Yours, Mine & Ours
Partnering Compounds Globally
The theme of the 2016 national meeting of the Licensing Executive Society was “Global Deals: New Strategic Frontiers.” This seems especially appropriate for the biopharma industry, whose ambitions have long been global in scope, but whose constraints of budget and project prioritization have often led to regional and niche alliance strategies.
After the end of the genomics-led technology platform era in 2000, many biopharma alliances went global of necessity, as funding constraints largely forced biotechs to curtail their ambitions to become independent developers and marketers of compounds in home territories. More recently, however, the advent of powerful technological platforms, including immuno-oncology, cell and gene therapy, as well as receptive capital markets, have opened the doors to new alliance strategies. For this reason, BioSci has undertaken a comparative analysis of global biopharma alliances over the past decade – to see how global deals signed from 2006-10 stack up against alliances commenced within the past 5+ years.
For purposes of this analysis, we looked at development stage (discovery through Phase III) alliances involving at least $50M in announced payments commenced between January 2006 and mid-October 2016. We eliminated acquisitions and asset purchases.
As there are many deal types and structures that sail under the banner of biopharma alliance, and structural and control elements may have varied over time, we first performed a financial analysis of global biopharma alliances by stage of development, followed by analyses of deal structure and allocation of major control issues. We looked at all 658 deals with respect to both financial and structural issues. However, for control issues we used a subset of 325 SEC-filed and 58 FOIA-released contracts as the basis for our analysis. As with most BioSci analyses, the tags to specific deal provisions included in the control analysis that follows are accessible directly via the links in the embedded spreadsheets. Subscribers to BiosciDB may also access the full biopharma alliance from which each provision was extracted.
Our definitions of the various financial terms are as follows:
- Deal Size – a summation of all upfront, R&D and milestone payments, including any equity or loan amounts, to be paid to the licensor;
- Upfront – the license fee plus any annual payments not based on events (upfront equity was not included, as it is typically based on the fair market value of the securities purchased);
- Development and Regulatory Milestones (“Dev/Reg”) – the total milestone amount to be paid to the licensor through launch in all jurisdictions for the first product or indication;
- Total Precommercial Payments – the sum of upfront, equity, sponsored R&D, loans, Dev/Reg and additional product and/or indication milestones to be paid to the licensor through launch in all jurisdictions;
- Sales Milestones (“Sales”) – the aggregate milestone amount to be paid to the licensor in the event that all specified commercial sales thresholds are met;
- Maximum Royalty (“Max Royalty”) – where available, the highest royalty tier owed to the licensor, not counting any profit split or supply payment.
N.B. With respect to the average and median amounts shown in the slides and tables, the Deal Size doesn’t closely correlate to the sum of the Upfront, Dev/Reg and Sales amounts for two reasons: (1) the Deal Size may include additional payment elements, such as sponsored R&D, equity, loans and/or milestones for additional products and/or indications; and (2) the average and median amounts for Upfront, Dev/Reg and Sales payments apply only to deals for which these amounts were known.
60% More Global Deals, but Top Pharma is Losing Market Share.
As shown in slides 2-3 and the All Global spreadsheet accompanying this article, there are substantially more global biopharma deals since 2011 as compared to the 2006-10 period. Of 658 global deals signed since January 2006, 406 were commenced in 2011 or later, versus 252 from 2006-10, a 61% increase. Much of this growth has come from biotechs partnering with other biotechs on a global basis: Whereas 191 (76%) of 2006-10 global deals involved the 17 most active Top Pharma, and this group accounted for 227 deals (56%) since 2011, much of the increase in 2011-16 deals came from alliances involving 14 Major Biotechs (40 deals in 2006-10, versus 69 from 2011+), as well as deals between two “non-Major” biotechs (11 such deals in 2006-10, versus 76 from 2011+).
