Report title - Biopharm Knowledge Publishing

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Date prepared – 28 Feb 2005
Report title
Early Stage and Discovery Deals: Strategy, Structure and Payment Terms
Publish date
November 2003
Publisher
Bridgehead International
ISBN
0-9545760-1-2
Format(s)
PDF
No. pages
155 pages plus 20 deal contract documents
Price
$1950
Unique selling
point(s)
This report will provide in depth knowledge of the key drivers in early stage and discovery
deal making:
 Understanding why companies partner early stage and discovery projects
 Understand what payment terms are commonplace for early stage/discovery deals
 Appreciate why companies have evolved from straight licensing to more complex
partnering to achieve success
 Quantify the differing levels of upfront, milestone and royalty payable dependant on
stage of development
 Obtain insight into how companies differ in their partnering strategies
 Strategies and tips on how to identify, negotiate and secure the best deal
Report scope (bullet
points)
Scope of report:
 Review the role of partnering in corporate strategy
 Explore the increasing role of partnering in biopharmaceutical product development
 Identify the structure of ealry stage/disovery deals – upfront, equity, milestone,
royalty, revenue share payments
 Obtain in depth terms and trends in early stage/disovery deal making between 1998
and 2004
 Access twenty eight contract documents provide detailed insight into actual deals
Forecasts,
projections, market
estimates
N/A
Description
This report addresses early-stage deal-making and partnering in terms of strategy, structure
and in particular financing. The agreement provides a comprehensive review of payment
structures of recent early-stage deal-making, providing numerous examples in the form of
case studies and full deal contracts, allowing the reader to understand fully how much
partners are paying and under what conditions to access early-stage product developments.
Who should buy the
report
This report is suitable to individuals responsible for and interested in:
 Board and executive management
 Business development
 Licensing/partnering
 Deal making
 Business strategy
 Marketing and promotion
 Distribution and manufacturing (including contract services)
Methodology
The report contains an extensive survey of publicly available data sources to establish an
insight into the deals terms and structures used by biopharmaceutical companies in late
stage deals. Data sources include SEC filing reports, Pharmalicensing deals database, and
company press releases.
€1950
£1200
Date prepared – 28 Feb 2005
Companies
analyzed/mentioned
Much of this report is based on case studies and documents in the public domain that
provide insight into the deal making activities of the companies concerned.
This report contains information on the partnering activities of the following companies:
4SC, Abgenix, Aderis, Advanced Tissue Sciences, Amgen, Antisoma, Arcus Technologies,
Arqule, Astex Therapeutics, Autoimmune, Biovation, Canfite, Celgene, Chemical Diversity
Labs, Cistron, CuraGen, Cyanotech, Dendreon, Denedreon, Deseret, Duke University, Eli
Lilly, EOS, Esperion, Exelixis, Genentech, GlaxoSmithKline, GlycoFi, Gryphon Therapeutics,
Guilford,Idenix, Immusol, Indevus, Isis, Medarex, Medtronic, Memory Pharmaceuticals,
National Institutes of Health, Neogenesis, Neopharm, Novartis, Novavax, Parkedale,
ProQuest, Questcor, Rigel, Roche, Roslin Institute, Sankyo, Schering, Scripps Insititute,
Serono, Tanox, Tulane University, Tularik, Unigene Labs, Vernalis, Vertex, Viragen,
Wallone, Zymogenetics
Report summary
Early stage partnering is a core component of both biotech and pharmaceutical business
strategy, allowing access to promising new and emerging technologies, even though the risk
of compound failure is high.
The demand for new compounds to treat the major diseases of the developed world is so
great that the major pharmaceuticals companies are willing to pay ever higher fees to access
and reward biotech innovation.
Deal complexity is increasing both in terms of financial reward structures and exchange of
non-monetary capabilities. Big pharma partners have to balance the demands of biotech
companies wanting to build internal capabilities and looking for greater involvement in
development and commercialization decisions with the continuing issues of high compound
failure in preclinical and clinical development.
Deals such as the Novartis-Celgene deal for the joint research of selective estrogen receptor
modulator compounds (Serms) in December 2000 provide an example of such a deal. Under
the terms of the agreement: the licensee is required to pay a substantial upfront payment
(US$10 million), has structured future payments against specific development milestones
(totaling US$29 million), is obliged to pay significant double-digit royalties on sales (10-12%),
and has provided a series of non-monetary benefits or 'quids'. The quids include shared
research management and decision making, and access for commercialization of
compounds generated during the research program that applicable to other therapeutic
fields, in particular oncology.
