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Opportunities and Challenges

Opportunities and Challenges in Licensing

a report by
N i c h o l a s A d a m s , 1 S i m o n B e s t 2 and I a n S c o u l a r 3

1. Director of Business Development, Antisoma; 2. Chairman, BioIndustry Association and Ardana;

3. Director of Business Development, Protherics

Do you have a spare compound burning a hole in your back
pocket? Do you need a partner to help you onto the next stage of
development? Or are your early-stage programmes looking a little light
at the moment? If any of these scenarios are true, you should consider
licensing. Take on as much or as little risk as you can stomach or
afford – all therapeutic areas are catered for.
Licensing may be commonplace these days, but is still not an easy
option. You need to look hard for good deals that fit with your
strategy, then be careful to maintain a good working relationship with
your new partner. In this article, three luminaries of the UK biotech
field – Antisoma’s Nick Adams, Ardana’s and the BioIndustry
Association’s (BIA’s) Dr Simon Best and Protherics’s Dr Ian Scoular –
offer advice and a seasoned eye on the opportunities and challenges
inherent in licensing.
Nicholas Adams is Director of Business Development for
Antisoma, a position he has held since November 2003. Prior
to this he was a Business Development Manager at Antisoma
for four years, during which time he established significant
development collaborations. He recently led the out-licensing
of Antisoma’s lead product, ASA404, to Novartis. Prior to
joining Antisoma, Nicholas held research and development
positions at Ciba-Geigy, Eisai Ltd and Cephalon Inc. He is a
member of the UK Trade Investments Biotech and Pharma
Sector’s Advisory Group and the Biotechnology Industry Association’s Business Development
Working Group, and is on the organising committee of the Pharma Licensing Group UK.
Simon Best is Chairman of the UK BioIndustry Association
and Chairman of Ardana, an emerging reproductive
pharmaceutical company based in Edinburgh, Scotland. He
co-founded Ardana in July 2000 and was its CEO until April
2004. He is also a Non-executive Director of Entelos and a
member of the Supervisory Board of the German
biotechnology company Direvo Biotech. Dr Best was Vice
Chairman of Biotechnology Industry Organization in the US
from 1994 to 1996 and a member of the Board and Chair of
the Bioethics Committee from 1998 to 2005. He also served as a Governor of the Food and
Agriculture Section of the World Economic Forum from 1994 to 1998.
Ian Scoular is Director of Business Development for
Protherics PLC, a position he has held since July 2002.
He is responsible for seeking commercial partners for the
company’s development products, intellectual property
portfolio and in-licensing new products. He has more than
20 years of experience in business development for the
pharmaceutical industry through positions at Nycomed,
Schering Plough and Reckitt & Colman. More recently, he
played a major part in negotiations with AstraZeneca,
leading to the licensing agreement with Protherics in December 2005. This deal was
recognised at the 2006 Scrip Awards as ‘Licensing Deal of the Year’.
The Importance of Licensing
“At any point in an industry’s development, licensing is one of the
most important ways in which a small company can ensure the further
development of a product or technology,” explains Best. Licensing, he
adds, is part of the “natural symbiotic relationship” between
biotechnology firms – which tend to be smaller and specialise in
discovery and early-stage research – and the larger cash-rich
pharmaceutical firms.
The UK has the largest and most successful bioscience sector in
Europe, and globally it is second only to the US. According to research
by Ernst & Young,1 bioscience companies in the UK have more than
350 potential medicines in the pipeline – at least 100 more than any
other country in Europe.
Although the UK leads Europe in many ways, this is no cause for
complacency, says Best. “Partly because of the British Biotech scandal
10 years ago, and partly because of ill-judged investment decisions
during the biotech bubble in the late 1990s and early 2000s, few
investors in the UK have made a good profit.” This has undermined
confidence in the sector and led to a shrinking pool of both venture
capitalists (VCs) and specialist public investors. “Now there are fewer
than five funds that actually have analysts who understand the
technology. That is not a critical mass,” he adds. “So, if you go public
in the UK you are raising money largely from generalists, and the only
way they can determine whether you are a good investment is
whether you do deals.”
From the perspective of biotech companies, the positive aspect of the
current situation is that the glut of supply is being matched or even
exceeded by a greed of demand from big-spending pharma. Big
pharma companies are experiencing a decline in productivity. Adams
observes: “Even five to 10 years ago many big pharma companies did
very little product in-licensing: they were focused on in-house
research. They have changed; they realised they had to in order to fill
their pipeline.” Best adds: “We need their money and they need our
compounds, which is fine in the short term but is not a recipe for
expanding an industry in the long term.”
