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Early Stage and Discovery Deals: Strategy, Structure and Payment Terms 2nd Edition

Published by: Pharmalicensing Ltd.

Published: Dec. 1, 2006 - 144 Pages



Table of Contents



Table of Contents

Executive summary

Executive summary

1. Introduction

2. What are the benefits of early-stage partnering?

2.1. The role of partnering in corporate strategy

2.1.1. What are the benefits of out-licensing?

2.1.2. In-licensing: A way of giving an off-patent drug a new life

2.2. The revenue from in-licensed products is predicted to have an annual growth rate of 10%

2.3. Partnering for pipeline development

2.3.1 One company’s tactics: GlaxoSmithKline’s approach to in-licensing

3. The evolving role of partnering in the biotech and pharma industries

3.1. Licensing to partnering

3.2. The traditional licensing model

3.3. The transition from straight-forward transactional exchanges to complex partnering agreements

3.4. Who benefits from the risk and reward sharing?

3.5. Sharing knowledge is a big part of the deal structure

3.6. What does the partnering model teach us?

3.7. Complex partnering models

3.7.1. Process

3.7.2. How to structure a successful deal

3.7.3. Financing - What aspects should be considered?

3.8. A shift in early stage dealmaking

3.8.1. Biotechs competing with pharma for deals

4. Early-stage deal strategies and structures

4.1 Successful out-licensing

4.2. When do companies partner?

4.2.1. Who benefits from early stage licensing?

4.2.2. License late: A safer but more costly avenue for the licensee

4.3. Early and late-stage deals - a cost comparison

4.3.1. What do companies spend on partnering and how successful are the in-licensed projects?

4.4.1. Alliances between biotechnology companies are taking over

Case study 4.1 - MedImmune / Infinity Pharmaceuticals

Case study 4.2 - PTC Therapeutics / CV Therapeutics

Case study 4.3 - Predix Pharmaceuticals / Amgen Inc

Case study 4.4 - Medtronic / RVX Therapeutics

Case study 4.5 - Enzon Pharmaceuticals / Santaris Pharma

4.4.2. Upfront payment: An important part of the deal structure

See case study 4.1 - MedImmune / Infinity Pharmaceuticals

Case study 4.6 - GlaxoSmithKline / ChemoCentryx

Case study 4.7 - Infinity Pharmaceuticals / Novartis

4.4.3. Why is University out-licensing associated with very early-stage projects?

Case study 4.8 - National Institutes of Health (NIH) / Regeneron

Case study 4.9 - GlaxoSmithKline / Alimentary Pharmabiotic Centre

Case study 4.10 - Biota / NIAID

Case study 4.11 - Cystic Fibrosis Foundation / Vertex Pharmaceuticals

4.5. Licensing strategy case studies

Case study 4.12 - Crucell / Immunobiological Laboratories Co Ltd

Case study 4.13 - Galapagos / Cellzome

Case study 4.14 - Memory Pharmaceuticals

Case study 4.15 - Caprion Pharmaceuticals / Boehringer Ingelheim

Case study 4.16 - Cambridge Antibody Technology / AstraZeneca

Case study 4.17 - Biorigen / New Life Scientific

Case study 4.18 - GTC Biotherapeutics / LFB Biotechnologies

4.6. Deal types

5. Payment strategies

5.1. Deciding a strategy

5.2. Payment options

5.2.1. Upfront payments

5.2.1.1. 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. Benefit from skills transfer

5.3.8.4. Public relations - An important factor for the early-stage company

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 - Elan Corporation plc / Abbott Pharmaceutical PR Ltd