Whilst the potential rewards for Novartis are high if lead compounds for osteoporosis move
through to the clinic, Celgene retains a substantial say in the direction of the research and
the ability to commercialize compounds independently of Novartis, despite the fact that it is
Novartis' money that has funded the research program.
The use of non-monetary compensation is becoming more common in deals but is not
quantified in terms of the benefit or costs to the partners when looking at deal values.
Therefore, deal values need to be assessed in terms of monetary and non-monetary benefits
in order to obtain a more rounded understanding of valuation.
This report addresses early stage and discovery deal making (deals relating to products in
discovery, lead identification and preclinical stage development) in terms of strategy,
structure and in particular financing. The report reviews the payment structures of early
stage/discovery deal making, 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 early
stage technologies and compounds, and includes a 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.
Date prepared – 28 Feb 2005
Section 4 provides a detailed review of early stage deal making 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
early stage and discovery deals.
Section 6 covers how to identify and secure the right early 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.
Testimonials
Table contents
Executive summary
Chapter 1
Introduction
Chapter 2
Why do companies partner early stage compounds?
2.1. Summary
2.2. The role of partnering in corporate strategy
2.2.1. Licensing out
2.2.2. Licensing in
2.3. Partnering for revenue
2.4. Partnering in for pipeline development
2.4.1. Case study: One company’s tactics – GlaxoSmithKline’s approach to in-licensing
Chapter 3
The evolving role of partnering in biopharmaceutical development
3.1. Summary
3.2. Licensing to partnering
3.3. The traditional licensing model
3.4. The evolution from licensing to partnering
3.5. Sharing risk and reward
Excerpt 3.1 Novartis-Celgene agreement – December 2000
3.6. Sharing knowledge
3.7. What has been learned from the partnering model?
3.8. Complex partnering models
3.8.1. Process
3.8.2. Structure
3.8.3. Financing
3.9. Future trends
3.9.1. Biotechs competing with pharma for deals
Case study: 3.1 Abgenix-Curagen
Chapter 4
Early stage deal strategies and structures
4.1. Summary
4.2. Considering the deal
4.3. When do companies partner?
Date prepared – 28 Feb 2005
4.3.1. License early
4.3.1.1. Early stage case studies
Case study 4.1 Genentech-Dendreon
Case study 4.2 Roche-Vernalis
Case study 4.3 Roche-Gryphon Therapeutics
Case study 4.4 Roche-Antisoma
Case study 4.5 Exelixis-GlaxoSmithKline
Case study 4.6 Tularik-Amgen
Case study 4.7 Roche-Memory Pharmaceuticals
Case study 4.8 GlaxoSmithKline-Unigene Labs
Case study 4.9 Vertex-Novartis
Case study 4.10 Isis-Eli Lilly
4.3.2. License late
4.3.2.1. Late-stage case studies
Case study 4.11 Idenix-Novartis (development stage)
4.3.3. University licensing
Case study 4.12 Scripps Research Institute-Cyanotech
4.4. Early and late-stage deals-a cost comparison
4.4.1. What do companies spend on partnering?
4.5. Licensing strategy case studies
Case study 4.13 Chemical Diversity Labs
Case study 4.14 4SC
Case study 4.15 Memory Pharmaceuticals
Case study 4.16 Astex Technologies
Case study 4.17 GlycoFi
Case study 4.18 ARCUS Therapeutics
Case study 4.19 Zymogenetics inc
Case study 4.20 Antibacterial drug development
4.6. Deal types
Chapter 5
Payment strategies
5.1. Summary
5.2. Deciding a strategy
5.3. Payment options
5.3.1. Upfront payments
5.3.1.1. Conditionality of upfront payment
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. Skills transfer
5.3.8.4. Public relations
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 Scripps Research Institute-Cyanotech
