Big Pharma Competition Shouldn't Worry This Biotech

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AbbVie (NYSE: ABBV  ) is jumping into the cystic fibrosis arena with the help of a partner. This week the pharma giant announced that it paired up with Belgium's Galapagos to develop new cystic fibrosis drugs.

On the surface, that should worry investors in Vertex Pharmaceuticals (NASDAQ: VRTX  ) , which has its own cystic fibrosis program. AbbVie has substantially more marketing muscle than Vertex.

But the smaller biotech doesn't look like it has much to worry about at this point. Vertex is on the homestretch while AbbVie and Galapagos are still trying to figure out how to get their horse in the starting gate.

First, the deal details
AbbVie is paying $45 million up front for rights to the program. The companies are taking the same strategy as Vertex, combining drugs that increase the expression of the protein mutated in cystic fibrosis patients with drugs that increase the activity of the protein. Different combinations of mutations require different drugs to treat the disease.

Galapagos could get an additional $360 million if development, regulatory, and sales milestones are met. AbbVie would also make double-digit royalty payments on sales for any drugs that reach the market.

AbbVie will share with Galapagos the cost of the phase 3 program, which is the most expensive part of clinical development, so assuming those milestone payments are relatively back-end loaded, it doesn't look like AbbVie is risking all that much for the potential blockbuster candidates.

Behind the curve
While the deal looks like a good one for AbbVie, the duo has some catching up to do. The first clinical candidate is expected to be determined this year, which would put the duo on track to start clinical trials at the end of 2014.

That puts AbbVie and Galapagos years behind Vertex, which already has one drug, Kalydeco, on the market, and VX-809 is in phase 3 clinical trials. Further back -- but still well ahead of Galapagos -- there are VX-661 and VX-983.

Vertex is also well ahead of Pfizer (NYSE: PFE  ) , which signed a pact late last year with the Cystic Fibrosis Foundation to discover new drugs. The foundation is putting in $58 million over six years to get the drugs into the clinic, at which point Pfizer will take over development. Sanofi (NYSE: SNY  ) also has a two-year-old deal with the foundation to support the discovery of new drugs.

In theory, by the time those drugs got to their pivotal trial, VX-809 might already be approved. If VX-809 works even remotely well, AbbVie, Galapagos, Sanofi, and Pfizer will have to run a head-to-head trial against VX-809 rather than against placebo like Vertex has the luxury of doing because patients would rather use the approved drug than risk getting placed in the placebo group in the clinical trial.

From a marketing standpoint, winning a head-to-head trial would put the latecomers in the driver's seat. But it makes it harder road to approval, giving Vertex a solid position in this horse race.

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