I had a chance late last week to moderate a panel at the Healthcare Dealmaking Symposium, sponsored by our friends at The Deal. My panelists, Annarie Lyles, SVP and Head of Corporate Development for Genmab, and Robert Knowles, Senior Director of Worldwide Business Development for Pfizer, had some very interesting insights into the state of the art in licensing deals. Here are some highlights:
Licensing and M&A are handled by different departments at Pfizer, according to Knowles, but they stay in close touch. In fact, Knowles says, the company likes to run M&A numbers every time it does a licensing deal.
The numbers you read in the announcement of a deal are, of course, hard to draw conclusions from. (The press release, says Knowles, is sometimes harder to negotiate than the deal itself.) Co-marketing rights are especially hard to evaluate. Is the out-licenser really interested in building a sales force? Or is the point mostly to build up the “bio-bucks” (the total potential value of the deal, counting all milestones, potential royalties, and so forth). That, in turn, can raise the valuation of the out-licenser if an M&A suitor comes along. In general, says Knowles, anytime you do a deal with a biotech, you have to be aware that you’re changing the company’s valuation.
Due diligence is key. And financial due diligence is only a small part of what comapnies are concerned with. For a big pharma company licensing in a compound, it’s crucial to look at scientific data to ascertain what a compound is really worth. Will research phases have to be repeated? Are there limitations in the data? The diligence process, of course, is extremely demanding, especially for smaller companies. Both panelists said they’re seeing more and more use of electronic data rooms, though neither has enough experience yet to pick a winner among the vendors working with pharma. (Pharm Exec is hosting a free webcast on the topic in April. Sign up here.)
The rest of the world is getting into pharma/biotech licensing in a big way, if Lyles’ experience is any indicator. She says she hears regularly from companies in Brazil, China, India, and Koreaâ€”including many calls from countries that only recently developed the sort of patent laws that make dealmaking necessary. Though a biotech, Genmab does a good deal of in-licensingâ€”of targets, technologies, and patentsâ€”as well as out-licensing, and it does clinical deals, as well. The big companies, of course, are much better at in-licensing than out, thoughÂ Â that may need to change as Big Pharma starts snapping up smaller companies whose value comes not just from a product in development but from a research platform as well.