Moderator: Thomas Hess, CPA, Senior Vice President of Finance & CFO, Yaupon Therapeutics, Inc.
Panelists: Jim Dentzer, CFO, Amicus Therapeutics
Kevin Taylor, Vice President, Business Development, Adolor Corporation
P. Sherrill Neff, Managing Partner, Quaker BioVentures
Christian Schade, Senior Vice President, Finance & Administration and CFO, Medarex, Inc.
Hess: M&As are becoming an attractive exit strategy. Partnering/collaboration activity is growing. A trend is emerging: Existing collaborations are converted into successful M&A deals.
Neff: Recommends for companies to spend every nickel like it's their last. VCs are more preoccupied right now with their problems than with the companies seeking capital-a major problem. The IPO market is dead for the foreseeable future and in their absence, biotech has to look to the acquisitions market. M&A numbers are misleading; they include much smaller numbers and there have only been 40-60 deals over $50B per year. Everything is slowing down. (Neff interjected here with "I hate to be an optimist today.") Interesting things are taking longer to get funded, there are problems in the portfolio, and it's hard to get those first and second meetings. It's harder to get projects across the finish line. To avoid internal drams, it's really critical to have a team in place that can deal with each other in stressful times and face reality quickly. Expect the worst, but intelligent corporate collaboration can enable survival until another dawn.
Taylor:Spoke about M&As from a target perspective. His advice? Focus on what potential acquirers will want to know. Assemble the team to address each of the key diligence areas. Expect tougher, diligence than financing diligence, with an IP focus. Ensure existing collaborations don't hinder the deal. ID material agreements and review key terms such as assignment provisions, termination triggers and consequences. Beware of ambiguities in contracts and take a hard look at IP with realistic filings and protection. Never make M&A your sole strategy.
Dentzer: Spoke about structuring a collaboration. There are several considerations:
- Territory scope: Global deal vs. ROW-only
- Co-Development: Joint development vs. go-it-alone
- Co-Promotion: Profit split vs. Royalty
- Unique diligence
- Revenue recognition
- Tax issues
- Financing structure
- Asset/product characteristics
- Regulatory pathway: US and ROW
- Market dynamics: US and ROW
- Reimbursement: US and ROW
- Source of financing
- Validation of science
- Increases probability of success
- Launch in multiple countries simultaneously
Schade: Addressed the "back end" of deals - profit split or royalty? On the biotech end of the deal, there are some considerations. Most profit splits have a cost-sharing component on the front end as well as the back. The definition of "net sales" and calculation of "profit" must be determined as well as launch costs early on in the commercialization. The company also must determine the ability to opt-in or opt-out during development and commercialization. Most development programs are global. Must have a defined transition point in development. Product manufacturing, sales and distribution all need to be hammered out. Accountants must be involved early in the agreement process. Pricing strategy and marketing and selling obligations must be considered.
Dentzer: Discussed alternative funding components in upfront or as options after closure. Equity components: Increase incoming cash in upfront. There's a potential for further equity option after the deal closes. Recent examples: Icagen/Pfizer - Aug.2007, Schering-Plough/Novacea - June 2007, ChemoCentryx/GSK - Aug. 2006.
For development loan from Pharma, consider interest bearing notes. Recent examples: ARIAD/Merck - July 2007, Shire/Renovo - June 2007.
By Danielle Kozich on behalf of Pennsylvania Bio
I apologize if there are any errors in this post; I am a layperson and many of these terms are out of my field of expertise.
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