stages of research, across several companies--and involve sharing of intellectual property. In the past, such ideas were unthinkable, but pharma companies are well aware their R&D models need an overhaul, if for no other reason than sticker shock: Innovator companies spend $90 billion a year on global R&D, but stand to lose $32 billion in cash flow over the next five years as key products go generic. No one expects that they’ll be able to compensate for that loss – which means less money for R&D.

Enter the management consulting firm Bain & Co., which also strongly advocates moving the industry toward more collaborative research in this article just published in the most recent issue of IN VIVO. Recently the head of Bain’s North American healthcare practice, Chuck Farkas, spoke to IN VIVO Blog about his group’s thoughts.

In one of Bain’s models, groups of companies would “pool” research and development assets within a disease area or class of compounds, sharing in some manner in the commercial success of any compounds that emerge from the collaboration. Another very different model calls for sharing IP, resources, and talent to identify the best mechanism of action to tackle a particular disease, after which each company would compete separately in the marketplace.

That latter kind of open innovation wouldn’t necessarily limit the number of companies pursuing particular molecules and therefore wouldn’t create systemic efficiency, but it could eliminate duplicate investment in early-stage work and improve productivity by enabling scientists who would normally compete to work together, Farkas explains.

Especially in the latter model, commercial execution would be paramount. Competitors would win on the merits of their science—but the balance of power would likely shift to those with the most cunning in the market. That’s what happened in the consumer goods and certain sub-sets of the IT industries, where R&D pooling became a norm.

Today’s pharmaceutical R&D model, which industry is gradually restructuring, was formed around a bubble that has burst, Farkas observes. Companies are "asking how to share more of the R&D" he says. "There is massive pressure to be far more rational in R&D.”

Bain's ideas are part of a trend, of course, at least rhetorically. In a February 13 speech at Harvard Medical School, GSK’s Witty advocated patent pooling—that is when patent owners agree to license their patents to others—and said GSK is doing just that with assets aimed at treating certain neglected tropical diseases.

The head of global R&D at J&J, Paul Stoffels, a Belgian physician, has also been writing about and speaking publicly on what he calls “open innovation,” in which pharma companies network “across internal organizational disciplines and geographies” and externally as well “to share in both the benefits and costs of innovation.”

The extent of their commitments isn’t clear, however. Witty’s remarks received considerable publicity—but GSK’s program is directed at markets that don’t generate much profit, for big pharma anyway. And J&J’s minimal efforts involve small steps in niche markets.

But Farkas and others are adamant: the pressure of driving earnings as revenues fall “will force companies to look at dramatically different R&D models." And as they do, commercial competence--itself evolving in response to external pressure--will take on a whole new meaning.--Wendy Diller

image from flickr user benlyon used under a creative commons license.

Innovation Is the Pharmaceutical Industry's Only Salvation

We here at The IN VIVO Blog probably get a little bit too caught up in our own blathering. As a tonic, we'll be inviting some outsiders to contribute. As here: to get an investor's point of view on the industry, we asked T. Rowe Price biotech analyst Jay Markowitz, MD to share some of his thoughts.

If the movie Cool Hand Luke were a commentary on the pharmaceutical industry, the most memorable line would be, "what we've got here is failure to innovate." (For an IN VIVO take on Cool Hand Luke and innovation via the JP Morgan Healthcare meeting, click here)

The decline of the drug industry is all the more dramatic in the context of its past accomplishments. Many of the most important advances in health, from HIV to cancer, are attributable to new drugs. And yet in a 2008 survey by USA Today, the Kaiser Foundation, and the Harvard School of Public Health, 44% of Americans had an unfavorable view of the pharmaceutical industry. Only health insurers and oil companies did worse.

The industry's woes boil down to a single cause: inadequate innovation. It is estimated that by 2015, $200 billion worth of branded drug sales may be lost to generic competition. The 24 new drugs approved by the FDA in 2008 was the highest number since 2004; only nine came from multinational drug companies. This meager number can replenish but a fraction of pending lost sales.

