We’ve recently posted on this Blog that licensing transactions appear to be overtaking biotech mergers and acquisitions as the means for investors and management teams to exit and realize value from their companies. Proceeds from backup assets and earlier pipeline candidates are the fuel to keep companies alive to drive lead programs.
The licensing environment in 2009 is clearly a “buyer’s market”. Pharmaceutical business development professionals are being bombarded by biotechnology firms with offers to license or acquire programs. The noise level in the market is unprecedented. For biotech firms, this means that preparation for a licensing effort is more important than ever.
Evidence of Differentiation. In a competitive licensing environment, strong indications of differentiation are perhaps the most important factor in gaining a partner’s attention. Ideally, this would include randomized Phase 2 data versus standard of care. If resources are constrained, a validated, well-controlled pre-clinical model, can help strengthen the marketing package.
Sound Commercial Story. Telling the buyer it’s a $1 billion opportunity will gain little attraction. A licensor’s successful commercial case should include: 1) A solid understanding of the market conditions and trends and competitive landscape now, at launch and 5 years post-launch. This can be based on secondary data sources; 2) A target product profile (TPP) whose claims are justified by pre/clinical data, including active comparators; 3) Market feedback on the TPP from key opinion leaders (KOLs) in the relevant therapeutic area; and 4) a high level assessment of the commercial potential based on the previous factors. A $650 million opportunity that considers reality will gain more credibility than the “unsupported blockbuster”.
Getting to the Champions. This is a factor which often is mentioned but difficult to achieve. Depending on the development stage of the asset, any number of functions can be the internal champion for the licensor: Research, Clinical, Commercial and Senior Management. In licensing team, these groups weigh heavy on types/classes assets that are of most interest, due diligence go/no go factors, and deal terms that are deal breakers. Licensees’ Business Development are essential for completing a smooth process and maintaining opening communication, but it is rare that these individuals will serve as champions.
Willingness to be Creative. Deal terms have traditionally been the bellweather of measuring / validating the value that’s been created by the licensor – “more is better”. Even with a compelling asset, big bio/pharma licensees are increasingly P&L sensitive and seemingly taking a wait and see approach. This situation has led to a wide range of non-traditional structures, the range and impact of which should be considered before initiating a licensing process. Creative scenarios might include option-based deals with R&D funding; co-funding by a partner’s venture capital arm, etc.