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Pa Bio 10 29 08

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2008 PA BIO Symposium

Publié dans : Économie & finance, Business
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Pa Bio 10 29 08

  1. 1. Biotech 2008 /Collaboration: The Current State of Funding October 29, 2008
  2. 2. The Elusive Biotech IPO Window <ul><li>The new crop of public biotech companies are struggling to maintain their market values </li></ul><ul><li>VCs are more likely to be forced to hold investments several years beyond the initial public offering </li></ul><ul><li>Increasingly, VCs and portfolio companies are exploring “the other exit strategy”: M&A </li></ul>
  3. 3. M&A: An Attractive Exit Strategy <ul><li>Clear shift from IPO to M&A as an exit strategy </li></ul><ul><ul><li>IPOs are gone </li></ul></ul><ul><ul><ul><li>Median pre-money valuations for biotech companies fell to $19 million during 2007 (Dow Jones Venture One) </li></ul></ul></ul><ul><ul><li>Meanwhile, early stage biotech companies continue to attract venture capital </li></ul></ul><ul><ul><ul><li>Total VC investment of $7 billion in 2007 (Nature Biotechnology) </li></ul></ul></ul><ul><ul><li>The challenging IPO window means that companies must remain private longer </li></ul></ul>
  4. 4. Continued: M&A: An Attractive Exit Strategy <ul><ul><li>M&A is becoming exit strategy of choice with 300+ biotech deals during 2006, dropping to 210 deals in 2007 (as recently merged pharma players put further M&A activity on hold) </li></ul></ul><ul><ul><ul><li>Largest mergers included: MEDI/AZ ($15.6b); Cytyc/Hologic ($6.2b) and MGI Pharma/Eisai ($39b) </li></ul></ul></ul><ul><ul><li>Expected resurgence in M&A activity during 2008-2009 </li></ul></ul>
  5. 5. Potential Financing Alternatives The Three Companies were: Biogen, Genentech, Amgen Generally large companies (Mkt Cap > $1B) Or those who can service the debt within 3 years Neither convertible debt nor straight debt are likely to be appropriate financing vehicles for Small Cap Biotech Companies 5
  6. 6. Partnering/Collaboration Activity <ul><ul><li>Number of alliances continues to grow, but total deal value decreased in 2007 ($19.7M) from record highs in 2006 ($22M) </li></ul></ul><ul><ul><li>Big pharma partnering continues to be concentrated in the most active licensee companies </li></ul></ul><ul><ul><ul><li>NVTS, JNJ and GSK were the most active in concluding alliances during 2007, followed by Merck, Roche and Pfizer </li></ul></ul></ul>
  7. 7. Continued: Partnering/Collaboration Activity <ul><ul><li>Increasing deal structure complexity in partnering/collaboration deals </li></ul></ul><ul><ul><ul><li>50% of big pharma Phase II/III deals during 2007 included a co-promotion and/or a profit share structure </li></ul></ul></ul><ul><ul><li>Regional partnering is on the rise -- China (13 deals), India (30 deals) and Middle East (38 deals) during 2007 </li></ul></ul><ul><ul><li>Deal Trend: Existing collaborations are converted into successful M&A deals </li></ul></ul>
  8. 8. Venture Funding Today (NOT YESTERDAY & NOT TOMORROW) <ul><li>VCs Are All Preoccupied With Their Own Problems, Not Yours </li></ul><ul><ul><li>Exits Are Far and Few Between </li></ul></ul><ul><ul><ul><li>IPO Markets are Dead, Dead, Dead </li></ul></ul></ul><ul><ul><ul><li>Will Pharma Keep Buying? </li></ul></ul></ul><ul><ul><li>Which Portfolio Companies Shall Live, Which Shall Die </li></ul></ul><ul><ul><li>Longer Funding Requirements, Longer Horizons for Exit </li></ul></ul><ul><ul><li>Do We Have Adequate Reserves? </li></ul></ul><ul><ul><li>Will the LPs fund their Capital Calls? </li></ul></ul><ul><ul><li>Will we ever be able to Raise Another Fund? </li></ul></ul>
