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Pharmaceuticals

Licensing Out

Eli Lilly & Co. tries to get creative about cultivating compounds that might otherwise collect dust

by Lisa M. Jarvis
March 24, 2014 | A version of this story appeared in Volume 92, Issue 12

INSIDE OUT
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Credit: Lilly
Lilly is pushing some molecules discovered in its own labs to external partners.
Photo of a scientist works in Lilly’s labs.
Credit: Lilly
Lilly is pushing some molecules discovered in its own labs to external partners.

The job of every big pharma R&D chief is to maintain a harmonious pipeline filled with innovative molecules in the early, middle, and late stages of development. That task is easier said than done. Surprise failures and, less often, surprise successes mean limited research resources must be constantly reassessed and shifted.

Like its competitors, Eli Lilly & Co. manages resources by putting some potential drugs on the shelf and shipping others to outside firms to develop. But Lilly is also doing something different: Along with such traditional out-licensing deals, it sends some molecules to partners with the understanding that it can call them back home when the time is right.

Every year, drug researchers come up with a stream of molecules intended for the development pipeline, and yet their companies can afford to pursue only so many at once. In the past, the answer was to “park it and wait,” explains Darren J. Carroll, Lilly’s vice president of corporate business development. If a more advanced compound failed, one of the shelved molecules could be taken down to fill the void in the pipeline.

“That approach of parking no longer works,” Carroll says. Not only does the patent clock keep ticking while a molecule sits on the shelf, shortening its earning potential, but competitors might be moving forward with similar products. “In the current environment for new medicines, being first or second is absolutely essential to being successful,” he notes. “Is there room for a third? Sure. Is there room for a fourth? That gets tougher.”

Lilly believes a better strategy is to put more of its internally discovered molecules in the hands of others. In addition to the traditional approach of licensing drugs in exchange for royalties, Lilly licenses some drug candidates in deals that include the option to buy them back after they have successfully cleared some clinical trials. It also puts them into so-called single-asset companies—venture-backed firms that are focused on just one molecule.

CREATIVE OUT-LICENSING

Eli Lilly & Co. has worked with several companies to develop molecules outside its walls.

Dekkun: Single-asset company formed in January 2011 to develop DKN-01, an antibody that neutralizes a protein implicated in cancer cell growth. It’s currently in a Phase II trial as a multiple myeloma treatment.

Arteaus Therapeutics: Single-asset company launched in July 2011 to develop LY2951742, an antibody to prevent migraine headaches. Lilly bought back the rights to it in January 2013 after seeing positive Phase II data.

Transition Therapeutics: Biotech company that licensed Lilly’s dual GLP-1 and glucagon receptor agonist TT-401 for diabetes in 2010. In June 2013, Lilly exercised its option to buy back the drug candidate, paying Transition $7 million.

Transition Therapeutics: Biotech company that licensed Lilly’s small-molecule transcriptional regulator TT-601, for osteoarthritis pain, in July 2013. Lilly keeps an option to buy back the molecule after Phase IIa studies are completed.

GLWL Research: Single-asset company formed in January 2014 to develop GLWL-01 as a treatment for type 2 diabetes.

Audion Therapeutics: Biotech focused on developing drugs for hearing loss. In February 2014, it got rights to a series of Lilly compounds with potential for regenerating hair cells. Lilly retains an option to buy back the compounds after Phase IIa studies are completed.

A cynic would say that even with a limited budget Lilly would want to hang onto a project if it was promising enough, points out John LaMattina, senior partner at the life sciences investment firm PureTech Ventures and the former head of R&D at Pfizer. Shipping a molecule out can give outsiders the impression that it isn’t up to snuff.

But Carroll argues that sometimes it takes fresh eyes to see a new avenue for a drug candidate. Lilly’s partners, he says, have had insights into different formulations or new indications that can shift the direction of a compound’s development.

A recent example comes from a partnership between Lilly and Atlas Venture, a life sciences venture capital firm, around a Lilly-invented antibody called LY2951742. Atlas formed a company to develop the compound which, after two-and-a-half years of work, Lilly bought back. The partners consider it to be the first “round-trip” success story for a venture-backed single-asset company.