The poor record of new drug approvals can’t be blamed on a lack of R&D spending. Last year the major pharmaceutical companies spent over $50 billion on drug discovery and development. If current trends are any guide, the $1 billion estimated cost per new drug now will seem like a bargain in the future.

The industry finds itself in such a predicament because it can no longer go after me-too drugs in such blockbuster categories as ulcer medicines, blood pressure pills, antidepressants, and cholesterol lowering agents. Pharmaceutical companies previously had the luxury of letting someone else take the risk of innovation; if that someone succeeded, the drug company could follow fast with a similar drug that might have some advantages. It paid more to imitate than create. With minimal clinical differentiation of their products, companies needed to spend heavily on marketing to drive sales. But it was more profitable to spend on drug promotion than drug creation.

That equation is changing. Now that cheap generics and multiple branded drugs are available in many therapeutic categories, innovation may end up being all that pays.

To reverse its current plight and not only survive but thrive in the future, industry leaders must accept the gravity of their situation and address its root cause.

First, they must recognize that innovation is more about people than process; it can neither be scaled nor industrialized. Drug companies ought to pare back internal research, foster a more entrepreneurial culture, and be more open-minded about accessing research done by others. Far more productive to divide a $1 billion research investment among ten to twenty small, scrappy, hungry companies than to concentrate in one that is big and complacent.

Second, they need to leverage their strengths in drug development and regulatory affairs. Whereas smaller companies may be more adept at discovering novel drugs, testing them in people and getting them approved put a premium on money, manpower, and experience. Because they are constrained by capital and limited know how, all too often smaller companies make mistakes by under-investing in clinical trials or pursuing needlessly risky approval strategies. Pharmaceutical companies should grasp the opportunity to partner with smaller companies in the middle phases of human testing, thereby providing the necessary money and expertise to minimize the chance that a drug fails because it was developed for the wrong indication or because of poor planning and execution. Good new drugs are too precious to delay or waste.

Third, they should embrace comparative-effectiveness testing and value-based drug pricing to support the argument for first- or best-in-class drugs. Although such a strategy would result in higher clinical attrition, clear product differentiation would reduce the need for sales and marketing. Far better for data, not advertising, to determine which drugs are prescribed.

And fourth, they should not view mega-mergers as a solution. Yes, in the short term, consolidation can increase sales and, by reducing redundant costs, profits. And it can bring new capabilities to the acquirer. But it will ultimately disappoint unless it redresses fundamental problems. For a merger between two big pharmaceutical companies to generate long term value, it must result in more novel drugs than each would have created separately.

From my point of view as an investor, the drug industry -- despite its challenges -- is ideally positioned to translate tremendous gains in chemistry, biology, and genetics into important new medicines that extend lives and reduce suffering. But it must discard its risk-averse and xenophobic culture, embrace the drug discovery work taking place in hundreds of creative, entrepreneurial companies, and recognize that constant innovation is its only hope for sustainable growth. The good news is that there are ample opportunities to succeed. Several pharmaceutical companies are already taking appropriate steps to revive their businesses. But these steps must be bigger and faster.

Jay's views do not necessarily reflect those of his employer, T. Rowe Price, Inc., an investment management company.

Apixaban: Bad News Highlights Good Strategy

The delay announced yesterday to Pfizer and BMS's apixaban blood clot prevention therapy is certainly a setback for the two pharmas, though they presented the news--and the market reacted--relatively smoothly.

Apixaban--pitted here in a head-to-head against current standard Lovenox, from Sanofi-Aventis, for the prevention of venous thromboembolism in knee replacement surgery patients--just barely failed to show non-inferiority, thanks to a much better than expected result for Sanofi's drug (see the companies' release for the statistical details). This was the first of eight Phase III trials planned for the compound, and ongoing studies aren't affected by yesterdays news, BMS apixaban program head Jack Lawrence told Reuters.