  9. 9. Venture Funding Today <ul><li>Everything is slowing down </li></ul><ul><ul><li>Why catch a “falling knife”? </li></ul></ul><ul><ul><li>Anticipate even better bargains down the road </li></ul></ul><ul><ul><li>Syndication much more difficult </li></ul></ul><ul><ul><li>Due Diligence much more protracted </li></ul></ul><ul><ul><li>Prior investor issues more adversarial </li></ul></ul><ul><ul><li>Valuations falling, pressures building </li></ul></ul><ul><ul><li>Venture debt markets even worse than equity </li></ul></ul>
  10. 10. Venture Funding Today <ul><li>Advice for Companies </li></ul><ul><ul><li>Expect the Worst Right Now </li></ul></ul><ul><ul><li>Spend Every Nickel Like It’s Your Last </li></ul></ul><ul><ul><li>Seek All Non-Traditional Funding Sources </li></ul></ul><ul><ul><li>Discount Your Valuation Expectations Again </li></ul></ul><ul><ul><li>Check How Deep the Pockets Are Around Table </li></ul></ul><ul><ul><li>Invest in Commercial Positioning </li></ul></ul><ul><ul><li>Know Your Alternative Strategic Exit Paths </li></ul></ul>
  11. 11. Evolving Perspectives on Collaboration <ul><li>The “Good Old Days” – Mortgage your 1 st Born Child to Achieve “Corporate Validation” </li></ul><ul><li>The “Common Wisdom” – Finance your Best Assets Solo Deep in Development – Own it All and Be Ready to Sell It All </li></ul><ul><li>A Splash of Cold Water – With equity markets on life support, intelligent corporate collaboration can enable survival until another dawn </li></ul>
  12. 12. Target Perspective: Getting Ready <ul><li>Focus on what potential acquirers will want to know </li></ul><ul><li>Assemble the team to address each of the key diligence areas </li></ul><ul><li>Be prepared for key areas of diligence </li></ul><ul><ul><li>Expect tougher diligence than financing diligence </li></ul></ul><ul><li>Intellectual Property </li></ul><ul><ul><li>Expect diligence to be IP-centric </li></ul></ul>
  13. 13. Continued: Target Perspective: Getting Ready <ul><li>Material agreements </li></ul><ul><ul><li>Ensure existing collaborations do not hinder an M&A deal </li></ul></ul><ul><ul><li>Identify material agreements and review key terms such as assignment provisions, termination triggers and consequences </li></ul></ul>
  14. 14. Practical Tips for the Target Team <ul><li>Material License Agreements </li></ul><ul><ul><li>Beware: Ambiguities resolved against you </li></ul></ul><ul><li>IP protection </li></ul><ul><ul><li>Realistic filings, realistic protection </li></ul></ul><ul><li>FTO </li></ul><ul><ul><li>Do your homework </li></ul></ul>
  15. 15. Continued: Practical Tips for the Target Team <ul><li>Problematic issues </li></ul><ul><ul><li>Raise early, have strategy </li></ul></ul><ul><li>Never make M&A your sole strategy </li></ul><ul><ul><li>Run the business as usual </li></ul></ul><ul><ul><li>Have other alternatives brewing – especially partnering and collaboration negotiations! </li></ul></ul>
  16. 16. Biotech Perspective Timeline and Activities in Establishing a Partnership Engage Parties Initial Preparation Due Diligence Negotiation Execution <ul><li>Internal </li></ul><ul><li>Buy In </li></ul><ul><li>Develop NC </li></ul><ul><li>Prospectus </li></ul><ul><li>Identify </li></ul><ul><li>Potential </li></ul><ul><li>Partners </li></ul><ul><li>Establish </li></ul><ul><li>CDA with </li></ul><ul><li>Interested </li></ul><ul><li>Parties </li></ul><ul><li>Confidential </li></ul><ul><li>Presentation </li></ul><ul><li>(and Sell) </li></ul><ul><li>Initial </li></ul><ul><li>Discussion