Finding the Right Opportunities
There are plenty of obstacles to overcome when in-licensing a new
product. These range from securing funding, to finding the right
compound, to the negotiation of terms – and the challenges do not

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end there. Any partnership initiated needs to be nurtured and kept
fresh to ensure its success.
Potential compounds are plentiful, but not all are interesting or even
suitable for further development. “Many of them are not interesting to
us because the quality of the data is not good enough, or we do not
“If it was the perfect in-licensing
opportunity, it would have been
snapped up by somebody else.”
believe in the [validity of the] target. You have to wade through a lot
of opportunities to find ones that you think are good-quality,”
observes Adams. Scoular adds: “We probably look at 50 or more
opportunities before there is one that we will spend more time on.”
Finding good opportunities is not the sole preserve of the business
development officer. “I have always said that business development
and licensing are not just down to myself, but are cross-company
experiences,” explains Scoular. “Our scientists go to scientific
meetings, our manufacturing colleagues go to bio-manufacturing or
processing seminars and the chief executive is very active at corporate
investment meetings.”
In-licensing firms have some basic criteria that must be fulfilled; these
are similar across all developmental stages and therapeutic areas. For
Adams these include: “quality of data, including proof of efficacy and
safety, and intellectual property (IP) position, such as how strong and
novel a compound is.” Scoular concurs: “The most important thing we
look for is IP protection – such as patents and trademarks – so that we
get something unique that cannot subsequently be copied by other
players in the market.”
Is there such a thing as the perfect fit? “If it was the perfect
in-licensing opportunity, it would have been snapped up by somebody
else,” opines Scoular. “Usually, the reason we can afford things or can
negotiate our way to get things is that the compound has some
challenges that we think we can handle.” Ultimately, he adds, you
cannot sit and wait for that one compound that ticks all your boxes.
“We at Protherics will be the first to say that sometimes you have to
be opportunist. If you think that a compound will add value to the
company, our strategy can be changed to accommodate it.”
Sourcing from Academia
Much of the basic research that eventually leads to new medicines
starts in universities, and there has been a high level of investment
from government, research councils and medical charities into the
BTG PHARMACEUTICAL LICENSING – DEAL SOURCING AND METRICS
Opportunities and Challenges in Licensing
UK’s academic research base over recent years. “This means there is
probably as much or more raw material than would have been
invested in by VCs five to 10 years ago ,” says Best. “And, with the
experience of more battle-hardened management teams, we could
now be producing really interesting companies for the next
generation. This leaves the UK in the perverse situation of having the
best science but the least vibrant home-grown industry in Europe at
the moment.”
Fortunately, the mechanisms available to turn university research into
candidates with commercial potential are improving. Adams
comments: “Academia generally takes things to a certain stage of
development, e.g. lead optimisation with early in vitro work, but not
animal studies. To bridge that gap, organisations such as Cancer
Research Technology are looking to get new molecules to the
minimum stage at which companies will be interested – that is, giving
them a data pack suitable for biotechs and big pharma.” Best
continues: “There are research councils such as the Medical Research
Council (MRC), which has a well-run and professional technology
transfer office, MRC Technology. They really understand what is
needed and have the expertise to perform the role well and be
relatively easy to deal with. Across the other research councils the
quality is a bit patchy, but there is a realisation that technology
transfer needs to be professionalised.”
Developmental gaps, such as that between academia and
biopharmaceutical firms, have given rise to new types of companies
that aim to fill them in, thus lubricating the licensing market.
“Companies such as Antisoma, Protherics and Ardana have built their
businesses by in-licensing, adding value and moving on,” Best
elaborates. “There is almost a middle-man role in the area of licensing
products and technologies from the UK and overseas and adding value
to them.”
Sourcing Locations
In the global supermarket there are tasty opportunities to be found in
all corners of the globe, as well as on your doorstep. This is particularly
important for the smaller biotech and biopharmaceutical firms that are
carving out a niche away from the mainstream. Adams reveals: “We
have always looked to academia for our compounds. Most of our
pipeline is from academic institutes all around the world: our lead
product comes from the University of Auckland, and we have
technology from the University of Genoa as well as home-grown
opportunities through Cancer Research Technology.”
