License to grow says US CEO

In-licensing of clinical-stage compounds for development is a useful way to build sustainable value for your company and fill out your pipeline, the CEO of San Diego company Structural Genomix (SGX) Timothy Harris told venture capitalists and other attendees at this week's AVCAL networking lunch in Melbourne.

Harris said with the current VC market in the US, which has veered away from funding technology in favour of specialty pharma, it makes sense to in-license a clinical program to provide a nearer term exit for investors.

"Build a pipeline from discovery to the clinic and beyond -- that's what you need to do. To build sustainable value, you have to be a real drug discovery company so it's perfectly legitimate to think about in-licensing in the context of a platform that is designed to help you discover your own drugs," Harris said.

SGX, a structure-based drug discovery company, recently in-licensed Phase I/II anti-cancer drug Troxatyl, for the treatment of acute myelogenous leukaemia (AML) from Shire Pharmaceuticals. The program provides SGX with a clear path to market in several indications, including AML, CML and solid tumours, with the potential to file an NDA with the FDA in 2007 -- far earlier than its own drug discovery programs.

But persuading the board of directors to in-license a program presents its own challenges, Harris said. He succinctly summarised the arguments used against the in-licensing process as "it must be crap."

"If the compound is available and you've heard about it, then it must be crap, because only good compounds are made unavailable," Harris says he was told.

"If anyone is in-licensing a compound to you, a company with no experience, then it must be crap ... if you need to license in a compound then your technology must be crap otherwise you would have got some of your own ... if you need to in-license a compound then your platform must be crap too. [And] most compounds have been heavily shopped, everyone's seen them ... so it must be crap."

Harris said that to overcome the arguments against in-licensing, it was necessary to do extensive due diligence to ensure that you understood what you were getting.

"Do extensive due diligence of your own with your own consultants so you can get a real good view for yourself of whether you think the compound stacks up or not," he said. "At the end of the day it is management's responsibility to make the recommendations to the board and that has to be based on the due diligence you do."

Harris said in general it was easier to in-license a compound from a biotechnology company than from big pharma, mainly owing to the scale of the organisations.

Another thing to consider, Harris said, was the effect of in-licensing on the company. In addition the financial burden of in-licensing, and the resulting restructuring and balancing of resources across the company, the company runs the risk of becoming, de facto, the company it licensed the product from.

"So SGX becomes the Troxatyl company, and everyone discounts all the technology that's we've built up and says, yes they're the company that does Troxatyl. They forget about the real value which is to drive compound discovery and drug discovery owing to the platform that we will maintain, owing to the revenue generation that we get from that in the meantime," he said.

Another factor that should be considered, according to Harris, is whether the in-licensed compound comes from a similar technology platform or background as your company's, although he said the context of the therapeutic area was probably more important. In SGX's case, he said, the company already had experience in the leukaemia field and had clinical contacts to call on.

Ultimately, though, Harris said the overall value would be created not by the in-licensed drug alone, but by the ability of the company to push the drug forward through the clinic and onto the market.

"And sometimes it's necessary for the value of the company to go down before it can go back up," he said.