on </li></ul><ul><li>Terms </li></ul><ul><li>Additional </li></ul><ul><li>Asset Data </li></ul><ul><li>Exchange </li></ul><ul><li>Draft Term </li></ul><ul><li>Sheet Exchange </li></ul><ul><li>Establish </li></ul><ul><li>Timeline for </li></ul><ul><li>Completion </li></ul><ul><li>Establish </li></ul><ul><li>Document </li></ul><ul><li>Room and </li></ul><ul><li>Media/Forum </li></ul><ul><li>for Review </li></ul><ul><li>Initiate the </li></ul><ul><li>Drafting of </li></ul><ul><li>Definitive </li></ul><ul><li>Agreement </li></ul><ul><li>Partner Pitch on Collaboration </li></ul><ul><li>Draft Agmnt. </li></ul><ul><li>Exchange </li></ul><ul><li>Multiple F2F </li></ul><ul><li>Negotiations </li></ul><ul><li>Get Accnt.s </li></ul><ul><li>Review </li></ul><ul><li>Know when to </li></ul><ul><li>Say “Enough” </li></ul><ul><li>BOD Presentation </li></ul><ul><li>on Deal Terms </li></ul><ul><li>and Conditions </li></ul><ul><li>Partner </li></ul><ul><li>Governance </li></ul><ul><li>Approval on Deal </li></ul><ul><li>Establish </li></ul><ul><li>Committee </li></ul><ul><li>Members </li></ul><ul><li>Plan Your First </li></ul><ul><li>Post Deal Close </li></ul><ul><li>Meeting </li></ul>Timeframe can run from 3 months to + 12 months
  17. 17. Setting the Stage: Negotiations <ul><li>Establish Your Key “Must Haves” </li></ul><ul><li>Most drivers will depend on your development stage </li></ul><ul><li>- VC/Private Biotech </li></ul><ul><li>- Public Biotech </li></ul><ul><li>- Specialty Pharma </li></ul><ul><li>- Drug Delivery </li></ul><ul><li>Some Recent “Hot” Deal Points/Terms </li></ul><ul><li>- Profit Split </li></ul><ul><li>- Regional development deals and responsibilities </li></ul><ul><li>- Co-development deals </li></ul><ul><li>- Unique diligence terms </li></ul><ul><li>- Who books sales </li></ul><ul><li>- Co-promote – what is the compensation for such </li></ul><ul><li>- Alternative funding components in upfront or as </li></ul><ul><li>options after closure </li></ul>
  18. 18. Negotiation Planning in Today’s Market <ul><li>A Few Thoughts For Negotiations </li></ul><ul><li>Focus on the Needs of Both Parties </li></ul><ul><ul><li>Does the big company really need to take over CMC right after the deal closes? </li></ul></ul><ul><li>Control the Information Flow </li></ul><ul><li>Always Explore Options On Key Deal Points </li></ul><ul><li>Value Your Concessions and Keep Track of Them </li></ul>
  19. 19. Continued: Negotiation Planning in Today’s Market <ul><li>Maintain “internal” support as deal progresses </li></ul><ul><li>Position the Negotiation Advantageously </li></ul><ul><ul><li>In most areas it is a sellers market, multiple parties in the hunt </li></ul></ul><ul><ul><li>Know the Benchmarks, be sure they are relevant </li></ul></ul>
  20. 20. Recent Benchmark Example Pain Compounds in Phase IIa Adolor/Pfizer Targacept/GSK Glenmark/Lilly Transaction Date December 4, 2007 July 27, 2007 October 30, 2007 Pain Target Delta Opoid Receptor Neuronal Nicotinic Receptor Transient Receptor Potential Vanilloid Sub-family 1 (TRPV1) Lead Compound ADL5859 TC-2696 GRC 6211 Upfront Payment $30 Million + $1.9 Million reimbursement for Phase 2a studies $20 Million Plus $15 Million in Equity $45 Million <ul><li>Milestones </li></ul><ul><li>Development </li></ul><ul><li>Regulatory </li></ul><ul><li>Commercial </li></ul><ul><li>Total </li></ul>Not Disclosed Not Disclosed Not Disclosed _ $232.5 MM Not Disclosed Not Disclosed Not Disclosed $1.5 B Not Disclosed Not Disclosed Not Disclosed $215 MM Back End US – 40/60 Profit Split ROW Royalties Undisclosed Double Digit Royalty ~15% Royalty in the Territory Territory Worldwide Worldwide North America, Europe, and Japan Cost Sharing 40/60 US 100% Pfizer in ROW Targacept to fund through Phase 2 POC. Then 100% GSK if they opt to take the compound 100% Lilly in Territory - no mention of access to Lilly trial data Co-promote Option Yes – US Specialty Yes – US Specialty for first two compounds Yes – US
