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

Aug. 20, 2007 - PRLog -- To become a successful player within the life science industry it is crucial to understand the changing dynamics of the industry’s early stage dealmaking trends. Dealmaking in the pharmaceutical industry is constantly growing; big pharmaceutical companies are forecast to receive around 40-50% of their revenue from in-licensed products by 2010. The balance of dealmaking activity has also moved, from the later stages of development to the early stages, where deals have not only increased in number but value too. For example in 2006 ChemoCentryx signed a potential US$1.5 billion drug discovery and development deal with GlaxoSmithKline. Deal complexity is advancing in terms of both financial reward structures and exchange of non-monetary capabilities. Therefore, to obtain a more rounded understanding of valuation and to achieve the maximum benefits of a deal it is essential to consider non-monetary benefits as well as deal values. The revised edition of “Early Stage and Discovery Deals: Strategy, Structure and Payment Terms” analyzes early stage dealmaking trends and discusses the basics of dealmaking structures, covering payment terms and deal valuations. Updated with new data including case studies from 2006 and contracts this report aims to assist and guide leading professionals involved in business development through the complex process of early stage dealmaking. The report educates readers to the benefits of early stage partnering, offers tips for structuring and maintaining the right deal, examines the current partnering model and provides a complete breakdown of the various payment strategies. Providing an insight into why in-licensed projects have a lower failure rate compared to in-house projects, the report reveals the cost differences between in-licensed and in-house preclinical projects.
Table of Contents
Table of Contents 2
Executive summary 6
1. Introduction 7

2. What are the benefits of early-stage partnering? 9
2.1. The role of partnering in corporate strategy 9
2.1.1. What are the benefits of out-licensing? 9
2.1.2. In-licensing: A way of giving an off-patent drug a new life10
2.2. The revenue from in-licensed products is predicted to have an annual growth rate of
10%. 11
2.3. Partnering for pipeline development... 12
2.3.1 One company’s tactics: GlaxoSmithKline’s approach to in-licensing.... 13

3. The evolving role of partnering in the biotech and pharma industries.. 15
3.1. Licensing to partnering15
3.2. The traditional licensing model..15
3.3. The transition from straight-forward transactional exchanges to complex partnering
agreements.... 17
3.4. Who benefits from the risk and reward sharing?.. 19
3.5. Sharing knowledge is a big part of the deal structure.. 22
3.6. What does the partnering model teach us?23
3.7. Complex partnering models...23
3.7.1. Process 24
3.7.2. How to structure a successful deal. 25
3.7.3. Financing – What aspects should be considered?.. 27
3.8. A shift in early stage dealmaking... 28
3.8.1. Biotechs competing with pharma for deals... 29

4. Early-stage deal strategies and structures. 31
4.1 Successful out-licensing... 31
4.2. When do companies partner?....32
4.2.1. Who benefits from early stage licensing? 33
4.2.2. License late: A safer but more costly avenue for the licensee....33
4.3. Early and late-stage deals - a cost comparison... 34
4.3.1. What do companies spend on partnering and how successful are the in-licensed
projects?.... 34
4.4.1. Alliances between biotechnology companies are taking over 35
Case study 4.1 – MedImmune / Infinity Pharmaceuticals ..37
Case study 4.2 – PTC Therapeutics / CV Therapeutics ....37
Case study 4.3 – Predix Pharmaceuticals / Amgen Inc. 38
Case study 4.4 – Medtronic / RVX Therapeutics 38
Case study 4.5 – Enzon Pharmaceuticals / Santaris Pharma .... 39
4.4.2. Upfront payment: An important part of the deal structure. 39
See case study 4.1 – MedImmune / Infinity Pharmaceuticals .... 41
Case study 4.6 – GlaxoSmithKline / ChemoCentryx.. 41
Case study 4.7 – Infinity Pharmaceuticals / Novartis  41
4.4.3. Why is University out-licensing associated with very early-stage projects?43
Case study 4.8 – National Institutes of Health (NIH) / Regeneron ..45
Case study 4.9 – GlaxoSmithKline / Alimentary Pharmabiotic Centre  45
Case study 4.10 – Biota / NIAID .. 46
Case study 4.11 – Cystic Fibrosis Foundation / Vertex Pharmaceuticals. 46
4.5. Licensing strategy case studies.47
Case study 4.12 – Crucell / Immunobiological Laboratories Co Ltd.47
Case study 4.13 – Galapagos / Cellzome.48
Case study 4.14 – Memory Pharmaceuticals .... 48
Case study 4.15 – Caprion Pharmaceuticals / Boehringer Ingelheim.. 49
Case study 4.16 – Cambridge Antibody Technology / AstraZeneca49
Case study 4.17 – Biorigen / New Life Scientific 50
Case study 4.18 – GTC Biotherapeutics / LFB Biotechnologies. 51
4.6. Deal types 51