For later-stage products, there are opportunities for European firms to
capitalise on their knowledge of the more fragmented and – from the
US point of view – more tricky European regulatory system. “US
biotech companies often do not know anything about European
regulatory and sales and marketing, so they are a good source of
products,” says Scoular. “[Protherics is] trying to focus on building its
sales and marketing expertise; therefore, we are looking for revenue-
making opportunities that are at a very late stage or already on the
market but perhaps not getting the support they need.”
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Opportunities and Challenges
Negotiating Terms
Having found a likely candidate, attention then turns to the
expectations of the out-licensors. “We start to filter out what sort of
terms the company might look for before spending many man-hours
on due diligence,” posits Scoular. “If they have an unreal expectation
of what that product is worth, there is not a lot of point [pursuing it];
if the gap is enormous, it is not going to close up by negotiation.”
Much has already been said in this report about the increase in
complexity in licensing deals. Adams elaborates: “Because of the
demand for products to fill big pharma pipelines, biotechs have the
“If out-licensors have an unreal
expectation of what that product
is worth, there is not a lot of point
pursuing it; if the gap is enormous, it
is not going to close up by negotiation.”
ability to get more out of the deal themselves: more cash, strategic
co-commercialisation and co-promotion rights, etc. It started with the
US biotechs, but now even European biotechs have co-promotion rights
in the US. You would not have seen those sorts of deals 10 years ago.”
There are other more personal reasons why an out-licensor would
want to keep hold of downstream rights. In December 2005,
Protherics out-licensed its antisepsis product CytoFab™ to
AstraZeneca, but retained control over manufacture of the product.
“Because of the size difference, we could really have been swamped
by AstraZeneca, but we wanted to have our share of the voice as
regards CytoFab because it had been our baby for many years and we
had no intention of letting it go. We want to participate in its future
development towards an adult product.”
Equity
Cash is not the only choice when paying for a licence: buying shares is
becoming a popular route. “An equity investment in your company by
a big pharma is very nice in a way because it is an external validation
of your technology and management. It is tax-free cash as well,”
explains Scoular. Furthermore, as equity investments are usually made
at a premium they can help to lift a company’s share price. However,
in order to issue new shares to a partner it is vital to have shareholder
approval. The foresighted company will pre-emptively put in place a
provision to allow it to issue a certain number of shares without
needing to call a special meeting.
However, equity investments do not suit everybody. In April 2007,
Antisoma closed a licensing deal with Novartis for a phase III
anticancer agent. Adams elaborates: “We did not have any equity
involved in our deal with Novartis. This was something that we
decided we did not want right at the beginning of the out-licensing
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process. The reason we decided against it is that it gives one company
a head-start if there is ever a bid made for us.”
This segues seamlessly with the related issue of mergers and
acquisitions (M&As), which are increasingly being seen in parallel with
licensing activity. Whether securing access to a technology or product
or reducing the future royalty and milestone payments due, big
pharma are more likely to purchase a smaller company these days than
they were 10 years ago. “Let’s face it,” says Adams, “if a big pharma
is going to bid for your company, what you want is for other
companies to also be interested in acquiring you to bid the price up.”
If one company already has a large stake, other bidders will be put off
and your value will be restricted.
Although an acquisition is a good way for investors to realise their
investment, it does mark the end of independence for a biotech or
biopharmaceutical firm. The UK especially feels the loss of its largest
home-grown companies. “We have only ever created two companies
that got to billion-dollar market capitalisations – Cambridge Antibody
Technology and Celltech – and they have both been sold,” Best observes.
Managing Alliances
Signing the licensing deal is only the start of the hard work: the real goal
is to achieve success and reach the next value inflection point, be that
another licensing deal or commercialisation. Neither of these is certain:
“With an alliance manager, you get a
heads-up about any issues that are
bubbling up in the other company.”
“A lot of collaborations fall apart for non-product-related issues,”
Adams observes. “It often comes down to a lack of communication.”
After all, your partner is just as independent an entity as your own
company, and will have its own views and idiosyncrasies. To keep on
track, it is vital that these small differences do not get blown up to
large gulfs; small problems are surmountable, while large ones may
not be. “We signed a deal with Roche in 2002 and as part of that each
side had an alliance manager. At the time it did not seem necessary,
but in hindsight it was invaluable,” Adams recalls. “With an alliance
manager, you get a heads-up about any issues that are bubbling up in
the other company. That person is your insight into their company,
and likewise your manager is their insight. It worked fantastically for
us and we never had to escalate an issue beyond our joint
development committee.”