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

6. How to make the right deal

6.1. Constructing the deal

6.2. Finding the right partner

6.2.1. What attracts a partner?

6.2.2. Where to look for a partner

6.2.3. Sources of information

6.2.4. Building a network

6.2.4.1. Early-stage networking events

6.2.4.2. Networking for early biopharmaceutical executives

6.2.5. Becoming partner of choice

6.3. Deal timeframes

6.4. Deal valuation

6.4.1. Factors contributing to the deal valuation

6.4.1.1. Intellectual property

6.4.1.2. Development phase

6.4.1.3. Cost of clinical trials

6.4.1.4. Risks associated with commercializing too late

6.4.1.5. Benchmark values

6.4.1.6. Preclinical/clinical data

6.4.1.7. Risk of failure

6.4.1.8. Size and value of therapeutic market

6.4.1.9. Competition for licensing rights

6.4.1.10. Partner’s expertise/reputation in given field

6.4.1.11. Impact on internal R&D programs

6.4.2. Due diligence as a valuation tool

6.5. Keeping a deal successful

6.5.1. Commitment to the deal

6.5.2. Know your partner

6.5.3. Thorough due diligence

6.5.4. Patent and IP management

6.5.5. Comprehensive deal agreement

6.5.6. Feasible and achievable milestones

6.5.7. Proactive management of issues

6.5.8. Regular communication

6.5.9. Tracking of payments and royalties

6.6. When to negotiate termination

6.7. What makes a deal ‘newsworthy’?

7. Deal terms and trends - An analysis of early stage deals

7.1. Why are deal-terms put in the public domain?

7.2. Does survey data reflect the real deal?

7.3. Headline valuations

7.5. Components of the deal

Appendix 1 - Glossary of terms

Appendix 2 - Resources

Appendix 3 - Complex deal terms: an outline

Appendix 4 - Press releases

Case Study 4.1

Case study 4.2

Case study 4.3

Case study 4.4

Case study 4.5

Case study 4.6

Case study 4.7

Case study 4.8

Case study 4.9

Case study 4.10

Case study 4.11

Case study 4.12

Case study 4.13

Case study 4.15

Case study 4.16

Case study 4.17

Case study 4.18

Case study 5.1

Appendix 5 - References

Appendix 6 - Biographies

Acknowledgements

Pharmalicensing

Pharmalicensing Order Form

List of Tables

Table 1. GSK’s - Centers of Excellence for Drug Discovery consists of 7 individual centres. 13Table 2. R&D project mathematical valuation models need to be more complex in order to reflect reality.

Table 3. Big pharmas dealmaking trends show that they prefer to invest in similar development stages.

Table 5. The top 5 deal values in Jan 2006 - Oct 2006 combined reached a total of more than $US 1.6 billion.

Table 6. Top 5 upfront payments between Jan-2006 and Oct-2006.

Table 7. The top 5 valued University deals, Jan-2006 to Oct-2006.

Table 8. A summary of different deal types.

Table 8. Payment strategies - components of the deal

Table 9. Variants affecting royalty payments

Table 11. Attributes that attract partners

Table 11. Major early-stage partnering events

Table 12. A selection of networking clubs worldwide

Table 14. Early stage deals deal frames - from contact to signature

Table 15. Factors contributing to deal valuation

Table 16. Ongoing due diligence to keep a deal successful

Table 17. A preclinical project is worth significantly less than a phase I or phase II project.

List of Figures

Figure 1. Amount raised from partnering 1980-2005. 7

Figure 2. Between Jan 2006 - Oct 2006, 6 early stage deals were valued at over $US 100 million.

Figure 3. Deals disclosing upfront payments between Jan 2006-Oct 2006.

Figure 4. The values of University deals are significantly lower than biotech deals between Jan 2006 and Oct 2006.

Figure 6. Key information sources for partnering executives

Figure 7. Lead Molecule R&D projects have increased most in value Jan. 2003 to Oct. 2006.

Figure 8. Breakdown of discovery deals from 2003 to October 2006*

Figure 9. Breakdown of lead discovery deals from 2003 to October 2006*

Figure 10. Preclinical deals from 2003 to October 2006*

Figure 11. Average total upfront payments by stage of development at deal closing ($ million)

Figure 13. Average royalty rates by stage of development at deal closing (%)

Abstract

With deals increasing in terms of number and value, partnering at early stage development is now an integral component of pharmaceutical and biotech business strategy. Pharmalicensing revised and updated early stage report analyzes early stage dealmaking trends and discusses the basics of dealmaking structures, covering payments terms and deal valuations. In-depth contracts, case studies and new deal data allows you to discover the benefits of early stage partnering and review the complex payment structures involved when making an early stage deal.

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