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UMich Sells Royalties to FluMist Nasal Vaccine to Drug Royalty Corp. for $35M

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Healthcare investment management firm Drug Royalty Corporation last week said that it has acquired the University of Michigan’s future royalties related to FluMist, an intranasal flu vaccine marketed by AstraZeneca, in a deal that could be worth as much as $35 million to the school.
 
The market potential of FluMist, which some estimate to be nearly 10 times that of yearly sales of the vaccine to this point, could eventually provide DRC with yearly royalties of as much as $5 million. Despite the vaccine’s money-making potential, however, UM decided to sell its stake in the product to further its efforts in vaccine research, public health, and industry collaboration, the director of the school’s tech-transfer office said.
 
FluMist is a live trivalent virus vaccine that uses an attenuated form of the influenza virus delivered via an intranasal mist to stimulate an immune response. Under the terms of the agreement, DRC, based in Toronto, has acquired all rights to materials in the form of the master virus strains, as well as related know-how, held by the University of Michigan and its inventors, Hunein Maassab, a professor of epidemiology at the UM School of Public Health, and UM researcher Martha Herlocher.
 
The actual influenza strains that comprise FluMist are not patented. Instead, UM receives royalties based on the material strains and proprietary production methods that enable intranasal delivery, Ken Nisbet, executive director of UM Tech Transfer, told BTW last week. In addition, he said, UM does not hold IP pertaining to the actual FluMist delivery device.
 
Maassab, the vaccine’s primary inventor, began work on developing the underlying strain as early as the 1950s as a graduate student. The technology began to realize its commercial potential in 1991, when Wyeth-Ayerst and the National Institute of Allergy and Disease signed a cooperative research and development agreement to further develop the vaccine. Wyeth also agreed to license the technology from UM for commercial use, but that license has since been terminated for undisclosed reasons.
 
In 1993, Kaketsuken Laboratories in Japan also completed a licensing agreement with UM to use the master strain in Japan, also since terminated for undisclosed reasons.
 
Aviron, a biotechnology company based in Mountain View, Calif., licensed the master strain and picked up the clinical development of FluMist in 1995, backed by a cooperative research and development agreement with the National Institutes of Health. In 2001, as FluMist was under review by the US Food and Drug Administration, Aviron merged with Gaithersburg, Md.-based MedImmune, which took over FluMist’s development.
 
Finally, in December 2002, the FDA approved FluMist for the active immunization against influenza A and B viruses in healthy people between 5 and 49 years of age; and earlier this year, AstraZeneca acquired MedImmune for $15.6 billion and thus took over the marketing of FluMist.
 
Whereas the original approved version of FluMist necessitated frozen storage, the FDA approved a refrigerated and more easily stored version of the vaccine in January of this year, which AstraZeneca expects to launch in time for the 2007-2008 flu season.
 
According to UM’s Nisbet, FluMist initially met with a relatively disappointing launch in the early 1990s “for a number of reasons,” but the school has since realized modest annual royalties from the product in the “quarter- to half-million-dollar range.”
 
However, he said, those royalties are likely to increase in the future as the result of further development on the vaccine, which made the IP an attractive target for companies like DRC.
 
“Because of the refrigerated version, gradual market acceptance, and some studies that showed far greater efficacy with the under 5-year-old population – this gave market analysts some pause to reconsider the potential of this product,” Nisbet said. “Because of those reports, a number of people, including DRC, heard about this, then contacted us because they thought this thing could have great market potential.”
 
Paul Kirkconnell, DRC’s managing director, told BTW last week that the company decided to invest in future royalties on FluMist based on a combination of the development of the more stable version, improvements in MedImmune/AstraZeneca’s ability to manufacture the vaccine in larger quantities, and the continued high demand for flu vaccines every year.
 
“If you look at analyst reports, historic sales of [FluMist] are not a predictor of what anybody thinks future sales will be,” Kirkconnell said. According to MedImmune, sales of FluMist in 2006 were $36 million, a 71-percent increase over $21 million in sales in 2005. Kirkconnell declined to provide projections for future sales of FluMist, but according to Nisbet, it is thought that they could be 10 times that of past sales.
 
Taking into account the top end of what Nisbet said past royalties have been – about $500,000 – then at some point FluMist could provide a yearly royalty return of $5 million to DRC. Meanwhile, UM will receive “up to $35 million” in exchange for these royalties, DRC said.
 
Kirkconnell declined to disclose exactly how much money DRC paid UM up front, but said that “it’s [similar to] a licensing deal in that there is so much money up front, and so much in the future, so it depends. I can’t say what it depends upon in this particular deal, but … it’s not $35 million today up front.”
 
Because DRC purchased all of the royalty interests associated with FluMist, both UM and the vaccine’s inventors will receive an unspecified cut of the buyout.
 
Kirkconnell said that DRC is typically “quite flexible” in negotiating a deal that works for both the university and individual inventors.
 

“Because of the refrigerated version, gradual market acceptance, and some studies that showed far greater efficacy with the under five-year-old population – this gave market analysts some pause to reconsider the potential of this product.”

“Obviously whatever part of a $35 million royalty stream an inventor is receiving is a large part of his income,” Kirkconnell said. “An individual might think, ‘If anything bad happens to [the technology], I’m going to feel pretty dumb not having cashed some of it in.’
 
“On the other hand, maybe they don’t want to cash all of it in; [maybe they want to] ride the curve and see how it goes, and take a certain amount off the table so they’re secure,” he added. “From our point of view, as long as the deal is big enough to be interesting, we don’t care. We’ll be completely flexible on that.”
 
Likewise, Kirkconnell added, a university may want to hold onto its royalty rights while the inventors sells off his share — which is what happened when DRC acquired royalty rights to the monoclonal antibody Remicade only from its inventor, New York University professor Jan Vilcek, several years ago. NYU held onto its royalty rights until earlier this year, when it sold a portion of its worldwide interest to DRC competitor Royalty Pharma for $650 million (see BTW, 5/14/2007).
 
The Innovation Cycle
 
According to Nisbet, from UM’s point of view, the time “seemed right to do this because there were some investments we wanted to make internally for our innovation process, and we thought this could be a handy way to accelerate those efforts.”
 
Specifically, he said that UM will use the money to support ongoing vaccine development, for public health investments, and to enhance the school’s industry collaborations.
 
“We’ve made a lot of investment in technology transfer in the last half-dozen years, and we wanted to actually take it a level higher,” Nisbet said. “There are a lot of initiatives for culture, student engagement, marketing, and working better with industry, and we thought that some of the money from this arrangement could accelerate these efforts.”
 
The deal stands to be one of the largest ever brokered by UM’s tech-transfer office, and the first with a third party, Nisbet said. UM previously negotiated a $5 million equity deal with IntraLase, a spin-out of the university specializing in laser eye surgery techniques.
 
“There is a school of thought that some universities have a real hunger to try and get the money as soon as possible,” Nisbet said. “In this case we are lucky that we have a fairly diversified portfolio, and money really isn’t driving a lot of things. It’s always nice to have the money, but usually when you do these deals, you’re leaving a lot [of money] on the table because of the risk.
 
“They’re taking the risk and giving you less money than it’s worth,” he added. “We don’t aggressively go after deals like this because it’s not necessary. But in this case it seemed to make sense and … it was a timing issue in terms of wanting to do some things for the university.”

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