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

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

• 3.1. 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 (%)