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
Case study 5.2 Guilford-ProQuest
Date prepared – 28 Feb 2005
Chapter 6
How to make the right deal
6.1. Summary
6.2. Constructing the deal
6.3. Finding the right partner
6.3.1. What attracts a partner?
6.3.2. Where to look for a partner
6.3.3. Sources of information
6.3.4. Building a network
6.3.4.1. Early stage networking events
6.3.4.2. Networking for biopharmaceutical executives
6.3.5. Becoming partner of choice
6.4. Deal timeframes
6.5. Deal valuation
6.5.1. Factors contributing to the deal valuation
6.5.1.1. Intellectual property
6.5.1.2. Development phase
6.5.1.3. Cost of clinical trials
6.5.1.4. Time to commercialization
6.5.1.5. Benchmark values
6.5.1.6. Preclinical/clinical data
6.5.1.7. Risk of failure
6.5.1.8. Size and value of therapeutic market
6.5.1.9. Competition for licensing rights
6.5.1.10. Partner's expertise/reputation in given field
6.5.1.11. Impact on internal R&D programs
6.5.2. Due diligence as a valuation tool
6.6. Guidelines for early stage deal payments
6.6.1. Upfront payments
6.6.2. Milestone payments
6.6.3. Royalties
6.7. Keeping a deal successful
6.7.1. Commitment to the deal
6.7.2. Know your partner
6.7.3. Thorough due diligence
6.7.4. Patent and IP management
6.7.5. Comprehensive deal agreement
6.7.6. Feasible and achievable milestones
6.7.7. Proactive management of issues
6.7.8. Regular communication
6.7.9. Tracking of payments and royalties
6.8. When to negotiate termination
6.9. What makes a deal 'newsworthy'?
Chapter 7
Deal terms and trends - a data analysis of early stage and discovery deals
7.1. Summary
7.2. Putting it into practice
7.3. Public data
7.4. Survey data
7.5. Headline valuations
7.6. Components of the deal
7.6.1. Equity involvement
7.6.2. Upfront payments
7.6.3. Milestone payments
7.6.4. Royalty rates
7.7. Early stage and discovery deal details
Date prepared – 28 Feb 2005
Chapter 8
Appendices
8.1. Glossary of terms
8.2. Resources
8.3. Complex deal terms: an outline
8.4. Early stage partnering agreements
8.5. Payment clause from Guilford-ProQuest, March 2000
8.6. Press releases
Excerpt 3.1
Excerpt 3.2
Case study 4.1 Genentech-Dendreon
Case study 4.2 Roche-Vernalis
Case study 4.3 Roche-Gryphon Therapeutics
Case study 4.4 Roche-Antisoma
Case study 4.5 Exelixis-GlaxoSmithKline
Case study 4.6 Tularik-Amgen
Case study 4.7 Roche-Memory Pharmaceuticals
Case study 4.8 GlaxoSmithKline-Unigene Labs
Case study 4.9 Vertex-Novartis
Case study 4.10 Isis-Eli Lilly
Case study 4.11 Idenix-Novartis (development stage)
Case study 4.12 Scripps Research Institute-Cyanotech
Case study 4.13 Chemical Diversity Labs
Case study 4.14 4SC
Case study 4.15 Memory Pharmaceuticals
Case study 4.16 Astex Technologies
Case study 4.17 GlycoFi
Case study 4.18 ARCUS Therapeutics
Case study 4.19 Zymogenetics inc
Case study 4.20 Antibacterial drug development
8.7. References
Contract documents – the following are provided as part of the report in PDF format:
Scripps-Cyanotech – Apr 1998 – Technology for the production of an aldolase catalytic
antibody in microalgae
Vertex-Schering – Aug 1998 – Design novel compounds for the diagnosis, treatment or
prevention of conditions or diseases of the central nervous system and peripheral nervous
system
Duke University-Cistron – Sep 1998 – Effect of IL-1 beta with vaccines when given intranasally
NIH-Neopharm – Mar 1999 – Mesothelin MAb for ovarian, head and neck cancers
Tanox-Biovation – Mar 1999 – Application of deimmunization technology to certain of our
monoclonal antibodies and protein products
Tulane University-Indevus – Apr 1999 – Pituitary adenylate cyclase activating polypeptide
(PACAP) and its use for neuroprotection
Canfite-Aderis – May 1999 – IB-MECA for use in treatment of cancer, viral infections and
others
Novartis-Rigel – May 1999 – T cell regulators for transplantation and inflammation
Parkedale-Novavax – Oct 1999 – Adjuvant for influenza vaccine
Date prepared – 28 Feb 2005
Medarex-EOS – Feb 2000 – Fully human monoclonal antibodies
Guilford-ProQuest – Mar 2000 – Development of PQ-1002 to develop a prodrug of propofol
Vertex-Novartis – May 2000 – Novel chemical entities, targeting selected kinases
Rigel-Questcor – Sep 2000 – IRES translation mechanism of the hepatitis C virus
Roslin Institute-Viragen – Nov 2000 – Avian transgenics technology
Novartis-Celgene – Dec 2000 – Joint research of selective estrogen receptor modulator
compounds
Isis-Eli Lilly – Aug 2001 – Identify, characterize and / or develop antisense oligonucleotides
