You are on page 1of 37

Deloitte Recap Webinar Series

Licensing Insights: Generating Better Deals, Faster

November 6, 2012 Deloitte Recap LLC www.recap.com

Agenda
 Introduction to the Licensing Insights webinar series  Strategies – knowing what you want; establishing what you can get  Mapping key deal criteria to the strategy  Every deal is a special deal – case studies
Eric Walczykowski
Recap Business Leader, Deloitte Recap LLC

John Cullity
Principal, Torreya Partners

Mark Simon
Principal, Torreya Partners

Lisa Natanson
Senior Analyst, Deloitte Recap LLC

David Ghesquiere
Independent Business Advisor

Insight into Action | www.recap.com Copyright © 2012 Deloitte Development LLC. All rights reserved.

1

Module 1: Determining the Optimal Time to Partner
 Transaction timing drivers – Value inflection recently achieved / anticipated over coming months – Comparable transactions successfully effected – Investor liquidity requirements / demands  Key operational factors for consideration – Asset specific strategy  Evaluation of domains of developmental risk – Access to capital  Balance Sheet  Current Investors  Capital Markets – Alternative partnering strategies  Non core geographic territories  Alternative therapeutic applications / LCM
Insight into Action | www.recap.com Copyright © 2012 Deloitte Development LLC. All rights reserved.

2

royalties and total deal  Related case studies – Small biopharma with single Phase I small molecule asset. deal architecture) – Financial comparables: upfronts.g. stage of development. 3 . with potential participation in broader regional geographies  Result: Cost mitigation and further program maturation Insight into Action | www. milestones.recap. geographic region.com Copyright © 2012 Deloitte Development LLC. achieved several secondary endpoints  POC “success” or “failure”. breast cancer – North Asian regional transaction: “Keeping the program alive”  Phase II trials results missed primary. or neither?  Regional transaction with local development and commercialization rights negotiated. All rights reserved. therapeutic area.Module 1: Determining the Optimal Time to Partner  Data analysis – Case histories: Assessing the transaction landscape for deals of similar qualitative type (e.

.Business Development Strategies Preparing for the sell-side market 4 Copyright © 2012 Deloitte Development LLC. All rights reserved.

Renegotiation . hub-and-spoke Steering committee(s) Designate managers • Dispute resolution: . what ifs • Financials • Plan: objectives. 5 .Disengagement .Litigation.com Copyright © 2012 Deloitte Development LLC. from assessment of strategic options through to alliance management of completed transactions Strategic Analysis Documentation Valuation Term Sheet Negotiation Contract Structuring Alliance Governance • Assess current assets vs.Arbitration. contracts. .recap. • • Business plan Bi-. multi-lateral. strategic plan • Assess market/ patent situation • Refine clinical strategy • Refine Capital Markets Strategy • Develop Call List • Teasers • Develop Slide Decks • Prepare Diligence Materials • Model construction based on NPV Analysis • Asset benchmarking • Deal structures • Creating term sheets • Due diligence: • Document review • Evaluation • Preparation. strategy. • • Ownership structure. • • Liabilities/ assets.Licensing Process – Matching Strategy to Context An integrated approach to addressing the entirety of the business development process. All rights reserved. .Termination Insight into Action | www. tactics • IP.

6 .recap.Module 2: Determining the Optimal Partnering Package  Major core elements for consideration in partnering documents – Preclinical – Clinical – Regulatory – CMC – IP This will be the focus of the next webinar – Commercial addressing “Communications”  Partnering documents for development – Teaser (non-confidential memorandum) – Non-confidential deck – Confidential deck – Electronic dataroom Insight into Action | www. All rights reserved.com Copyright © 2012 Deloitte Development LLC.

stage of development. 7 .com Copyright © 2012 Deloitte Development LLC. All rights reserved. cost of downstream clinical trials … to name a few  We have captured these domains for some 900 active buyers of biopharmaceutical assets  Discussion of our approach and the associated module will take place during the third webinar of this series The third webinar in the series will address “Interested Parties” Insight into Action | www.Module 3: Determining the Optimal Partner  Effective assets matching between buyer and seller significantly increases the probability of transaction completion  Pairing occurs on several domains: therapeutic area.recap.

