Michael Jewell looks at a new initiative by Pfizer (NYSE: PFE), the world’s largest pharmaceutical company, that aims to shake up the way the industry approaches nascent experimental drugs which would otherwise be side-lined.
In September, the US drugmaker launched what is effectively a new start-up company, SpringWorks Therapeutics, to develop compounds that show promise to treat rare diseases but do not fit within Pfizer’s strategic goals.
While the concept of developing shelved drugs elsewhere from their discovery is not a new concept, SpringWorks is notable as it is the biggest initiative of its kind. The start-up is being backed by $103 million of funding from a wide range of investors – among them Bain Capital, OrbiMed, LifeArc, and Pfizer itself.
To set its spin-off in motion, Pfizer has granted SpringWorks with licenses to four of its experimental medicines. If successful, more promising drugs will be handed over, while the start-up will also offer to develop medicines discovered by other pharma groups and academic institutions.
This model has three prospective benefits for Pfizer which could result in these types of start-ups being more widely adopted in the industry: it creates a solution to separate out innovation, offers a viable alternative to acquisitions and provides funding for new drugs.
Creates a solution to separate out innovation
One advantage is that SpringWorks is a potential solution to separate out innovation: what some analysts are calling an ‘alternative development approach’.
The idea is that some promising compounds without obvious appeal to the wider market cannot be effectively developed under the umbrella of a multinational pharma giant that has rigid strategic goals.
Such drugs might, nevertheless, thrive in a more nimble and ad-hoc start-up environment which does not demand quick turnaround returns on investment. For this reason, SpringWorks is a completely independent company, made up initially of just six people.
Yet at the same time, it plans to work together with the companies or academic groups it has licensed compounds from, starting with Pfizer. The aim is that it benefits from the best of both worlds: the innovativeness of a start-up climate, combined with the in-house expertise and resources of an established institution.
Offers a viable alternative to acquisitions
SpringWorks also provides Pfizer with a viable alternative to making acquisitions. For example, last year the pharma giant acquired Medivation, a cancer drugmaker, for $14 billion, and Anacor Pharmaceuticals, the developer of an eczema gel, for $5.2 billion.
Both deals were completed at hefty premiums to the target companies’ share prices. While bolt-on acquisitions remain an important part of Pfizer’s strategy, SpringWorks will tap into the potential of experimental compounds that the company – and, potentially, its competitors – already have on their books.
Over the past decade, many Pfizer drugs have found success outside the company after being scrapped: Puma Biotechnology (Nasdaq: PBYI), Esperion (Nasdaq: ESPR), and Durata Therapeutics (Nasdaq: DRTX) all purchased discarded compounds from Pfizer that now have valuations in the billions of dollars.
As one can imagine, Pfizer has since “learned from the fact that it’s had a lot of compounds on its shelf that others capitalized on.”
Although Pfizer has licensed its four drugs to SpringWorks without receiving an upfront payment – which is unusual for the industry – it does stand to earn undisclosed fees if the medicines succeed in clinical trials, as well as royalties if they go on sale.
SpringWorks has suggested it will give other potential partners equity as well as downstream payments, to help assuage their concerns that by licensing compounds to the start-up, they might be forfeiting drugs which could be very valuable down the line.
Provides funding for new drugs
Finally, launching SpringWorks helps to address difficulties in getting funding for new drugs. One of the reasons that Pfizer and other pharma companies routinely discard potentially promising compounds is due to a lack of resources, which force them to prioritize their efforts in certain areas.
Yet there is certainly a sound business case for developing many of these compounds elsewhere. Lara Sullivan, the founder and president of SpringWorks, has said: “We’re not interested in taking the dregs. We’re looking for sound scientific data, a quality program and operational feasibility – the basic factors that any acquirer of a compound would be evaluating.”
The notable amount of Series A funding that SpringWorks received—and the fact the round of funding was oversubscribed—is evidence of considerable investor interest in this approach.
Recognized need for a shake-up
While the creation of SpringWorks is a pioneering – and therefore largely untested – approach to the problem of shelved drugs, the aforementioned reasons make a compelling case for its effectiveness.
Pfizer hopes it will provide a ‘systemic solution’ for stalled drug programs, both at the company and elsewhere. It is interesting that a company the size of Pfizer, with a market cap of $215 billion and almost 100,000 employees, is leading the charge in this area.
It suggests that the need for innovation in the pharma industry, and the need to shake up prevailing business models, is recognized not only by smaller disrupters, but by its largest incumbent. That is an encouraging sign.
This article appear in The Pharma Letter