Description:
Dealmaking in the pharmaceutical and biotechnological industries covers a wide variety of agreements between individuals, companies and institutions from simple late-stage product acquisitions (deals relating to products in clinical development, approval, launch and marketing) through to complex discovery and target research and development deals.
Dealmaking has existed since the beginnings of the industry, since the advent of proprietary medications, patents and latter emergence of biotechnology entrepreneurs. The extent of dealmaking and alliances has grown continually from the 1970s, and has accelerated rapidly with the onset of biotechnology and the need of larger pharmaceutical companies to enhance their development pipelines.
The number of partnerships between pharmaceutical and biotechnology companies increased between 1995 and 2000 (Wallis and Heybroek, 2003), and alliances between biotechnology companies rose from 728 in 2000 to 745 in 2001 (Jaffe, 2002).
Increases in dealmaking are due in part to:
- increasing number of emerging biotechnology and drug discovery companies producing drug concepts but without the resources to:
- increasing interest in commercialization of innovations from universities and scientific institutions
- biotech investor demand for evidence of continued growth and endorsement of technologies by experienced pharmaceutical companies
- increasing cost of developing a drug to market
- according to a 2003 report from Tufts University (USA), it costs US$897 million to bring a drug to market (this has increased from US$802 million in 2001)
- low probability (less than 10%) that a drug entering clinical trials will be successful
- impending patent expiry of blockbuster drugs requiring new formulation and drug delivery formats
- consequent deficit in big pharma pipelines requiring in-licensing of products according to a wide variety of sources
- large companies now depend on alliances for 25-60% of their pipelines.
As well as growing, the field of dealmaking in pharmaceuticals is also changing. Many pundits have declared the death of the straightforward arms-length licensing deal, and the growth of partnering as the new licensing. These new, more intimate partnerships have advantages in allowing the licensor to retain more rights and control over product development, but increase the complexity of the deal.
This report addresses late-stage dealmaking (deals relating to products in clinical development, approval, launch and marketing) in terms of strategy, structure and in particular financing. The report reviews the payment structures of late-stage dealmaking, providing benchmark figures for all parts of deals, along with case studies and examples of full deal contracts.
Section 2 provides an overview of the reasons why companies choose to partner late-stage technologies and compounds, and includes a Bristol-Myers Squibb and GlaxoSmithKline case study. Section 3 looks at the evolving role of partnering in creating value for both parties in a deal. In addition, this section provides an overview of the processes and models used for partnering deals.
Section 4 provides a detailed review of late-stage dealmaking strategy and deal structures, with a host of case studies that examine how companies have innovatively derived value from a wide range of partnering agreements.
Section 5 takes an in-depth look at the payment strategies used by dealmakers to finance late-stage deals.
Section 6 covers how to identify and secure the right late-stage deal.
Section 7 provides a detailed analysis of the deal terms used by biopharmaceutical companies and academic organizations, using primary data.
The appendices provide an information resource, including definitions and outlines of deal terms and press releases, as well as a series of sample contracts.
Executive summary
1. Introduction
2. Why do companies partner late-stage compounds?
- 2.1. Summary
- 2.2. The role of partnering in corporate strategy
- 2.2.1. Licensing out
- 2.2.2. Licensing in
- 2.3. Partnering for revenue
- 2.4. Partnering in for pipeline development
- 2.4.1. Case studies
- 2.4.1.1. Bristol-Myers Squibbs approach to in-licensing
- 2.4.1.2. GlaxoSmithKlines approach to in-licensing
3. The evolving role of partnering in biopharmaceutical development
- 3.1. Summary
- 3.2. Licensing to partnering
- 3.3. The traditional licensing model
- 3.4. The evolution from licensing to partnering
- 3.5. Sharing risk and reward
- 3.5.1. Phase I to II stage deals
- Excerpt 3.1 Roche-Kosan agreement dated September 2002
- 3.5.2. Phase III stage deals
- 3.5.2.1. Case study Genome Therapeutics - Versicor
- Excerpt 3.2 Genome-Biosearch Italia agreement dated October 2001
- 3.5.3. Filed and marketed product stage deals
- 3.6. Sharing knowledge
- 3.7. What has been learned from the partnering model?
- 3.8. Complex partnering models
- 3.8.1. Process
- 3.8.2. Structure
- 3.8.3. Financing
- 3.9. Future trends
- 3.9.1. Biotechs competing with pharma for deals
4. Late-stage deal strategies and structures
- 4.1. Summary
- 4.2. Considering the deal
- 4.3. When do companies partner?
- 4.3.1. License early
- 4.3.1.1. Early stage case studies
- Case study 4.1 Genentech-Dendreon
- Case study 4.2 Roche-Vernalis
- Case study 4.3 Roche-Antisoma
- 4.3.2. License late
- 4.3.2.1. Late-stage case studies
- Case study 4.4 Idenix-Novartis (development stage)
- Case study 4.5 Eli Lilly-Amylin (development stage)
- Case study 4.6 Genta-Aventis (development stage)
- Case study 4.7 Isis-Eyetech (development stage)
- Case study 4.8 King-Aventis (marketed products)
- Case study 4.9 Cubist-Chiron (FDA-approved)
- Case study 4.10 First Horizon-AstraZeneca (product acquisition)
- 4.3.3. University licensing
- Case study 4.11 Scripps Research Institute-Cyanotech
- 4.4. Early and late-stage deals-a cost comparison
- 4.4.1. What do companies spend on partnering?
