Evaluating the deal

Using those criteria, MedImmune selected Merck & Co. as its partner. The companies formed a 15-year manufacturing capacity-sharing agreement in September 2011 with Merck utilizing MedImmune's Frederick, Maryland, facility for Merck bulk product manufacturing. The companies also are exploring the suitability of Merck's facilities in the production of microbial-based compounds in MedImmune's pipeline, and other potential manufacturing opportunities where business strategies intersect. Manufacturing began in the fourth quarter of 2011. The arrangement provides benefits to both parties. For MedImmune, the arrangement provides long-range utilization of excess capacity at the company's Frederick facility while maintaining sufficient capacity for MedImmune's own products. For Merck, the arrangement provides flexible and rapid access to capacity for the company's maturing biologics pipeline, which includes biosimilar candidates.

Skibo points out that the deal represents a new model in pharmaceutical manufacturing, one based on "co-opetition," a mindset that contains both cooperation and competition (1). A key consideration of a "co-opetition" model is that the players in the game of business include customers, suppliers, competitors as well as those that provide complementary rather than competing products and services. In the case of Merck and MedImmune, although both companies provide pharmaceutical products, there is no direct competition in the service being shared, namely biologics manufacturing capacity. The deal is structured to provide MedImmune and Merck a balance of lot cost versus production risk allocation that in combination is uniquely different than a typical CMO arrangement. Lot cost is based upon MedImmune's own internal fully absorbed lot production costs. The risk associated with lot production reflects a traditional CMO assignment of risk. Merck pays for any additional specialized resources and/or capital expansion upgrades as needed. The initial focus is on cell-based compounds for which Merck develops the process and analytics through medium scale, so any future changes are limited to fit and manufacturing needs only. MedImmune can provide large-scale technology transfer out of the Frederick facility as needed and can decline to work on any specific project.

Since Merck and MedImmune announced their manufacturing-capacity arrangement, several other companies have partnered in biosimilars in a co-opetition-like or strategic partnership model. In February 2012, Biogen Idec and Samsung formed a joint venture, Samsung Bioepis to develop, manufacture, and market biosimilars in keeping with their agreement announced in December 2011. Under the agreement, Samsung is contributing $255 million of the $300 million for an 85% stake, and Biogen Idec is contributing $45 million for a 15% stake in the joint venture. The joint venture, which will be based in Korea, will contract with Biogen Idec and Samsung Biologics for technical development and manufacturing services. Samsung Biologics is a Samsung business formed in April 2011 to specialize in biopharmaceutical manufacturing. The joint venture will not pursue biosimilars of Biogen Idec's proprietary products.

Amgen and Watson Pharmaceuticals formed a collaboration in December 2011 to develop and commercialize, on a worldwide basis, several oncology antibody biosimilars. Under the agreement, Amgen will assume primary responsibility for developing, manufacturing, and initially commercializing the oncology antibody products. Watson will contribute up to $400 million in codevelopment costs over the course of development, including the provision of development support, and will share product-development risks. In addition, Watson will contribute its expertise in the commercialization and marketing of products in specialty and generic-drug markets. The collaboration products are expected to be sold under a joint Amgen/Watson label. Watson will initially receive royalties and sales milestones from product revenues. The collaboration will not pursue biosimilars of Amgen's proprietary products.

Baxter and Momenta Pharmaceuticals also formed a collaboration in December 2011, to develop and commercialize biosimilars. Baxter will provide its clinical-development and biologic manufacturing expertise while Momenta will provide its expertise in high-resolution analytics, characterization, and product and process development.

Looking ahead, Skibo observed, "Partnering to minimize investment risk will become commonplace in the future. It easier to justify a $600 million to $800 million investment when there is more than one pipeline to support, in addition to in-licensing, biosimilars, and novel products."

Reference

1. A. Brandenburger and B. Nalebuff, Co-Opetition (Doubleday, New York, 1997).