Zymogenetics-Ares (Serono) – Aug 2001 – Fund and conduct activities focused primarily on
discovery and development of one or more new products related to selected receptors
Immusol-Neogenesis – Oct 2001 – Therapeutics against HIV
Medtronic-Advanced Tissue Sciences – Oct 2001 – Collaboration to explore the application
of technology in areas of therapeutic interest
Wallone-Esperion – Feb 2002 – Pro-apolipoprotein A-I developments
GSK-Unigene – Apr 2002 – Oral PTH
Sankyo-Tularik – Jun 2002 – Collaborative research, discover, develop, manufacture and
market products that agonize or antagonize various program targets for the treatment of
disease in humans
Dendreon-Genentech – Aug 2002 – Trp-p8, a viable target candidate for therapeutic
monoclonal antibodies, small molecules, and other therapeutic molecules and therapeutic
vaccines
Deseret-Autoimmune – Aug 2002 – Manufacture, marketing and sale of Colloral, a product
for nutritional support of patients with rheumatoid arthritis
Exelexis-GSK – Oct 2002 – Delivery of small molecule compounds in early phase II clinical
testing
Genome-ArQule – Oct 2002 – Development of molecules from screening against a GTC
target
Amgen-Genome – Dec 2002 – Therapeutic agents for bone diseases
Tularik-Amgen – May 2003 – Discovery, development and commercialization of oncology
therapeutics
List of tables, charts
Chapter 2
Figure 2.1 Percent gross revenue from in-licensed compounds
Figure 2.2 Total licensing revenues 1998-2003
Figure 2.3 GSK: Contribution of licensing-in
Table 2.1 GSK: CEDDS and global locations
Table 2.2 GSK: Business development collaborators list
Chapter 3
Date prepared – 28 Feb 2005
Excerpt 3.1 Novartis-Celgene agreement dated December 2000
Table 3.1 Deal making mathematical models
Chapter 4
Figure 4.1 Competitors per deal
Figure 4.2 Agreements signed by phase of development (1998-2003)
Figure 4.3 Theoretical distribution of licensing deals
Figure 4.4 Optimal stage for deal making—pharma vs biotech
Figure 4.5 % drugs dropped at each stage of development (1997-2001)
Figure 4.6 Companies % R&D budget spend on licensing
Table 4.1 Probability of development stage success
Table 4.2 Deal types in biopharmaceutical alliances
Chapter 5
Table 5.1 Payment strategies—components of the deal
Table 5.2 Variants affecting royalty payments
Chapter 6
Figure 6.1 Key information sources for partnering executives
Figure 6.2 Time taken for stages of development
Table 6.1 Attributes that attract partners
Table 6.2 Major early stage partnering events
Table 6.3 Major networking clubs worldwide
Table 6.4 Timeframes for phases of deal development
Table 6.5 Factors contributing to deal valuation
Table 6.6 Upfront payments for early stage deals
Table 6.7 Milestone payments for early stage deals—first payment
Table 6.8 Number of milestone steps in deal
Table 6.9 Milestone payments for early stage deals—total payments
Table 6.10 Royalty rates in early stage deals
Table 6.11 Ongoing due diligence to keep a deal successful
Chapter 7
Figure 7.1 Deal size (US$ M) for early stage deals
Figure 7.2 Median headline deal values for early stage deals
Figure 7.3 Frequency of data in public domain for each deal stage
Figure 7.4 Frequency of equity payments in early stage deals (US$ M)
Figure 7.5 Upfront payments for early stage deals
Figure 7.6 Upfront payments for early stage deals
Figure 7.7 Distribution of milestone payments for early stage deals—first payment
Figure 7.8 Distribution of milestone payments for early stage deals—total payments
Figure 7.9 Effect of stage of development on early stage royalty rates
Figure 7.10 Frequency of royalty rates for early stage deals
Figure 7.11 Frequency of revenue/profit share in early stage deals
Table 7.1 Headline values for early stage deals
Table 7.2 Equity involvement in early stage deals
Table 7.3 Upfront payments for early stage deals
Table 7.4 Milestone payments for early stage deals—first payment
Table 7.5 Milestone payments for early stage deals—total payments
Table 7.6 Number of milestone steps in deal
Table 7.7 Milestone payments for each early stage
Table 7.8 Royalty rates in early stage deals
Date prepared – 28 Feb 2005
Table 7.9 Royalty rates in early stage deals—(excluding joint venture royalties)
Table 7.10 Royalty rates in early stage deals—Partnering Tools
Table 7.11 Royalty rates for early stage deals
Table 7.12 Early stage deals with financials supplied
Sample pages
To follow.
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