Pfizer Inc. executives hope the late-stage clinical trials on its new sickle-cell-anemia treatment will show strong benefits for sufferers of the blood disease. But if they don't, there will be a small silver lining: Pfizer didn't pay for the trials.
Last year, NovaQuest Capital Management LLC, a private-equity firm focused on life sciences, agreed to pay for Pfizer's Phase 3 trial program for the drug, called Rivipansel. Phase 3 is typically the final and costliest trial period.
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NovaQuest is one of a bevy of investors dedicated to funding late-stage clinical trials. Such deals are becoming increasingly common as the pharmaceutical industry seeks to limit risk.
The strategy takes a page from Hollywood, where big production companies have long sought to attract upfront investment -- in exchange for a cut of box-office sales or royalties -- as they gamble on the next blockbuster film.
Large pharmaceutical companies, like big movie production houses, must contend with "most innovation occurring outside your walls, and your cost structure varying over time and project type," said Richard Evans, an analyst at SSR LLC.
NovaQuest is one of the more active trial backers, and over the years has counted Sanofi SA, Takeda Pharmaceuticals Co., Allergan PLC and Eli Lilly & Co. as its partners in cost-sharing ventures that have spanned drug launches as well as research.
Rivipansel is an experimental drug Pfizer acquired from GlycoMimetics Inc. in 2011, while it was undergoing midstage trials, in a deal worth $340 million. For the final push, NovaQuest has agreed to pay up to $200 million, a sum Pfizer figures will cover the trial and all other development costs. If the drug is successful, NovaQuest could receive a series of payments totaling as much as $267 million, plus royalties on sales, for the next eight years.
"People look at us as an alternative," said NovaQuest founding partner William Robb. One of the main attractions of the strategy, he said, was that returns rely on the success of the drug program rather than market or deal-making sentiment. "Our investment structure and thesis provides something uncorrelated to the public markets," he said.
The structures of its deals vary, he said, and in most cases, NovaQuest pays for a proportion of a given clinical trial rather than shouldering the entire cost.
A Pfizer spokeswoman said that while the company still self-funded most of its clinical trials, it was increasingly seeking to collaborate with external partners to "increase the potential of our innovation activities."
Drug makers, facing declining returns on their research dollars, are using various strategies to supplement their fixed annual research-and-development budgets. These include striking up collaborations with one another to pool the costs and rewards of drug programs they consider especially risky or expensive. They also trim their own research investment by selling the rights to promising pipeline drugs that fall outside of their own areas of interest.
The drawback: sharing risk also involves sharing the rewards. Such collaborations involve the company in question agreeing to relinquish some of the drug's profit to its partners.
"We said, 'Gosh, we can be an alternative to this, a capital provider for some of these drugs,'" said NovaQuest founding partner John Bradley, who as an employee at drug-industry outsourcer Quintiles came up with the idea with several co-workers in 2000. The group that became NovaQuest was housed under the umbrella of Quintiles, now Quintiles IMS Holdings Inc., until it was spun out in 2010.
"R&D has periods of feast and famine," said Luciano Rossetti, head of global research and development at Merck KGgA. The German company recently reached a deal with Avillion LLP, a London-based group set up in 2013 that finances and executes clinical trials for drugmakers. Under that deal, Avillion will bankroll and execute the Phase 2 and 3 development of an experimental psoriasis drug.
Dr. Rossetti said the deal meant Merck wouldn't have to abandon or delay the program at a time when other, late-stage research is "absorbing all internal [financial] resources and talent." Merck and Avillion didn't disclose the terms of the deal, but Dr. Rossetti said it involved Avillion taking on the development risk, mainly in return for royalties down the line.
For now, just a handful of clinical trials are bankrolled by outside investors. But Mr. Evans believes drugmakers should open the majority of their trials up to external bidders. Such a move, he says, would mean that only the highest-quality projects received funding and that the level of research investment could vary substantially from year to year.
Opening their entire pipelines to external scrutiny would mark a sharp departure from the industry's usual secrecy, especially in the most competitive areas. But as companies accept the benefits of collaboration in areas where they may lack funding or research expertise, those attitudes are changing, Dr. Rossetti said.
"Many companies are willing to take a little risk of sharing information in order to get the right approach to fully leveraging their pipelines," he said.
Write to Denise Roland at Denise.Roland@wsj.com
(END) Dow Jones Newswires
April 30, 2017 09:14 ET (13:14 GMT)