recap. and often represents a catalyst for transactions. regulatory.Module 4: Determining Asset Value  In our view. anchors the economic dialogue.com Copyright © 2012 Deloitte Development LLC.  However.  Experience tells us that rigorous valuations work effectively. we often advise our clients to consider commissioning primary market research to consolidate an understanding of net (or reimbursed) price and projected demand.  With regard to the latter. CMC and IP surrounding an asset. economics are founded upon the capacity to rigorously quantify and communicate asset related value. a good part of the value is created by the clinical. we gravitate to comparables based analysis – afforded by databases such as Recap by Deloitte – and product related forecasts. All rights reserved. “Valuations” Insight into Action | www. Commercial assessments will be the topic of the final webinar in this series. 8 .  Consequently.

All rights reserved. .Data Analysis 9 Copyright © 2012 Deloitte Development LLC.

Clinical Risk When is the right time to license? .Upfront Payments vs.

com Copyright © 2012 Deloitte Development LLC. Europe. EU.0 $40 $20 $0 Lead Phase III Registration Approved Stage of Asset at Signing Worldwide deals (all three Major Markets) from Lead through Approved stages disclosing the upfront payment Product and Technology licenses signed from 1/1/2009 through 7/15/2012 * Major Market Territories include ANY of the U. and Japan Insight into Action | www.Upfront Payments Increase by Stage Phase I to Phase II brings the highest increase in upfront $120 Worldwide (All Major Markets) Median $100 $102.3 Preclinical Phase I Phase II $60.S. “Worldwide” territory includes ALL of the US.0 $7.recap. or Japan. All rights reserved..0 Median Upfront ($M) $80 $60 102% increase in median upfront at Phase II $34.0 $2.0 $43.4 $17. Data Source: Deloitte Recap LLC 11 .

Data Source: Deloitte Recap LLC 12 . ongoing efforts are not included.Clinical Attrition Rates Decrease by Stage Failure rates are highest in Phase II development 1. All rights reserved. Insight into Action | www.com Copyright © 2012 Deloitte Development LLC.482 21% 1. The data are real clinical attrition rates for products sponsored by 316 biotechnology companies.167 -315 Number of Pursuits 62% More than half of all indication pursuits will fail at Phase II 17% Approval Success Rate 447 -720 36% 286 -161 12% -34 252 Phase I Phase II Phase III Regulatory Filing Market Development Stage of Asset This "waterfall" graph shows the number (and percent) of clinical projects entering each Phase of development (blue bars) and the number terminated at each Phase (red bars) – only pursuits that have reached a definitive clinical development outcome of Market or termination are shown.recap.

Phase II Attrition Rates by Therapeutic Area Attrition and success vary by disease Oncology (n=590) 73% 10% Approval Success Rate Autoimmune/Inflammatory (n=106) 62% 21% Approval Success Rate Neuroscience (n=143) 60% 14% Approval 13% Approval Success Rate Success Rate Infectious Disease (n=173) 51% 20% Approval Success Rate 21% cumulative success rate Insight into Action | www.com Copyright ©Deloitte 2012 Deloitte LLC.recap. All rights reserved. Data Source: Recap Development LLC 13 .

0 $2. Europe. or Japan.0 $43.3 Preclinical Phase I Phase II $0 Lead Phase III Registration Approved Stage of Asset at Signing Worldwide deals (all three Major Markets) from Lead through Approved stages disclosing the upfront payment Product and Technology licenses signed from 1/1/2009 through 7/15/2012 * Major Market Territories include ANY of the U..recap.0 $7.com Copyright © 2012 Deloitte Development LLC. EU.0 $34. “Worldwide” territory includes ALL of the US.Upfront Payments Versus Risk When is the right time to in-license or out-license? • 40% increase in upfront payment $120 (US$M) Worldwide (All Major Markets) Median $100 • Phase III hurdle (reproducible efficacy) cleared • 12% Regulatory risk ahead $102. All rights reserved. and Japan Insight into Action | www.4 Phase III and Registration are favorable for Buyers Phase II is optimal for Sellers $60 • 102% increase in upfront payment $40 • Phase I hurdle (safety) cleared • 62% Phase II risk ahead $20 $17.S.0 Median Upfront Median Upfront ($M) • 25% increase in upfront payment $80 • Phase II hurdle (Proof of Concept) cleared • 36% Phase III risk ahead $60. Data Source: Deloitte Recap LLC 14 .