- 4.5. Licensing strategy case studies
- Case study 4.12 Neurocrine Biosciences
- Case study 4.13 Actelion
- Case study 4.14 Vicuron Pharmaceuticals (previously BioSearch Italia)
- Case study 4.15 ImClone Systems
- Case study 4.16 SkinMedica
- Case study 4.17 Galen Holdings
- 4.6. Deal types
5. Payment strategies
- 5.1. Summary
- 5.2. Deciding a strategy
- 5.3. Payment options
- 5.3.1. Upfront payments
- 5.3.1.1. Conditionality of upfront payments
- 5.3.2. Loans
- 5.3.3. Convertible loans
- 5.3.4. Equity
- 5.3.5. R&D funding
- 5.3.6. Annual fixed payments
- 5.3.7. Milestone payments
- 5.3.8. Innovative forms of payment-quids
- 5.3.8.1. Products
- 5.3.8.2. Extended rights to pipeline/technology
- 5.3.8.3. Skills transfer
- 5.3.8.4. Public relations
- 5.3.8.5. Other quids
- 5.3.9. Royalties
- 5.3.9.1. Issues affecting royalty rates
- 5.3.9.2. Royalties on combination products
- Case study 5.1 Scripps Research Institute-Cyanotech
- 5.3.9.3. Guaranteed minimum/maximum annual payments
- 5.3.9.4. Royalty stacking
- 5.3.9.5. Royalties and supply/purchase contracts
- 5.3.10. Option payments
- Case study 5.2 Neotherapeutics (now Spectrum)-Johnson Matthey
6. How to make the right deal
- 6.1. Summary
- 6.2. Constructing the deal
- 6.3. Finding the right partner
- 6.3.1. What attracts a partner?
- 6.3.2. Where to look for a partner
- 6.3.3. Sources of information
- 6.3.4. Building a network
- 6.3.4.1. Late-stage networking events
- 6.3.4.2. Networking for biopharmaceutical executives
- 6.3.5. Becoming partner of choice
- 6.4. Deal timeframes
- 6.5. Deal valuation
- 6.5.1. Factors contributing to the deal valuation
- 6.5.1.1. Intellectual property
- 6.5.1.2. Development phase
- 6.5.1.3. Cost of clinical trials
- 6.5.1.4. Time to commercialization
- 6.5.1.5. Benchmark values
- 6.5.1.6. Clinical data
- 6.5.1.7. Risk of failure
- 6.5.1.8. Size and value of therapeutic market
- 6.5.1.9. Pricing and reimbursement
- 6.5.1.10. Competition for licensing rights
- Case study 6.1 Celltech CDP 870
- Case study 6.2 Genentech-OSI
- 6.5.1.11. Partners expertise/reputation in given field
- 6.5.1.12. Impact on internal R&D programs
- 6.5.2. Due diligence as a valuation tool
- 6.6. Guidelines for late stage deal payments
- 6.6.1. Upfront payments
- 6.6.2. Milestone payments
- 6.6.3. Royalties
- 6.7. Keeping a deal successful
- 6.7.1. Commitment to the deal
- 6.7.2. Know your partner
- 6.7.3. Thorough due diligence
- 6.7.4. Patent and IP management
- 6.7.5. Comprehensive deal agreement
- 6.7.6. Feasible and achievable milestones
- 6.7.7. Proactive management of issues
- 6.7.8. Regular communication
- 6.7.9. Tracking of payments and royalties
- 6.8. When to negotiate termination
- 6.9. What makes a deal newsworthy?
7. Deal terms and trends-a data analysis of early-stage deals
- 7.1. Summary
- 7.2. Putting it into practice
- 7.3. Public data
- 7.4. Survey data
- 7.5. Headline valuations
- 7.6. Components of the deal
- 7.6.1. Equity involvement
- 7.6.1.1. Upfront payments
- 7.6.1.2. Milestone payments
- 7.6.1.3. Royalty rates
- 7.7. Late-stage deal details
8. Appendices
- 8.1. Glossary of terms
- 8.2. Resources
- 8.3. Complex deal terms: an outline
- 8.4. Late-stage partnering agreements
- 8.5. Payment clause from Spectrum-Johnson Matthey, August 2001
- 8.6. Press releases 1
- Excerpt 3.1 1
- Excerpt 3.2 1
- Case study 4.1 Genentech-Dendreon 1
- Case study 4.2 Roche-Vernalis
- Case study 4.3 Roche-Antisoma 1
- Case study 4.4 Idenix-Novartis (development stage)
- Case study 4.5 Eli Lilly-Amylin (development stage)
- Case study 4.6 Genta-Aventis (development stage)
- Case study 4.7 Isis-Eyetech (development stage)
- Case study 4.8 King-Aventis (marketed products)
- Case study 4.9 Cubist-Chiron (FDA-approved)
- Case study 4.10 First Horizon-AstraZeneca (product acquisition)
- Case study 4.12 Neurocrine Biosciences
- Case study 4.13 Actelion
- Case study 4.14 Vicuron Pharmaceuticals (previously BioSearch Italia)
- Case study 4.15 ImClone Systems
- Case study 4.17 Galen Holdings
- Case study 5.2 Neotherapeutics (now Spectrum)-Johnson Matthey
- Case study 6.2 Genentech-OSI
- 8.7. References