  21. 21. <ul><li>Territory Scope: Global Deal vs. ROW-only </li></ul><ul><li>Co-Development: Joint Development vs. Go-It-Alone </li></ul><ul><li>Co-Promotion: Profit Split versus Royalty </li></ul><ul><li>Unique Diligence </li></ul><ul><li>Revenue Recognition (on Deal Terms and Eventual Product Sales) </li></ul><ul><li>Tax Issues </li></ul><ul><li>Financing Structure (Upfront, Milestones, etc.) </li></ul>Key Considerations: Structuring a Collaboration
  22. 22. Other Key Considerations <ul><li>Asset/Product Characteristics </li></ul><ul><ul><ul><li>IP Position (Type of Protection and Limitations by Jurisdiction) </li></ul></ul></ul><ul><ul><ul><li>Therapeutic Area </li></ul></ul></ul><ul><ul><ul><li>First-in-Class vs. Follow-On </li></ul></ul></ul><ul><ul><ul><li>Stage of Development (Preclinical, Phase 1, 2, 3, Marketed Product) </li></ul></ul></ul><ul><li>Regulatory Pathway: US and ROW </li></ul><ul><li>Market Dynamics: US and ROW </li></ul><ul><li>Reimbursement: US and ROW </li></ul>
  23. 23. Four Key Reasons For Entering into a Collaboration <ul><li>1) Source of Financing </li></ul><ul><ul><ul><li>Non-dilutive alternative to IPO or Follow-On </li></ul></ul></ul><ul><li>2) Validation of Science </li></ul><ul><ul><ul><li>For companies with novel therapeutics </li></ul></ul></ul><ul><li>3) Increases Probability of Success </li></ul><ul><ul><ul><li>Assuming collaboration partner has expertise in area </li></ul></ul></ul><ul><li>4) Launch in Multiple Countries Simultaneously </li></ul><ul><ul><ul><li>Assuming collaboration partner has global infrastructure </li></ul></ul></ul>The NPV of the Company Should Increase When a Product/Opportunity is Partnered
  24. 24. Amicus-Shire Ex-US Partnership in three LSD programs <ul><li>Financial Details </li></ul>$50M Upfront $150M Clinical Milestones $240M Sales Milestones $440M Plus :  50% of WW development expenses for three LSD programs  Tiered double-digit royalties Partnership Advantages <ul><li>1) Source of Financing </li></ul><ul><ul><ul><li>Significantly extended our cash runway </li></ul></ul></ul><ul><li>2) Validation of Science </li></ul><ul><ul><ul><li>“ Seal of Approval” from #2 player in the space </li></ul></ul></ul><ul><li>3) Increases Probability of Success </li></ul><ul><ul><ul><li>Shire’s Team is improving our clinical plan/execution </li></ul></ul></ul><ul><li>4) Launch in Multiple Countries Simultaneously </li></ul><ul><ul><ul><li>Shire has global sales force already in place </li></ul></ul></ul>
  25. 25. The “Back End” Profit Split or Royalty? <ul><li>Some Considerations (Biotech View) </li></ul><ul><li>Most profit splits have a cost sharing component on the front end as well as the back </li></ul><ul><li>- defining what costs will be shared by the parties </li></ul><ul><li>- internal versus external costs </li></ul><ul><li>Definition of “Net Sales” and calculation of “Profit” </li></ul><ul><li>Launch costs early on in the commercialization </li></ul><ul><li>Ability to opt-in or opt-out during development and commercialization </li></ul>
  26. 26. Co-Development Deals in Market <ul><li>Some Considerations </li></ul><ul><li>Most development programs are global </li></ul><ul><li>- Certain elements are focused on regional filing </li></ul><ul><li>- Others can be used multiple filings around the world </li></ul><ul><li>Having a defined transition point in development </li></ul><ul><li>Indication splitting </li></ul><ul><li>- Implications from a development and regulatory perspective </li></ul>