recap. and royalties or final buyout Likely to be highest headline price and provided share of upside Milestones and royalties can be monetised monetized later Buyer undertakes commercialisation Outright sale of lead asset and related compounds Simple and clean transaction of known Sell full control of lead asset for value with no continued exposure to value today. . such as: • • • • Upfront Payment Clinical/Regulatory milestones Launch/Sales milestones Royalties Structured sale of lead asset and related compounds through licensing or related deal Opportunity to create incremental Need to continue management of value in retained pipeline using part of company and pipeline proceeds Maintain some control of development Complex to negotiate & administer and possibly greater future upside Continued exposure to clinical and Opportunity to create incremental execution risks value in retained pipeline using part of Long tail on proceeds (though these proceeds may be monetizable later) Mechanism to recover lead asset in Need to manage company and pipeline event of discontinuation 15 Insight into Action | www.com Copyright © 2012 Deloitte Development LLC. All rights reserved.Looking at the Major Strategic Alternatives Option Outright sale or Merger of Company What it Means Sell full control of company for value today Pros Simple and clean transaction of known value No continued exposure to clinical and commercial risk Cons Potential value of lead asset and pipeline likely to be heavily discounted for clinical and commercial risk Lead asset likely to dominate valuation Continued exposure to clinical and commercial risk Exposure to risk of buyer change in strategy (no chance to take back products) Administrative complexity and long tail on payments (but they can be monetized) Potential value of product likely to be heavily discounted for clinical and commercial risk Structured Sale of Company Sell control for a combination of upfront payment. distribute all or part of clinical and commercial risk of lead proceeds asset Retain pipeline for further development and future value Sell commercialization rights for combination of upfront and future payments. milestones.

All rights reserved. .Access to Capital 16 Copyright © 2012 Deloitte Development LLC.

recap. backended – Addressing the competing needs for risk mitigation and portfolio augmentation Insight into Action | www.Capital Raising: Reflecting on the Sources  Investor participation – Venture Capital  General and Limited Partner constraints – Venture debt – High net worth / family offices – Public markets  IPO sentiment  Follow on rounds  Royalty monetization – On the rise  Government and foundations – Sources of non-dilutive capital via grants  Licensing and asset sale – Becoming more structured. 17 .com Copyright © 2012 Deloitte Development LLC. All rights reserved. option based. and arguably harder to complete.

2009-2011 120 100 80 60 40 20 0 Tx Dev/Del Dx/PM 2009 2010 2011 1H 2012 TP Insight into Action | www.recap.Life Science VC Deal Volume by Subsector 1H2012 vs.com Copyright © 2012 Deloitte Development LLC. Data Source: ZephyrBiotech LLC 18 . All rights reserved.

recap. 2009-2011 2500.00 0.Life Science VC Investment by Subsector (MUSD) 1H2012 vs.00 1000.com Copyright © 2012 Deloitte Development LLC.00 Tx Dev/Del Dx/PM 2009 2010 2011 1H 2012 TP Insight into Action | www.00 1500.00 500.00 2000. All rights reserved. Data Source: ZephyrBiotech LLC 19 .

recap. All rights reserved.IPOs  October IPOs 20% above their IPO prices – KYTHERA Biopharmaceuticals – lntercept Pharmaceuticals $900 $800 $700 $600 $500 $400 $300 $200 $61M $100 $- $57M $60M Average n=13 n=11 n=17 2010 Insight into Action | www.com Copyright © 2012 Deloitte Development LLC. 2011 2012 Data Source: Deloitte Recap LLC 20 .

recap. 21 .Regional Transactions by Design vs. Default Insight into Action | www. All rights reserved.com Copyright © 2012 Deloitte Development LLC.

com Copyright © 2012 Deloitte Development LLC. All rights reserved.recap. 22 .Regional by Design – Evaluating the Pros and Cons Source of Non-dilutive financing Upfront payments >> extends runway Clinical trial support >> offsets expenses R&D clinical insight and KOL access May reduce technical risk and augment clinical profile Validation of regional market opportunity provides indicative guidance for downstream US / EU deals Enhances ability to raise non-dilutive capital at potentially higher valuation (based on asset de-risking) Pros Reduces the size of future opportunity for larger strategic players Emerging Markets more relevant to total valuation Cons Reduced capacity to design and execute clinical trial may not be relevant to US regulators and market Clinical progress in regional trials may disappoint Inability to achieve regional milestones may threaten overall program viability Insight into Action | www.

