Negotiating the Deal
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Negotiating the Deal

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Slides from October 2010 presentation at QB3's Global Bio-Entrepreneurship Course

Slides from October 2010 presentation at QB3's Global Bio-Entrepreneurship Course

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Negotiating the Deal Negotiating the Deal Presentation Transcript

  • Negotiating the Deal: Tactics for Execution QB3 Global Bio-Entrepreneurship Course Lindsay Meyer (limeyer@deloitte.com) Deloitte Recap LLC October 7, 2010
  • What’s on Tap § The art of doing deals § Different strokes for different folks § Now it’s your turn § Things you might be interested in knowing § Going to the drawing board § A final word on value creation § Beer Copyright © 2010 Deloitte Recap LLC. All rights reserved. 1
  • The art of doing deals
  • Case #1 – SEATTLE GENETICS Founded 1998 (Bothell, WA) Cancer & Autoimmune 325 Employees $325M Cash THE ASSET Brentuximab Vedotin, an antibody-drug conjugate targeted to CD30 for Hodgkin and T-cell lymphomas Copyright © 2010 Deloitte Recap LLC. All rights reserved. 3
  • Why Partner? Pros • Enables broader global development plan • Supplements resources for: ‒ Late-stage clinical trials ‒ Manufacturing Cons • Could have less control over development, regulatory and commercial decision-making in ROW • Supporting the collaboration might distract internal teams from other proprietary programs ‒ Commercialization • Increases focus on building US/Canada sales & marketing infrastructure • Might delay SGEN’s global commercial expansion • Generates near-term cash flow and longer-term milestones and royalties • Relinquishes some long-term value potential • Non-dilutive financing alternative • Could reduce M&A possibilities • Likely to provide validation and reduces future cost of capital • Termination of the collaboration can taint program • May increase brentuximab’s overall chance of success Copyright © 2010 Deloitte Recap LLC. All rights reserved. 4
  • Partnering Process § Initial Contact 35 § Confidential Discussions 20 § Due Diligence § Term Sheets Copyright © 2010 Deloitte Recap LLC. All rights reserved. 10 5 5
  • Deal Announcement Copyright © 2010 Deloitte Recap LLC. All rights reserved. 6
  • Deal Structure Seattle Genetics Novel, first-in-class therapeutic Strong phase I data Pivotal trial fully enrolled Retains full US and Canadian commercial rights Copyright © 2010 Deloitte Recap LLC. All rights reserved. Millennium to provide: $60M upfront >$230M in milestones Pays 50% of joint development costs Tiered double-digit royalties on ROW sales Deal reduces future financing needs and enables further investment in SGEN pipeline Millennium Global commercial infrastructure Flagship product Velcade Strong oncology expertise Obtains ROW commercial rights 7
  • Partnering Timeline ~1 mo. ~5 months ~18 months Jan - Dec Due diligence May Partnering process begins July 1st contact with MLNM January Partnering discussions at JPMorgan June 22 1st term sheet with MLNM 2008 June Preliminary partnering meetings at ASCO Nov 9 First draft of definitive agreement with MLNM Dec 16 MLNM deal signed 2009 Nov – Dec Partnering discussions at Bio-Europe and ASH Copyright © 2010 Deloitte Recap LLC. All rights reserved. April 6 ADC deal with MLNM May – June Partnering meetings at ASCO Dec 4 BOD approves MLNM deal 8
  • Different strokes for different folks
  • Case #2 - AMYLIN Founded 1987 (San Diego, CA) Diabetes & Obesity 1500 Employees $574M Cash THE ASSET A Basket of Obesity Drugs including: Pramlinitide/Metreleptin (Ph. II), Davalintide (Ph. II), AC163954 (OPT), Pre-clinical compound from Takeda Copyright © 2010 Deloitte Recap LLC. All rights reserved. 10
  • Partnering Considerations Challenge • Roles and Responsibilities • Competition Against the Collaboration Solution • Divide responsibilities according to each party’s strengths • Employ non-compete provisions which encourage collaboration, but don’t limit scientific research Examples • Amylin controls activities through Phase 2 in the US; Takeda from then on and ex-US • Takeda controls global commercialization • Required nomination of certain additional analogs • Process to propose additional activities, free pursuit if rejected • Changing Regulatory Environments • Define cost sharing for known circumstances and a contingency plan for unknown occurances • 80/20 cost sharing in the US • Decision Making Authority • Create an environment where mutual agreement is the norm • Committees with separate decision making authority • Amylin shares additional costs for certain clinical safety studies • Division of “final say” authority • Defined escalation process Copyright © 2010 Deloitte Recap LLC. All rights reserved. 11