5. Payment strategies 54
5.1. Deciding a strategy. 54
5.2. Payment options.. 54
5.2.1. Upfront payments.55
5.2.1.1. Conditionality of upfront payments... 55
5.3.2. Loans 56
5.3.3. Convertible loans..56
5.3.4. Equity... 56
5.3.5. R&D funding. 56
5.3.6. Annual fixed payments.. 57
5.3.7. Milestone payments.. 57
5.3.8. Innovative forms of payment - ‘quids’..58
5.3.8.1. Products 58
5.3.8.2. Extended rights to pipeline/technology.. 58
5.3.8.3. Benefit from skills transfer.... 59
5.3.8.4. Public relations – An important factor for the early-stage company.59
5.3.8.5. Other quids....60
5.3.9. Royalties.. 60
5.3.9.1. Issues affecting royalty rates 60
5.3.9.2 Royalties on combination products ... 61
Case study 5.1 - Elan Corporation plc / Abbott Pharmaceutical PR Ltd.... 62
5.3.9.3. Guaranteed minimum/maximum annual payments... 62
5.3.9.4. Royalty stacking 62
5.3.9.5. Royalties and supply/purchase contracts. 63
5.3.10. Option payments64

6. How to make the right deal.65
6.1. Constructing the deal...65
6.2. Finding the right partner... 65
6.2.1. What attracts a partner? 66
6.2.2. Where to look for a partner.66
6.2.3. Sources of information... 69
6.2.4. Building a network69
6.2.4.1. Early-stage networking events 69
6.2.4.2. Networking for early biopharmaceutical executives...70
6.2.5. Becoming partner of choice72
6.3. Deal timeframes... 73
6.4. Deal valuation. 74
6.4.1. Factors contributing to the deal valuation 74
6.4.1.1. Intellectual property 75
6.4.1.2. Development phase....76
6.4.1.3. Cost of clinical trials 76
6.4.1.4. Risks associated with commercializing too late ....76
6.4.1.5. Benchmark values.. 76
6.4.1.6. Preclinical/clinical data77
6.4.1.7. Risk of failure77
6.4.1.8. Size and value of therapeutic market.... 77
6.4.1.9. Competition for licensing rights....77
6.4.1.10. Partner’s expertise/reputation in given field. 78
6.4.1.11. Impact on internal R&D programs.. 78
6.4.2. Due diligence as a valuation tool. 78
6.5. Keeping a deal successful.... 81
6.5.1. Commitment to the deal 81
6.5.2. Know your partner81
6.5.3. Thorough due diligence. 82
6.5.4. Patent and IP management82
6.5.5. Comprehensive deal agreement.. 82
6.5.6. Feasible and achievable milestones....83
6.5.7. Proactive management of issues. 83
6.5.8. Regular communication. 83
6.5.9. Tracking of payments and royalties 84
6.6. When to negotiate termination...84
6.7. What makes a deal ‘newsworthy’?. 85

7. Deal terms and trends – An analysis of early stage deals... 86
7.1. Why are deal-terms put in the public domain? 86
7.2. Does survey data reflect the real deal?. 87
7.3. Headline valuations 87
7.5. Components of the deal... 91
Appendix 1 - Glossary of terms.... 94
Appendix 2 - Resources 97
Appendix 3 – Complex deal terms: an outline....98
Appendix 4 – Press releases 101

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