Regional by Default – Considering the Transaction Profile • Company misses pre-specified primary but with positive trends • Major Pharma players fall away as a result • Risk-averse behavior “come back to us when you have unambiguously positive data” • Challenging to re-calibrate value before Big Pharma following release of sub-optimal data Situation Typical deal architecture • Modest upfront < $5M • Shared development costs of Regional RCT • Regional rights ceded • Percentage of global rights ceded Outcomes • Regional Co. All rights reserved.com Copyright © 2012 Deloitte Development LLC. gains negotiated percentage of global net sales (royalty obligation) • Regional trial unlikely to satisfy global regulatory requirements • Global players may not grant much credence to regional player and associated clinical trial • Financial players may identify partial validation Insight into Action | www.recap. 23 .

50% cost of regional Phase II. Regional developmental and commercial rights. Transfer price agreement on clinical batch and commercial supply. regulatory and commercial milestones. 24 . EU developmental and commercial rights. Modest upfront. M Clinical.recap. Manufacturing supply agreement for region.com Copyright © 2012 Deloitte Development LLC. Clinical. Modest upfront. Regional growth ambitions. Manufacturing capacity available. Challenge: Phase II clinical data equivocal. Solution: AsiaCo generics focused ophthalmology company seeking backward integration. Phase II Respiratory asset. Insight into Action | www. Regional and international growth objectives. Percentage of global rights to AsiaCo. Challenge: Phase II clinical data negative. Action: Regional transaction design. Missed primary outcome. All rights reserved. Hit some secondary outcomes. Phase II Ophthalmology asset. Action: Regional transaction design. regulatory and commercial milestones. Case Study #2 Situation: US company.Regional by Default – Case Studies Case Study #1 Situation: European company. Missed primary and secondary outcomes. Cost of EMA accepted Phase II RCT covered. Solution: EuroCo generics / branded focused respiratory. Percentage of global rights to EuroCo.

.Case Study Small biopharma with single Phase I asset 25 Copyright © 2012 Deloitte Development LLC. All rights reserved.

recap. financials. several lead candidates including monoclonal and small molecules) ‒ Strategy to leverage single Phase I (breast cancer) small molecule for follow-on molecules and therapeutic areas (prostate cancer and osteoporosis)  Deliverables: – Identify relevant partners – Identify comparable deal precedents and deal models – Analyze by development stage key deal terms. All rights reserved. 26 .com Copyright © 2012 Deloitte Development LLC.Case Study Background  Platform target based company (proprietary receptor-based bioassays. and structures Insight into Action | www.

com Copyright © 2012 Deloitte Development LLC. Co-development Pharmaceutical company. 27 . All rights reserved.Selection Criteria for Benchmarking Category Technologies Deal Structure Partners Clinical Phase Survival Rates Therapeutic Areas Stage at Deal Signing Territory Selection Criteria All technologies License. Broad collaboration.recap. Phase II Worldwide Insight into Action | www. Phase I. biotechnology company Oncology Cancer Lead molecule. Preclinical.

recap.Benchmarking Deal Characteristics  Analyze current asset to 161 recent cancer deals with respect to: – Deal characteristics that differentiate the range of upfronts ($100k$150M) – Stage at signing – Clinical survival rates Insight into Action | www. Data Source: Deloitte Recap LLC 28 . All rights reserved.com Copyright © 2012 Deloitte Development LLC.

