We have discussed trends in deal structures, the preferred timelines in product development, and the type of assets that carry
the most favor among investors. What about the size of the deal—is bigger still better?
Rieger: There has long been a perception that Big Pharma wants to obtain rights that will deliver blockbuster returns, with revenues
in the billion dollar range. We find this to be overstated—the average peak revenue desired by our survey population is $341
million. It's now seen as attractive to have three assets delivering that billion dollars in revenue instead of just one.
What matters is the contribution to the full portfolio and the prospect that an asset can be grown out over time, perhaps
through additional indications.
de la Cruz: Expectations of revenues also must take account of pricing pressures, which are growing more intense as payers assert a dominant
position in formulary access. Everyone is aware that registration approval is not the only parameter that spins revenue anymore:
obtaining reimbursement status is the critical hurdle, and it is not guaranteed. Smaller markets are also becoming the norm
as the genomics revolution allows for a more stratified, personalized approach to drug therapy. I think the deal environment
simply reflects these realities.
Gallagher: In talking deals today, virtually everyone pitches their asset candidate as a $500 million drug. That seems to be what sellers
see as the benchmark for optimal performance, one that will bring buyers to the table.
In interpreting the overall survey, how should drug makers allocate their priorities and resources to maximize their dealmaking
potential in 2013?
Rieger: It is important that dealmakers approach opportunities with a greater degree of flexibility than was the case in the past.
Clearly, the "earn out" concept is here to stay and a lot of your partners will expect this as an element in negotiations.
The boundaries between traditional licensing and actually acquiring an asset are blurring, so success will go to those who
embrace a more creative approach.
Another requirement is to be well positioned to take advantage of the oversupply of assets in areas like oncology. Finding
the best deal here requires close attention to due diligence and building a foundation of trust with potential partners—before
Finally, the skills set for dealmaking is expanding. Companies must make the appropriate investments to keep pace. For example,
pricing and market access capabilities are now essential to understanding the level of risk in considering an asset. This
function has to be included early on in any evaluation or negotiating team. Many people we spoke to on the in-licensing side
noted that the offers submitted to them lacked detail on the asset's pricing and reimbursement prospects. For early-stage
assets, this is particularly important because such considerations can—and should—influence the design of clinical trials
well into Phase III. We also see pricing expectations becoming central to the negotiation of milestone payments. Did the compound
obtain a Tier II position on the formulary with no restrictions? Or did it get Tier III with prior authorization and step
therapy restrictions? The financial implications are considerable, so the parties to a deal want more specific guarantees
From a company perspective, what are the mission-critical issues you confront right now in advancing "the art of the deal?"
Gallagher: Noven is a specialty pharma company, a seeker of novel products in niche segments like women's health and ADHD. Our target
horizon is focused on the lower half of that zero to one billion dollar asset range. When we look for product opportunities,
we start with the assumption that all candidates we can access will carry some flaws; if that was not the case, the big players
would have already grabbed it. Hence it is becoming much harder for a company our size to find the good deal, especially because
the majors are no longer so picky in focusing only on assets with that billion dollar revenue potential. They are prepared
now to outbid us for even the smallest products. Competing with the majors for good, available deals is thus a major strategic
challenge for us. Likewise, a company must negotiate with the awareness that margins from a licensed asset are going to be
constricted. This is due to cost controlling factors ranging from higher Medicaid rebates to the market power that PBMs wield
in controlling access to patients.
Alan Paau, Cornell University: As an academic enterprise, Cornell concentrates on finding deals at the very earliest stages of the product cycle—much earlier
than those of you in industry. We have high hopes about adding to the future drug pipeline through our expertise in molecular
biology, which gives drug developers a better understanding of the mechanics behind disease. Cornell is also striving for
a more global orientation so that we can expand our range of partners. Because all of our efforts are focused on out-licensing,
the challenge we face is ensuring we obtain a good balance between risk and benefit in negotiations with a partner. Royalties
and milestone payments are our fixation. We want to get the opportunities we discover into the hands of an industry partner
as quickly as possible. The goal is to monetize the knowledge we generate by working with others with the skills to commercialize
it. We have no plans to develop drugs ourselves.