  27. 27. Booking Sales <ul><li>Some Considerations </li></ul><ul><li>Product manufacturing </li></ul><ul><li>Product selling and distribution arrangement </li></ul><ul><li>-Consignment, distribution services, wholesaler support </li></ul><ul><li>- Managed market customers </li></ul><ul><li>- Invoicing and financial requirements </li></ul>
  28. 28. Continued: Booking Sales <ul><li>Get accountants involved early in the agreement process </li></ul><ul><li>Pricing strategy and marketing </li></ul><ul><li>Selling obligations </li></ul><ul><li>- Number and type of detail </li></ul><ul><li>- Dedicated sales or contract sales organization? </li></ul>
  29. 29. Co-Promote Option <ul><li>Some Considerations </li></ul><ul><li>Detail based or increased percentage of the back end </li></ul><ul><li>What is the “Option” </li></ul><ul><li>- The period and trigger window </li></ul><ul><li>- Opt outs and termination provisions </li></ul><ul><li>Defining the “detail” and your requirements </li></ul><ul><li>- Dedicated sales force or contract sales organization </li></ul>
  30. 30. Continued: Co-Promote Option <ul><li>The Commercialization Plan </li></ul><ul><li>- What is in it and who provides the input </li></ul><ul><li>- How often is it updated </li></ul><ul><li>- The budget and revisions </li></ul><ul><li>The target audience and your “targets” </li></ul><ul><li>Medical and Scientific Affairs – whose responsibility? </li></ul><ul><li>Sales training </li></ul>
  31. 31. Alternative Funding Components in Upfront or as Options after Closure <ul><li>Equity Component(s) </li></ul><ul><li>Increase incoming cash in upfront </li></ul><ul><li>Potential for further equity options after deal closes </li></ul><ul><li>- Time/event based and option/share price </li></ul><ul><li>Recent Examples </li></ul><ul><li>- Icagen/Pfizer - August 2007 </li></ul><ul><li>- Schering-Plough/Novacea - June 2007 </li></ul><ul><li>- ChemoCentryx/GSK - August 2006 </li></ul>
  32. 32. Continued: Alternative Funding Components in Upfront or as Options after Closure <ul><li>Development Loans from Pharma </li></ul><ul><li>Interest bearing notes (with convert) </li></ul><ul><li>Recent Examples </li></ul><ul><li>- ARIAD/Merck - July 2007 </li></ul><ul><li>- Shire/Renovo - June 2007 </li></ul>
  33. 33. After the Deal: Keys to a Successful Collaboration <ul><li>1) Common Understanding of Where Value is Created </li></ul><ul><ul><ul><li>Develop a “sum of the parts” analysis </li></ul></ul></ul><ul><ul><ul><li>Collaborators are complementary (add value to different parts) </li></ul></ul></ul><ul><ul><ul><li>The NPV of the product/opportunity should be higher with both partners collaborating than if either ran it alone </li></ul></ul></ul><ul><li>2) Alignment of Culture/Management Style </li></ul><ul><ul><ul><li>Ensure that individuals assigned to work together have compatible working styles </li></ul></ul></ul><ul><ul><ul><li>There should be periodic assessment of how well the partners are working together </li></ul></ul></ul>
  34. 34. Continued: After the Deal: Keys to a Successful Collaboration <ul><li>3) Collaboration has an Owner at each partner </li></ul><ul><ul><ul><li>Ensure that each partner shares the same long-term vision </li></ul></ul></ul><ul><ul><ul><li>Owners at each partner ensure that short-term progress stays on track and is consistent with long-term vision </li></ul></ul></ul>
  35. 35. Questions? 35