7M Range Mean Median Upfront Upfront Payment Payment ($M) ($M) $100k-$150M $19.Deals Comparables Therapeutic Area Total Deals (n) No. Phase II licensing – Phase I: $ 26M – Phase II: $ 332M  Identified deal opportunities with ranked competing criteria – Marketed: 3 – Filed: 1 – Phase III: 9 – Phase II: 36 – Phase I: 20 Insight into Action | www.com Copyright © 2012 Deloitte Development LLC.recap. All rights reserved.5M $8. 29 .5M  Selected 10 deals for Phase I vs. Deals Disclosing Upfront Payment (n) Cancer 161 35 (%) 22% Aggregate Disclosed Total Upfront Payments ($M) $681.

Selection Criteria Small molecules.com Copyright © 2012 Deloitte Development LLC. All rights reserved.Narrow Selection Criteria for Comparables Category Technologies Deal Structure Clinical Phase Survival Rates Partners Competing drugs Therapeutic Areas Endpoint with contingencies Territory Insight into Action | www. monoclonal Co-development Breast cancer Biotechnology company Phase I and II sorted by target type in disease indication Narrow focus on target type and disease indication Phase II Worldwide with regional exclusions 30 .recap.

11 for non-receptor) Insight into Action | www.recap.com Copyright © 2012 Deloitte Development LLC.Narrow Comparables – Clinical Phase Survival Rates  Comparables with narrow focus on target type and disease indication: breast cancer and receptor types = 30% survival (vs. All rights reserved. Data Source: Deloitte Recap LLC 31 .

recap. All rights reserved. decided to not license at Phase I – Stage at signing – Comparable deals – Competing drugs – Probability of technical success  Successful at obtaining funding for Phase II development  Have good deal metrics to support strategy for follow on therapeutic areas and lead molecules Insight into Action | www.Case Study Outcome  Supported by metrics.com Copyright © 2012 Deloitte Development LLC. 32 .

Summary  Current financial environment demands a proactive partnering strategy supported by strong deal analytics  Key initial step is determining financing options (IPOs. options)  Benchmark potential deals against several models  No two deals are identical – Consider a regional by design transaction strategy Insight into Action | www. M&A. 33 .recap.com Copyright © 2012 Deloitte Development LLC. licensing. All rights reserved.

objective and experienced professionals which fosters receptive audience within pharma • Deloitte Recap’s premier international biopharmaceutical transactions database • Experienced team of biopharma consultants and Deloitte | Torreya advisors Licensing Insight • The power of Deloitte with wrap around services in market research and financial structuring Insight into Action | www.com Copyright © 2012 Deloitte Development LLC.Deloitte | Torreya Licensing Insight Deloitte | Torreya Licensing Insight combines the analytical power of Deloitte Recap with the demonstrated experience of Torreya Partners in the setting of biopharmaceutical transactions advisory and financing • Top tier investment banking and pharma / biotech executives • Intimate understanding of pharma / biotech transaction processes • Extensive track record and biopharma relationships • Reputation as thoughtful.recap. 34 . All rights reserved.

Contact Deloitte Recap for More Information Stay tuned for details on the next webinar Module 2: Determining the Optimal Partnering Package Subscriptions and Consulting +1 855 381 4748 | recap@deloitte. 35 .com Insight into Action | www.com Copyright © 2012 Deloitte Development LLC. All rights reserved.recap.com | www.recap.

Deloitte. you should consult a qualified professional advisor. Copyright Deloitte Development LLC.com Copyright 2012| Deloitte Development LLC. All rights reserved. investment. All rights reserved. and Recap IQ Series by Deloitte are trademarks of Deloitte Recap LLC. Valuation Analyzer.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. by means of this presentation. rendering business. This presentation is not a substitute for such professional advice or services. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www. nor should it be used as a basis for any decision or action that may affect your business. financial. Insight into © Action www. About Deloitte As used in this document. or other professional advice or services. Development Optimizer.This presentation contains general information only and is based on the experiences and research of Deloitte practitioners. Member © of2012 Deloitte Touche Tohmatsu Limited 36 . Deal Builder. “Deloitte” means Deloitte LLP and its subsidiaries.deloitte. Recap Scout. its affiliates.recap. Deloitte is not. and related entities shall not be responsible for any loss sustained by any person who relies on this presentation. Before making any decision or taking any action that may affect your business.