But still, the failure will add at least several months or more to the drug's development program and with rivaroxaban from Bayer/J&J already a half-step ahead, every little bit helps. An NDA for the compound, an oral Factor Xa inhibitor, won't be filed in 2009 as planned.

All of which validates Bristol's decision to go halvesies on the apixaban program with Pfizer in the first place, in a deal we've been fans of since it was announced back in April 2007.

To reacquaint you with the terms: in exchange for $250 million upfront cash and up to $750 million in development and regulatory milestones Pfizer gets an equal share of profits and foots an equal share of commercialization expenses, and Pfizer will fund 60% of any development costs from January 1, 2007 onward. (BMS's similarly risk-sharing and lucrative pact with AZ in the diabetes space provoked our admiration only a few months earlier.)

So with each setback, Bristol's strategy--sharing risk on important projects and increasingly biotech-like--seems cannier. That said, it's fair to ask just how many snafus Bristol's reputation can take before those nine-figure upfront payments dry up: after all, its other big risk-hedging adventure was on the now-dead muraglitazar PPAR deal with Merck & Co. back in 2004, which brought in $100 million upfront and at least $55 million in milestones before stumbling at FDA.

And it's not only Bristol among Big Pharma that's spreading the risk--and possibly the massive reward--on late stage development projects. We'll have more to say in the next IN VIVO about Eli Lilly's $300 million financing deal with TPG-Axon and Quintiles' NovaQuest on its two lead (Phase III) Alzheimer's disease treatments.

And who can forget our multiple pleas for your input on Amgen's potential future deal for denosumab? Certainly the project is now less risky/more expensive since Phase III results in its post-menopausal osteoporosis study were positive, but as Amgen's most important pipeline product in years perhaps (some day) the biggest sign that at least a few Big Pharma (and Big Biotech) now think differently about clinical and commercial risk.

Insight + Preparation + Dumb Luck = Blockbuster

This blog has spilt plenty of bytes on the nasty consequences for GlaxoSmithKline, and for the industry, of the Avandia problem – but we haven’t said much about who’s likely to benefit. That part of the story we left to The RPM Report – and you can see that analysis here.

As Kate Rawson notes in that story, the two biggest big beneficiaries are Merck’s Januvia – the only DPP4 inhibitor on the market—and Amylin/Lilly’s Byetta. But Januvia is in many ways a more interesting business case study – and one we’ll talk about in a public fireside chat with Merck CEO Dick Clark at Windhover’s annual shindig in New York for the industry’s top business development executives, Pharmaceutical Strategic Alliances.

Clark -- pictured right -- ain't exactly the pin-up CEO. He's a manufacturing guy, from the blue-collar neighborhood of the drug industry. But he's managed a turnaround at the otherwise very white-collar Merck of impressive proportions, this being the company, that not so long ago, looked like a cartoon Gulliver hogtied by thousands of litigious Lilliputions.

And as Clark and I will discuss at the PSA meeting, much of that success is due to Januvia, the product of a nearly perfect blend of scientific insight and strategy, management skill and dumb luck.

Trailing Novartis by four years, Merck’s DPP4 team not only built a molecule that avoided one of the receptor subtypes hit by Novartis’ compound, Galvus, they managed to convince the FDA – although no one is saying so, publicly – that by doing so they’d made a safer drug. Thus Januvia never got hit with the FDA scrutiny Galvus did – and ended up with a safety label so compelling (a side-effect profile comparable to placebo) that this once-a-day pill, noted one diabetologist, has become “the first truly simple-minded therapy in diabetes.”

And probably the fastest beginning-to-end development program for any first-in-class primary-care drug in recent memory (seven years from discovery initiation to approval). Indeed, Clark and research chief Peter Kim had decided – given the company’s thin late-stage pipeline -- that Januvia was one of two drugs (the other was Gardasil, the cervical-cancer vaccine) absolutely crucial to Merck’s recovery from its disaster with Vioxx.

