William Looney: Campbell Alliance has conducted its executive-level Survey of Dealmaker Intentions for the past five years; a period that observers would concede has been one of the most volatile in memory. What is distinctive about the past 12 months and how is this weighing on the current business calculations of pharma companies and the host of new partners emerging in this space? Is the market for deals trending up for 2013?
Rich Rieger, Campbell Alliance: We polled 129 key decision-makers here in the United States and in Europe, nearly three-quarters of who rank at the VP level or higher. The focus is on licensing activity rather than M&A transactions. The latest results, indicate that 2012 was a modestly successful year for Phase II and Phase III licensing deals, reversing the downward trend that had been a fixture since we launched the survey in 2007.I suspect that the overall dealmaking climate might be even more positive if the survey included M&A data, as we are seeing less concern among companies that once regarded M&A's as an option to avoid due to the dilutive impact on earnings. Reliance on in-licensing may be shifting to actual M&A activity. In fact, one approach that is flying high on the radar is the "earn out" deal structure, which is almost a hybrid of the traditional M&A cash back/equity financing model and the milestone payments that drive negotiations in the in-licensing space. The "earn out" is a useful way of establishing a contingent value for an asset, which is attractive to companies that want to better quantify their risk exposure by tying payment to a goal or an event that has to happen. Earn outs are becoming a mainstream practice and in our view will be a central part of dealmaking in the year ahead.