  • Deal Announcement Copyright © 2010 Deloitte Recap LLC. All rights reserved. 12
  • Deal Structure Amylin 3 Phase 2 compounds for obesity Option to license additional compounds Co-promotion option of 1st 2 products Takeda to provide: $75M upfront >$1B in milestones Pays 80% of US development costs Pays 100% of ex-US development costs Tiered double-digit royalties on total annual net sales Takeda Global commercial infrastructure Strong diabetes sales expertise Flagship product Actos Obtains WW commercial rights Loan for CV safety study Copyright © 2010 Deloitte Recap LLC. All rights reserved. 13
  • Now it’s your turn
  • Valuing a Deal Discounted Cash Flow Copyright © 2010 Deloitte Recap LLC. All rights reserved. Comparables Analysis 15
  • Transaction Execution Week 1-2 Week 3 Week 4-6 Week 6-18 Week 24 Week 25 • Timing • Process • Contacts • Term Sheets • Key Provisions • Committees • Structure • Targets • Meetings • Competing Bids • Contracts • Managers • Strategy • Sales Deck • Follow-ups • Optimization • Diligence • Optimization • Valuation When should we How should we partner? structure? • Gap Analysis • Target Pools • R&D Diligence • Structure Options • Market Analysis • Valuation • Legal Diligence • Tax Impact Who should we target? • Position with partner’s deal negotiator • Manage expectations How do we How do we avoid maximize value? pitfalls? • Process/Timeline • Term Sheets How do we optimize? • Due Diligence Process/Timeline • Alliance Management • Key Contract Provisions • Deal Optimization and Revision • Generate leads Copyright © 2010 Deloitte Recap LLC. All rights reserved. 16
  • Structuring and Negotiations § Consider role of asset in corporate development § Seek forward integration, company valuation, investor liquidity § Have the buyer submit terms, first § Use rational comparables § Get multiple bidders involved § Know minimum requirements Copyright © 2010 Deloitte Recap LLC. All rights reserved. 17
  • Things you might be interested in knowing
  • Partners of Biotech Programs 70 Pharma Company Licensing and M&A Activity (2009) Number of Deals 60 50 Corp In-Lic Univ In-Lic Out-Lic M&A 40 30 20 10 0 Copyright © 2010 Deloitte Recap LLC. All rights reserved. Source: Deloitte Recap LLC 19
  • Therapeutic Focus 800 Number of Deals by Stage at Signing and Field (2005 – 2010) 700 600 500 400 300 Disc/Lead Preclinical Phase I Phase II Phase III+ 200 100 0 Copyright © 2010 Deloitte Recap LLC. All rights reserved. 20
  • Early Stage Payment Trends Over Time 1990 1995 2000 2005 2010 Upfront $0.1 $1 $1 $2 $9 R&D $0.9 $7 $5 $7 $9 Milestones $0.2 $5 $7 $33 $124 Royalty 5% 6% 8% 35% Total Size $0.2 $6 $9 $33 Licensing data from Recap IQ by Deloitte 2010 data through September; no royalty figures available Copyright © 2010 Deloitte Recap LLC. All rights reserved. $138 21
  • Going to the drawing board
  • Commercialization Contracts Research & Development Product License • License / Sublicense • Royalty • License Maintenance Manufacturing & Supply • Manufacturing & Supply Rights • Reimbursement • Escape / Liability Alliance Management • Implementation & Management Equity Investment Copyright © 2010 Deloitte Recap LLC. All rights reserved. • Field & Scope • Consideration Payable • IP & Regulatory • Control • Equity Investment Types & Pricing 23
  • Contractual Basics § Field and scope § Governance § Territory and major markets § IP and regulatory § Supply and manufacturing rights § Financial and audit provisions § Term and termination Copyright © 2010 Deloitte Recap LLC. All rights reserved. 24
  • Must Have § Duration of research § Sublicense rights § Patent defense responsibilities § 3rd party infringement responsibilities § Net sales definition § Reimbursement basis for commercial supply § Reversion rights § Dispute escalation Copyright © 2010 Deloitte Recap LLC. All rights reserved. 25