And so Clark created a multi-disciplinary task force around the compound, with its boss reporting directly to him. Bureaucratic hurdles fell away. And the launch was as nearly perfect as a major primary-care launch can be – five months after launch, the drug had captured a greater share of attention (nearly 40%) than nearly any of the recent successful primary-care launches. And it’s now on target for what analysts think could be $775 million in first-year sales.

(We should mention that Clark did the same thing – another multi-disciplinary task force reporting directly to him -- with Gardasil – on track for $1.5 billion in worldwide full first-year sales.)

And then there’s dumb luck. Januvia has been the extraordinary beneficiary of the misfortune of others--the Galvus approval delay, in the first place, and now Avandia. Merck therefore took 100% of the profit from the excitement Novartis helped generate around the arrival of a brand-new anti-diabetic class—but none of the negatives of Galvus’ apparent side-effects. Likewise, it’s taking the lion’s share of Avandia’s lost prescriptions.

And all of this despite the fact that Januvia ain’t that great a drug. Good as an add on. But not particularly powerful in itself. Instead, Januvia is the perfect drug for our era, when safety—particularly mixed with extreme simplicity--sells far better than efficacy alone.

The PSA conference will be a good time to question Clark on just how much a CEO matters in creating a blockbuster. We forecast his answer this way: some -- but dumb luck sure helps.

Big Pharma R&D Becomes Business Development …or at Least BD Now Runs Research

Lot of changes in business development recently.

In a management tiff, long-time Big Pharma dealmaker Tamar Howson rather unceremoniously left Bristol-Myers Squibb, where she’d been running worldwide business development, ending up at Bristol partner Lexicon Pharmaceuticals. Bayer-Schering, aiming again for top tier status, replaced veteran biz dev boss Chris Seaton with Michael Yeomans, ex-Aventis, via Biovail. A few weeks ago, Victor Hartmann, who in early 2005 had bailed on the top BD job at Novartis to take a flyer running BD at Vertex, left the biotech as unceremoniously as Howson left BMS; the IN VIVO Blog has got only hearsay reports on why, so we’ll leave well enough alone.

Look Out Below!

As far as our limited insight can tell us, none of these changes indicate much beyond the fact that grease coats the rungs of corporate ladders. But now news from Johnson & Johnson does reflect something we’ve long argued but which companies have been very slow to internalize structurally: Big Pharma R&D has become business development.

That’s why we’re so interested in the fact that J&J’s drug business has made its chief licensing honcho Tom Heyman head of discovery for the biggest R&D operation in its newly reorganized three-headed drug business. Heyman will be running discovery and early development for J&J's CNS/Internal Medicine Franchise, which incorporates its La Jolla, Pennsylvania/New Jersey and Belgian research sites.

Now, except for one fact, such a move wouldn’t be unprecedented. GlaxoSmithKline certainly gave its R&D organization a business development message when in 2006 it appointed its BD head, Moncef Slaoui, to run the R&D organization. But Slaoui at least had a research background; he's got a PhD. Heyman isn't a scientist at all: he’s a former patent attorney for Janssen.

Apparently this is just fine with Heyman’s new boss, Paul Stoffels, who most definitely is a scientist and one who understands the value of a business development--and an outsider's--perspective. Stoffels is the former Janssen researcher who turned some stagnating work at his former company, plus some new innovation, into a biotech called Virco. Virco in 2001 merged with fellow Belgian biotech Tibotec, and J&J purchased the combined company a year later, once Stoffels & Co. had proven its value, for some $320 million. Stoffels – following a J&J tradition – joined J&J, which hopes he can do what his predecessors clearly couldn’t.

And apparently one thing he wants to do is to make sure J&J’s discovery has a definite external spin. Heyman's certainly got the background to apply the spin; whether the organization accepts it -- from a non-scientist -- is another question.