In the beginning, the partners had diverging views about the compound, but it was through that tension that they found the best way forward. “We thought the data really pointed at migraine prevention,” says David Grayzel, managing director of an Atlas division dedicated to forging partnerships with drug firms.

Lilly, meanwhile, had a different lead indication in mind. Although the company won’t comment on its original plans for LY2951742, published results of preclinical studies indicate it was pursuing the treatment of osteoarthritis pain.

Atlas ultimately won Lilly over, and in July 2011 Arteaus Therapeutics was born to develop LY2951742. Atlas brought in a partner, the venture capital firm OrbiMed, and together they committed $18 million in financing, to be delivered as clinical milestones were met. The goal was to complete a Phase IIa clinical trial, known in the industry as a proof-of-concept study, of the molecule as a migraine preventer, after which Lilly had the option to buy it back.

The data from the Phase IIa study were compelling enough that in January of this year Lilly bought back the program. Although financial terms were not disclosed, Lilly took a $57 million charge in the fourth quarter of 2013 related to taking LY2951742 back in-house.

In addition to being a success story for the single-asset company model, Grayzel notes, the partnership had another advantage: Atlas was able to develop the compound faster and cheaper than would have been likely inside the walls of big pharma. “I definitely give Lilly a lot of credit for thinking creatively about how to make these sorts of opportunities happen,” he says.

Arteaus was formed through Lilly’s Capital Funds Portfolio, a vehicle for creating single-asset companies. Every big drug company has a corporate venture capital fund, but Lilly distinguishes itself through CFP by including its own drug candidates among the opportunities it invests in.

As Carroll describes it, CFP is Lilly’s attempt to industrialize the process of pushing molecules from early development through proof-of-concept studies “in a way that produces the highest-quality data packages in the least amount of time, and using very spare resources.”

Of the nine project-focused companies Lilly has formed since CFP was created in 2011, three are based on a Lilly asset. In addition to Arteaus, Dekkun was formed to develop DKN-01, an antibody that neutralizes a protein implicated in cancer cell growth. Dekkun is currently conducting several studies of DKN-01, including a Phase II trial involving multiple myeloma patients. In January, GLWL Research was launched to develop the type 2 diabetes treatment GLWL-01.

CFP is only one vehicle for developing assets outside Lilly’s labs. Like many companies, Lilly has done straightforward licensing deals for compounds after deciding to exit a therapeutic area. But in other cases, Lilly is signing deals with the knowledge that “these are molecules that we fully expect to get back,” Carroll says.

In that scenario, Lilly will sell rights to the drug but keep an option to buy it back after more data have been generated. One recent example is Lilly’s partnership with Transition Therapeutics. In 2010, the biotech firm licensed a series of preclinical-stage diabetes molecules from Lilly, including TT-401, a dual agonist for GLP-1 and glucagon receptors.

Last June, Lilly exercised its option to buy back TT-401. The next month, Transition licensed another program from Lilly—this time a small-molecule transcriptional regulator for osteoarthritis pain that also could one day be brought back into the Lilly fold.

Although out-licensing allows companies some flexibility to develop molecules that would otherwise languish, the time, effort, and money involved are not trivial, LaMattina cautions. During his time as Pfizer’s R&D chief, the idea of out-licensing assets was often raised but never pursued. He felt it didn’t make sense to divert even the one to three people required to manage a licensing alliance away from high-priority projects.

Not every partner will consent to a licensing deal that gives Lilly the option to buy a drug back. But even in the case of a simple royalty agreement, Carroll believes Lilly’s small stake in the drug provides at least the chance to reacquire it down the road if success seems likely.

For drugs that are ultimately successful, internal development is more lucrative than out-licensing, Carroll acknowledges. But success is a great unknown in the early stages of a compound’s life, and developing it externally is better than letting it sit idle, he argues. “The value that you retain is still far greater than what you would have lost by allowing that molecule to be parked.”  

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