Drugmakers team up to develop diabetes drugs


Published: Friday, January 12, 2007 at 6:01 a.m.
Last Modified: Thursday, January 11, 2007 at 10:51 p.m.

NEW YORK — The announcement by Bristol-Myers Squibb Co. and AstraZeneca PLC on Thursday that they will share the risks and rewards of developing two diabetes drugs highlights how expensive and precarious the route to product approval can be.

By joining forces, the companies lower the financial risks of drug development at a time numerous high-profile products haven't proved effective in late-stage clinical trials.

Under the deal, AstraZeneca will pay up to $1.25 billion to become a marketing and development partner in two drugs being developed by Bristol-Myers, including a promising treatment, saxagliptin.

Analysts said the move bolsters AstraZeneca's pipeline, which has been reduced by some notable failures, as it injects Bristol-Myers with cash needed for research and a shareholder dividend. The money also will provide marketing support for drugs that will enter a competitive field.

Bristol-Myers chief financial officer, Andrew Bonfield, predicted that there will be more deals between drug companies as development costs surge and regulatory hurdles grow.

"I think what we're going to see in the pharmaceutical industry is some more risk-sharing across companies as we're looking at (late-stage) compounds where you're making significant investments," said Bonfield. "From a risk mitigation perspective, this helps both companies and gives us more shots on goal."

Tony Zook, AstraZeneca's executive vice president for North America, doesn't think deals between big drug companies will become common because of competitive issues.

Yet, he says that as the landscape becomes more challenging, deals between pharmaceutical behemoths will become "part of the mix" considered by executives when exploring ways to improve their performance.

AstraZeneca pulled the plug on three high-profile drugs last year, including treatments for stroke and diabetes. Bristol-Myers halted development of a diabetes medicine, while Pfizer Inc. scrapped the star of its pipeline after the cholesterol treatment was found to have dangerous side effects.

Under the deal, London-based AstraZeneca will shoulder most of the development costs for saxagliptin and dapagliflozin through 2009, with additional expenses being shared equally. Dapagliflozin is in an earlier stage of development, so its introduction is further out.

The companies plan to file a marketing application with the Food and Drug Administration for saxagliptin in the first half of 2008.

Saxagliptin, currently in late-stage clinical trials, belongs to a class of drugs known as DPP-4 inhibitors. Merck & Co. introduced the first drug in the class, Januiva, last year. Galvus, another drug in the class which is made by Novartis SA, was expected to be approved last year, but U.S. regulators asked for more data, including information about studies linking the drug to skin lesions in monkeys.

Bonfield said that at high doses, saxagliptin did seem to cause skin lesions in monkeys but that the FDA didn't require any changes to the drug's development program.

Galvus' delay at the FDA suggests that saxagliptin may not sail through the approval process, so AstraZeneca is taking a risk on the deal — but it desperately needs new drugs, said Jon LeCroy, an analyst at Natexis Bleichroeder Inc.

LeCroy said in the short-term, the deal is a win for Bristol-Myers because it reduces the drugmaker's risk on the products and gives the company a cash infusion that it can use for research and continuing to pay its regular dividend, which is expected to cost the company more than it earned in 2006.

Bristol-Myers said it expects to earn between $1.02 and $1.07 a share in 2006 but its dividend is $1.12 a share.

Overall, LeCroy said the deal is a neutral for Bristol-Myers because if the drug does become a huge blockbuster it will be splitting the profits with AstraZeneca.

Jason Napodano, an analyst at Zacks Independent Research, said the deal is a positive for Bristol-Myers because its mitigates its risk while allowing it to stick to its strategy. He isn't sure saxagliptin will become a huge blockbuster because by the time it is approved, Januiva will be firmly entrenched in the market.

Over the last several years, Bristol-Myers' strategy has been to focus on developing drugs for conditions that are largely treated by specialists, in part to avoid the expense of an enormous sales force. The current deal fits with that strategy because Bristol-Myers won't have to create the massive sales force necessary to reach the legions of primary care doctors who prescribe diabetes drugs since it will have marketing help from AstraZeneca.

Under terms of the deal, AstraZeneca will make a $100 million upfront payment to New York-based Bristol-Myers, which also stands to earn up to $650 million more depending on meeting development and regulatory milestones, plus up to $300 million per product if sales goals are met. Global marketing costs and profits will be split equally. Bristol-Myers will make both drugs and book sales.

The deal covers markets worldwide, except in Japan, where Bristol-Myers granted an exclusive license to Otsuka Pharmaceutical Co. for saxagliptin in December.

On the New York Stock Exchange, Bristol-Myers shares rose 33 cents to $26.53 in late day trading while AstraZeneca's U.S.-traded stock added 90 cents to $55.15.

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