Late Stage Deals: Strategy, Structure and Payment Terms

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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:

take products through a full development program

market products internationally

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.

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