It is relatively common to see small biotech companies license out their drugs to larger pharmaceutical groups which can absorb some of the hefty development and commercialisation costs. But for pharma giants with big commercial arms and plenty of financial resources to use such agreements is considerably more unusual. AstraZeneca (AZN) is becoming an exception, though. So far in 2016, the group has completed 11 licensing deals both for drugs undergoing clinical development and those already on the shelves, including three in October alone.
In the short term, this provides big financial rewards for Astra. For example, last week the group earned £755m in one-off payments from three deals. The partnerships also result in milestone payments and royalty revenues that are all recorded in Astra's profit and loss account as 'externalisation revenues'. In 2015, the group reported just over $1bn (£813m) of externalisation revenues, but this is expected to ramp up considerably in the current financial year thanks to more deals and the ongoing payments generated by those signed last year.
This increased revenue from partnerships has helped Astra cushion the recent sales drop, which has resulted from some top-selling drugs coming off patent. To some, this is worrying. Last year, Berenberg analyst Alistair Campbell raised concerns "the group might be trading in long-term opportunities to protect short-term earnings". It has been speculated that Astra is placing more focus on its near-term goal (to up turnover by three-quarters and return to earnings growth by 2017) than on the long-term value in its pipeline.
Alternative therapy
Chief executive Pascal Soriot insists this is not the case. He has reiterated time and time again that Astra is streamlining its expertise into respiratory, oncology and cardiovascular diseases and that partnering - or in some cases even selling off - assets that fall outside of these areas will help the group in the long run. He has also said that licensing out drugs in the development stage was crucial to getting them to the market as fast as possible, particularly in areas where Astra has little expertise. Management claims launching new drugs quickly, with the help of fellow pharma groups, creates "a much bigger value proposition".
Last week, the group announced the out-licensing of gout treatment MEDI2070 to Allergan. Bahija Jallal, executive vice president of Astra’s research and development (R&D) arm, MedImmune, suggested this partnership was a good fit due to Allergan's "significant experience" in gastrointestinal and inflammatory diseases.
Similar existing deals include the blood cancer drug partnership with Celgene and collaboration with Valeant and Leo Pharma for psoriasis treatment brodalumab. Among others, Astra has also licensed its antibiotics portfolio to Pfizer and seven anaesthetics to Aspen Pharma.
Andrew Baum, an analyst at Citigroup, recognises the importance of such collaborations as Astra has an obligation to shareholders to deliver on its near-term earnings and dividend commitments, as well as build a solid pipeline of future drugs.
