Please ensure Javascript is enabled for purposes of website accessibility

2 Health Care Partnerships Go Head-To-Head

By Peter Stephens – Feb 14, 2014 at 2:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While the partnership between GlaxoSmithKline (NYSE: GSK) and Ligand (NASDAQ: LGND) seems to be moving forward, the partnership between Roche (OTCMKTS: RHHBY) and PDL (NASDAQ: PDLI) has seemingly reached its end

The health care space is full of collaborative arrangements, with many pharmaceutical companies in particular forming partnerships with peers to share the development costs (and risk) involved in developing new drugs and treatments. However, partnerships are not a silver bullet for the challenges that arise when researching new drugs. Let's look briefly at a pair of examples.

A successful partnership
One such partnership that has enjoyed a relatively high degree of success recently is that between GlaxoSmithKline (NYSE: GSK) and Ligand (NASDAQ: LGND), with the two companies collaborating on a drug for which they are seeking additional marketing approval.

Indeed, GlaxoSmithKline's share price has gained 6.5% in February alone and has outpaced the S&P 500 by around 4.5%. A factor behind this has been the news that GlaxoSmithKline's partner, Ligand has received "breakthrough" designation by U.S. regulators for the use of its drug, Promacta, in patients with a rare form of anemia.

The news is encouraging for a drug that Ligand and GlaxoSmithKline already market for other treatments, including chronic hepatitis C and a very rare condition called chronic immune thrombocytopenic purpura, where the body attacks its own platelets. The "breakthrough" status is with regard to another treatment (as mentioned) for a rare form of anemia called severe aplastic anemia, where the bone marrow fails to make enough new blood cells.

The big advantage to receiving 'breakthrough' status is, of course, the extra meetings and earlier communications with the FDA that Ligand and GlaxoSmithKline will now experience. As with GlaxoSmithKline's share price, Ligand has posted gains in February, being up more than 20% since the start of the month as investors look ahead to the outcome of the potential new use for Promacta.

A difficult partnership
Clearly, the partnership between Ligand and GlaxoSmithKline is proving to be beneficial to both companies at the present time. However, the partnership between GlaxoSmithKline's peer Roche (OTCMKTS: RHHBY) and PDL BioPharma (NASDAQ: PDLI) has not been such a smooth ride.

Indeed, just last week the two companies agreed to settle the dispute over royalty rates on a group of drugs that PDL helped to develop. PDL alleged that Roche had underpaid royalties on four cancer drugs: Herceptin, Avastin, Perjeta, and Kadcyla, as well as an eye drug called Lucentis and an asthma treatment called Xolair, a claim that Roche denied.

The two companies have been in disagreement regarding royalties for more than three years but have now agreed that PDL will receive a single royalty rate (as opposed to a declining rate as total sales of the drugs increase, which has been the case in the past) on sales of the drugs until the end of 2015, with the exception of U.S. sales of Lucentis (although PDL will receive royalties on sales of Lucentis outside the U.S. until the end of this year). Furthermore, the dispute over patent protection has also been resolved, with Roche agreeing not to challenge patent protection on the drugs.

Looking ahead
Indeed, partnerships can clearly work well (as in the case of GlaxoSmithKline and Ligand), where two or more companies work together for a common goal. However, with the sheer volume of partnerships in the health care space, there are bound to be instances where events turn sour, as in the case of Roche and PDL.

The positive thing for shareholders in Roche and PDL is that the resolution lifts a cloud from both companies and, although shares did not react particularly positively immediately following the update, the loss of uncertainty is a good thing, meaning 2014 could prove to be a brighter year for both companies.

Meanwhile, for GlaxoSmithKline and Ligand, 2014 looks set to be a very exciting year, with their partnership seemingly highly beneficial for investors in both stocks.

Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Roche Holding Ltd. (ADR) Stock Quote
Roche Holding Ltd. (ADR)
RHHBY
$40.92 (0.64%) $0.26
GSK plc Stock Quote
GSK plc
GSK
$34.59 (0.67%) $0.23
PDL BioPharma Stock Quote
PDL BioPharma
PDLI
Ligand Pharmaceuticals Stock Quote
Ligand Pharmaceuticals
LGND
$72.90 (2.00%) $1.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.