  • Must Have Examples: Amylin 15.1 Objective. The Parties recognize that disputes as to matters arising under or relating to this Agreement or either Party’s rights and/or obligations hereunder may arise from time to time. It is the objective of the Parties to establish procedures to facilitate the resolution of such disputes in an expedient manner by mutual cooperation and without resort to litigation. To accomplish this objective, the Parties agree to follow the procedures set forth in this Article 15 to resolve any such dispute if and when it arises. […] such dispute shall be subject to the dispute resolution provisions contained in Sections 15.2 and 15.3. 15.2 Resolution by Senior Executives. Except as otherwise provided in this Agreement including Section 15.1, if an unresolved dispute as to matters arising under or relating to this Agreement or either Party’s rights and/or obligations hereunder arises, either Party may refer such dispute to the Chief Executive Officers of each of Takeda and Amylin (or such delegate of either Chief Executive Officer who shall have appropriate decision making authority regarding such dispute) […]. If such matter cannot be resolved by discussion of Chief Executive Officers […] such dispute shall be resolved in accordance with Section 15.3. 15.3 Arbitration. Any dispute that is not resolved as provided in Section 15.2 may be referred to arbitration by either Party. Such arbitration shall be conducted in accordance with the Rules of Arbitration of the International Chamber of Commerce (the “ICC Rules”) as then in effect. The arbitration shall be held solely in New York, New York, U.S.A, and shall be conducted in English […]. Copyright © 2010 Deloitte Recap LLC. All rights reserved. 26
  • Escalation Process Deciphered § Obesity Steering Committee attempts to resolve, first § CEO referral follows § Arbitration if no resolution in CON days § Arbitration expenses shared equally by parties Copyright © 2010 Deloitte Recap LLC. All rights reserved. 27
  • Good to Have § Defined research terms § Non-compete provision § Due diligence § Publication delays for patent prosecution § Manufacturing escape clauses § Post-term sales rights § Royalty adjustments (and limits) Copyright © 2010 Deloitte Recap LLC. All rights reserved. 28
  • Good to Have Examples: Seattle Genetics 5.3 MPI’s Performance. MPI shall use Commercially Reasonable Efforts to prepare and submit the appropriate Regulatory Materials for Licensed Products in the Licensed Territory, as determined on a country-by-country basis, and to seek to obtain Regulatory Approvals (and, if applicable, Pricing Approvals) for Licensed Products in the Licensed Territory, as determined on a country-by-country basis. [***]: (a) [***], and thereafter use Commercially Reasonable Efforts to [***] unless (i) [***] or (ii) [***] (a),[***]; (b) [***]; (c) [***] and [***]; and (d) [***]. […] 12.4 Publications. The JDC shall prepare and approve [***] with respect to the Licensed Product and results of studies carried out under this Agreement. Neither Party may publish manuscripts or give other forms of public disclosure such as abstracts and presentations, of results of studies carried out under this Agreement, without the opportunity for prior review by the other Party or [***]. […]. In addition, the Party seeking publication shall delay the submission for a period up to [***] in the event that the other Party can demonstrate reasonable need for such delay, including without limitation, the preparation and filing of a patent application. Copyright © 2010 Deloitte Recap LLC. All rights reserved. 29
  • A Variety of Good Provisions § Well defined diligence requirements (4 tiers, CON) § Deferral of publications for up to CON days to protect IP § Royalty adjustments § Alternate supply may be established at each party’s own expense Copyright © 2010 Deloitte Recap LLC. All rights reserved. 30
  • Icing on the Cake § Possible extensions to research period § Right of first refusal to other research § Territory options for inclusion/exclusion § Co-promotion rights (if it makes sense) § Options to repurchase product Copyright © 2010 Deloitte Recap LLC. All rights reserved. 31
