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Research and Markets: Early Stage Partnering Remains a Core Competency of Both Biotech and Pharmaceutical Business Strategy

08 Oct 2004 - Dublin. 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.
 
Topics covered in this report include:
 
1. Why do companies partner early-stage compounds?
 
2. The evolving role of partnering in biopharmaceutical development
 
3. Early stage deal strategies and structures
 
4. Payment strategies
 
5. How to make the right deal
 
6. Deal terms and trends a data analysis of early-stage deals