R&D: Worth It Only When You Don’t Pay for It

The late Michael Sorrel, one of biotech’s most perspicacious analysts, had a few basic rules for investing, one of which was the call option. Did the biotech have not merely a lead program, which could anchor the company’s valuation, but something else the stock buyer could get for free.

Same holds true with pharma. Analysts are now so skeptical of early-stage Big Pharma R&D that they want it for free. Or at least that’s the implication of some intriguing calculations from Craig Maxwell, European equity research analyst at JP Morgan.

Maxwell summed the estimated value of the six major European pharmas based solely on their current products plus their Phase III pipelines – the “embedded value” -- and then compared it to their current share prices (see chart). The closer these values came to the share value, the less the market—theorizes Maxwell—is valuing research. And that means the less the investor is paying for R&D.

Conversely, the bigger the gap between product value and share value, the greater the value the market is putting on research. No free R&D option—and a poor deal for investors.

Best value on the European market: Novo Nordisk (products equal 104% of share price). Worst deal: GSK (products equal just 74%).

Now, you can disagree with Maxwell’s estimates of product value. Maybe he’s discounting the value of GSK’s products and inflating Novo’s. But the fact that he won’t pay for R&D—that he wants it for free, and apparently can get it—seems about as damning an indictment of the value of R&D as we’ve heard in a long time.

The Value of Re-Cycling: $87 million?

The drug industry’s littered with examples of products that have started life in one indication and got to market in a totally different one—think of Viagra et al.

But most of these reinvention stories involve a fair bit of luck—the right scientists taking a chance and managing to get it past the bosses. Since then, Big Pharma’s R&D productivity issues have prompted the birth of a handful of systematic re-positioners like Aspreva or Melior.

Or like Gene Logic. This firm—originally a genomics database group—has stuck its neck out and put a number on the value of repositioning assets: $87 million. That’s to say, repositioning a failed Phase II compound in a new indication creates an asset worth $87 million more, in net present value terms, than an equivalent in-licensed drug. That’s almost a 30% increase, according to the company.

To find out exactly how they get to these numbers—there is rhyme and reason—you’ll have to wait for June’s IN VIVO. But it’s based around the notion that a re-positioned drug has an additional two-to-three years of patent life over its non-repositioned counterpart. Since there’s no “original” indication (the drug failed, right?), then once the compound’s composition of matter patent—typically seen as the strongest IP protection—expires, the method of use patent, filed later based on a novel indication in Phase II, still has bite. (Normally, when a drug’s composition of matter patents expire, generics can compete in the original indication that the drug was approved for, and in practice also compete off-label in other, unexpired indications.)

The arguments look reasonable. At least, they do to the five Big Pharma partners that Gene Logic has attracted in the last couple of years, including, earlier this month, Abbott Labs.

But are these partners really buying into Gene Logic’s economic model—which is, by the company’s own admission, without precedent and totally unproven—or do they simply figure that they’ve got nothing to lose? Gene Logic takes on all the early risk in identifying a new indication. There’s no cost to the larger partner unless and until Gene Logic finds a viable new indication for the compound—in which case it will owe milestones (estimated at $60-$100 million per compound) and, potentially, royalties. There’s no automatic opt-in for Gene Logic—it can only take rights to repositioned compounds if the pharma partner explicitly rejects them.

Effectively, Gene Logic’s had to bend over backwards to persuade Big Pharma to hand over shelved assets---everyone knows this isn’t a favorite pastime. They’ve had to remove all the hurdles and pitfalls.

The tactic has worked, thus far. But Gene Logic won’t be able to afford this deal-structure for long. Either they won’t find new indications, in which case they’ll go bust (or change strategy again). Or they will, but that will push up development costs, so they’ll have to get more from their partners.

So if you’re a Big Pharma with stuff on the shelves, move fast.