  • Icing Example: Amylin 5.1 Commercialization Activities. Takeda shall be responsible for Commercializing Products in the Field in the Territory, including conducting any Post-Approval Clinical Studies, at its own expense, subject to the terms and conditions of this Agreement and in compliance in all material respects with Applicable Laws. Takeda shall be responsible for all Commercialization Costs. Takeda shall use Commercially Reasonable Efforts to Commercialize Products in the Field in the Territory in accordance with the Commercialization Plan and the terms of this Agreement, subject to Amylin’s co-Commercialization of Products pursuant to Section 5.3, and the terms of any Co-Commercialization Agreement. […] 5.3 Amylin Co-Commercialization Option. Subject to the terms and conditions contained in this Section 5.3, Takeda hereby grants to Amylin an option to co-Commercialize with Takeda the first two (2) Products containing different clinically active ingredients that have received Regulatory Approval by the FDA in the United States, and any additional Products that receive Regulatory Approval by the FDA, which contain the identical clinically active ingredient(s) as either of the first two (2) Products (the “Co-Commercialization Option”). Copyright © 2010 Deloitte Recap LLC. All rights reserved. 32
  • Co-Commercialization Option Deciphered § Takeda has sole WW commercialization rights § Amylin can choose to co-commercialize the first 2 products approved by the FDA § Amylin must exercise option within CON of Ph. III trial unblinding and the co-commercialization will last for CON § Amylin is responsible for costs of co-commercialization, to be reimbursed by Takeda at CON% of internal detailing costs Copyright © 2010 Deloitte Recap LLC. All rights reserved. 33
  • Avoid § Not including the “Musts” § Poorly defined “Icing” § Your lawyer should be looking out for everything else Copyright © 2010 Deloitte Recap LLC. All rights reserved. 34
  • A final word on value creation
  • SGEN t18m Share Price $16.00 “The 75% response rate and six Sept. 28 months plus durability easily Brentuximab exceeds expectations” Phase III trial J.P. Morgan data released $15.00 $14.00 March 11 US PTO issues patent for Brentuximab $13.00 $12.00 $11.00 “We believe SGEN is July 23 an outstanding longBrentuximab term investment Phase I trial opportunity” Oppenheimer data released $10.00 $9.00 $8.00 $7.00 $6.00 Mar-09 Apr-09 Jun-09 Dec 7 Dec 11 “We see minimal impact to the value Dacetuzumab Termination of of SGEN...use any potential weakness as Phase I trial Genentech deal a long-term buying opportunity” data releasedJ.P. Morgan for Dacetuzumab Dec. 14 “We maintain that SGEN’s unique Deal with pipeline and technology depth will Millenium is [outperform the market]” announced Blair & Company William Jul-09 Sep-09 Nov-09 Dec-09 Feb-10 Apr-10 May-10 Jul-10 Sep-10 Copyright © 2010 Deloitte Recap LLC. All rights reserved. 36
  • AMLN t18m Share Price $26.00 March 15 “We expect a Class 2 designation, FDA sends complete A 180 day review period, and a response letter: REMS Q4/10 approval…Target: $11” Canaccord Adams and labeling issues $24.00 Sept. 10 Stock trend continues to be dominated by Byetta vs Victoza $22.00 $20.00 $18.00 $16.00 “The Lantus scare will not continue to help Amylin, June 26 and Byettathat slip due to Reports will a lack of differentiation” Sanofi’s Lantus Jan 26 Novo Nordisk launches Victoza (Byetta competitor) J.P. Morgan causes cancer $14.00 June 9 “Victoza has effectively been taking No significant press share from Byetta” releases in nearly J.P. Morgan three months $12.00 $10.00 $8.00 $6.00 Mar-09 Apr-09 Jun-09 October 30 October 30 label not Takeda Byetta label “Updated Byetta Deal with likely expansion to impact sales, approved as stand-alone but removes overhang” announced, overshadowed Morgan Stanley med for Type II Diabetes by Byetta label expansion Jul-09 Sep-09 Nov-09 Dec-09 Feb-10 Apr-10 May-10 Jul-10 Sep-10 Copyright © 2010 Deloitte Recap LLC. All rights reserved. 37
  • Why Your Big Deal is No Big Deal § Analysts still make noise § Broader market confidence matters § If it’s not your flagship product, no one cares (yet…) § Biotech stock prices still levered on binary events § Investors require smaller companies to “prove it” § You’re less attractive for M&A § Value is always realized through liquidity events Copyright © 2010 Deloitte Recap LLC. All rights reserved. 38
  • About Recap Originally founded as Recombinant Capital, Inc. in 1988 by Mark Edwards and based in the San Francisco Bay Area. In July 2008, Recombinant Capital, Inc. was purchased by a subsidiary of Deloitte LLP and the business is now known as Deloitte Recap LLC. Recap IQ Series by Deloitte is a trademark of Deloitte Recap LLC.As used in this document, "Recap" means Deloitte Recap LLC and "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of Deloitte LLP and its subsidiaries. Copyright © 2010 Deloitte Recap LLC. All rights reserved.