Your alliance manager is your ambassador or diplomat, he continues,
and Scoular agrees: “I realised that once we got into the deal,
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AstraZeneca wanted to talk to us very regularly: at least once a week,
if not once a day. We needed to provide a door into Protherics to field
all these enquires coming from different parts of AstraZeneca.
Therefore, we set up an alliance management programme and hired a
full-time CytoFab manager. This has been a good experience and, as
we have moved on with other companies, we dedicate one of our
business development people to running that alliance. It is really about
relationship management and good communication flow.”
Overcoming Challenges to Make Future Opportunities
At the minimum, the overall challenges facing UK biotech centre on
ensuring that there is funding available to expand domestic companies
and that good basic science can be applied to the development of life-
saving and profitable products. To this end, the BIA has provided input
to several of the Government reports that have come out in the last
year, including a review of UK health research funding by Sir David
Cooksey.2 One of the recommendations of this report was that the
Government should concentrate on funding translational medicine.
Best explains: “This is important from the industry point of view as it
is effectively public money stepping in where venture money used to
go. It is about taking academic projects in the UK and carrying out the
early clinical and pre-clinical trials – taking some of the risk out to help
translate the research into potential products.”
Other governments across the world have schemes to help develop
their life sciences industry that can be applied in the UK. “People think
the US is a free market and very dynamic, but there are in fact a lot of
public subsidies for medical research,” Best observes. For instance,
companies can apply for a small business innovation research (SBIR)
grant of up to around US$2 million for early clinical projects. “We have
not had anything like that in the UK. The BIA has worked very hard to
suggest to the Government that this needs to be rectified,” Best
continues. Many of Lord Sainsbury’s recommendations from his recent
review of science and innovation policies3 have already been accepted
by the Government. These include the need for a US-style SBIR
scheme. “We are still trying to dissect the small print to work out how
much funding there is to support it, but we are optimistic that it will
be funded,” he adds.
Scotland’s proof-of-concept fund, the European Young Innovative
Company scheme and the French government’s fund – which matches
investment in biotech by VCs – are all examples of other ways in which
good basic science can be funded and developed, Best declares.
Conclusion
Licensing in the UK life sciences sector is driven by many different
needs. Nevertheless, licensing compounds is an important part of the
process of research and development (R&D) of new compounds and is
likely to become even more important in the future. Furthermore,
1. Ernst & Young, Beyond Borders: Global Biotechnology 2. http://www.hm-treasury.gov.uk/media/4/A/pbr06_
Report, 2007 cooksey_final_report_636.pdf (last accessed 18 October
2007).
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Opportunities and Challenges in Licensing
companies are starting to specialise in taking compounds through
certain developmental stages, creating a pipeline from academia
through pre-clinical and clinical development towards submission and
eventual approval.
However, licensing is more than simply bringing in an exciting new
compound: it involves working with another company towards
achieving a common goal. This has precipitated a culture change for
both the in- and out-licensing communities. “One thing that has gone
in the last few years is the ‘not invented here’ syndrome,” Scoular
remarks, “where if it had not been invented by [the in-licensing
company] it was not heavily resourced or supported, and R&D people
would give it a lower priority.”
With more scope these days for interesting licensing deals involving
co-promotion and the like, the out-licensor stands to gain far more
than simply cash or fresh capital. Adams explains: “Through a deal you
can take your company onto a different phase of development – it can
be a transforming event… Our Novartis agreement is a good example
of a deal that allows Antisoma to enter a new phase of growth. We
are in the process of setting up a new US office, currently for clinical
and regulatory functions, but ultimately for commercialisation and
marketing, and we are in a phase where we can bring a lot more
products into the pipeline and build the asset value.”
However, with choice and variety comes complexity. Scoular notes that
there are a lot of things that a business development officer needs to
“People think the US is a free
market and very dynamic, but there
are in fact a lot of public subsidies
for medical research.”
keep in mind when setting up a new deal. “That is why people who
are in licensing have often been around for several years. Over time
you learn a little bit about all these areas: legal, IP, regulatory,
manufacturing, financial, etc.; all those things that need to be covered
in an agreement are in your mind.”
It is not all hard work, however. “The most exciting part is the
negotiation,” he enthuses. “Learning how to negotiate is very
important… What you do not want to do is to knock the other guy
into the ground: you really want a win–win situation where you both
feel that you have got a good deal for your companies.” ■
3. http://www.hm-treasury.gov.uk/media/5/E/sainsbury_review
051007.pdf (last accessed 18 October 2007).
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