2011 Dealmakers Outlook - Pharmaceutical Executive


2011 Dealmakers Outlook
Call it spit and risk—hitting it

Pharmaceutical Executive

WL: What are some of the new or emerging tools that companies are using to make the licensing transactions process more predictable? What's on the horizon?

Davis: There are several. One is R&D partnerships where all the investment capital comes from outside, so the risk moves off the company P&L sheet. Another is a return to the standard licensing agreement set around minimum royalty terms, with floors, ceilings, or step-downs that trigger once you progress to a specified level of return. Interest in maintenance fees is rising, where partners are motivated to either use the asset or give it back. VCs are also giving the inventors the option to take royalties on projects once they are out-licensed instead of obtaining equity.

Guggenheimer: Contingent value rights are becoming more complex and customized to minimize risks to buyers in the deal. A good example is the contingent rights clause built into the Sanofi acquisition of Genzyme, which includes commitments to shareholders to maintain manufacturing capabilities, to obtain speedy registration of a new MS drug, and to meet sales milestones for this potential blockbuster over time.

Dealmakers' Intentions: Taking the Pulse
Craighead: Another trend is the universe of stakeholders in deal-making is expanding. Today, the business development/licensing function is multidimensional. In addition to biotech and pharma, it includes academia, payers, CROs, philanthropies, and patient groups. Patient advocacy groups are particularly active, hiring some world-class business development talent to fund projects and help companies design clinical trials and recruit patients—a crucial asset in fields like oncology. The patient groups believe that by facilitating clinical trials and taking on development risk the science leading to a cure will advance. That's the rationale.

DeBenedetto: We will have multiple approaches to structuring a deal. It's not going to be only two companies partnering, with no differentiation around who takes on the development risk and the commercial risk. Instead, risk exposure will be demarcated, with one partner focused on development, another on registration, and another on the commercial platforms like reimbursement.

WL: Looking ahead two or three years, what will be the key characteristics of the deal-making environment, and how do you intend to prepare for them?

Fordham-Meier: It is apparent already that more diversity in approaches to deals is needed. It requires that we be ready in our organizations to adapt and be open to new partners and new types of partnerships. Resources will have to be pooled and shared to limit risk, with the result that each partner will get a smaller piece of the pie—but the pie may cost each partner a lot less to bake.

Melincoff: We can expect more pressure from senior management to deliver results in the form of good deals signed and executed. The business development function is under scrutiny. Jobs are on the line. Management is often not aware that as business development professionals we are only as good as the inventory of opportunities that exist in the marketplace. If the well is dry, that's no reflection on the level of competence—it's the competition and the lack of assets that determine success or failure. We will be facing pressure to make that case to maintain our role in the organization.


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