Financial Payments by Stage of Development
As shown in slides 4-8, the payment terms for Discovery/Lead stage and Phase II stage global biopharma alliances have increased, on both an average and median basis, over the past 5+ years. Average payment terms have also increased across all other stages of development except Phase III deals, whereas median payments have remained similar for alliances across all other stages over time. Specific deal terms by stage, payment type and alliance partners are included in the attached financial spreadsheets.
Upfront payments have increased most for late stage (Phase II and Phase III) alliances, with average increases of greater than $50M in each category. Dev/Reg milestones have doubled, on average, for Discovery/Lead stage deals, but decreased for alliances commenced at Phase I. Sales Milestones, by contrast, have increased most for Phase I deals, with substantial increases for Phase II alliances as well. Finally, Maximum Royalty rates, where disclosed, have declined in recent years by 20-30% as compared to royalties for 2006-10 deals. However, the number of deals disclosing royalty rates is small, and only nine of 58 FOIA contracts in this analysis are from the 2011+ period.
Decline of Co-Development & Increase of CoDev Option Deal Structures
As shown in slide 11 and the Structure spreadsheet, the majority of recent global deals are simple sponsored R&D plus license (“Dev” in the spreadsheet). This represents a significant increase over 2006-10: 222 Dev deals (54%) signed since 2011, versus 91 Dev deals (36%) in the earlier period. Co-development deals (“CoDev”) have increased in numbers but declined as a percentage of all global alliances – 109 deals (27%) with co-development or co-development plus copromotion (“CCP”) versus 92 such alliances (35%) for 2006-10. Within co-development deals, the option to co-develop (“CoDevO” & “CCO”) has increased to 71% of all co-development deals, versus 64% in the earlier period. The use of profit splits, rather than royalties, in one or more co-development territories (“CoDevP”, “CCP”, “CCOP” & “CoDevOP” in the spreadsheet) has remained at 28% of all co-development deals across both time periods.
Straight Compound Licenses & Licenses with CoPromotion
57 global deals (14%) since 2011 are straight compound licenses, versus 31 licenses (12%) for 2006-10. Licenses with copromotion rights (“CoPro”) or copromotion option (“CoProO”) declined to 17 alliances since 2011, versus 38 such alliances in the earlier period.
Control Issues in SEC-Filed Global Alliances
As shown in slide 12, BioSci has SEC-filed contracts for 383 of the 658 global deals in this analysis (58%). As noted above, we have FOIA-released versions of 58 of these contracts, and publicly-filed (typically redacted) versions of the other 325. BioSci analysts have tagged specific control provisions in each of these contracts and classified the allocation of such control rights. Because most contracts in this analysis are publicly-filed, the terms of specific control provisions may be redacted. Where these provisions are disclosed, however, they are included in the analysis and summarized in slides 13-14.
Both parties have Exclusivity (non-compete) limitations in 49% of recent deals, versus 65% of earlier alliances. Only the compound originator has such limitations in 47% of recent deals, versus 28% of earlier alliances. Specific Exclusivity tags are included in the accompanying spreadsheet.
The licensee has tie-breaking Decision-making rights in 61% of recent deals, versus 65% of earlier alliances. Decision-making authority shifts with stage of development in 13% of recent deals, versus 22% of earlier alliances. Specific Decision-making tags are included in the accompanying spreadsheet.
All Regulatory Filings are by the licensee in 71% of recent deals, versus 55% of earlier alliances. Responsibility for regulatory filings shifts with stage of development in 18% of recent deals, versus 32% of earlier alliances. Specific Regulatory Filing tags are included in the accompanying spreadsheet.
The alliance includes all Fields of Use in 69% of recent deals, versus 65% of earlier alliances. The alliance field is limited to one or more specified diseases in 27% of recent deals, versus 32% of earlier alliances. Mechanism of action (“MOA”) is the basis for defining the alliance scope in 50% of recent deals, versus 64% of earlier alliances. Specific Field of Use tags are included in the accompanying spreadsheet. Specific MOA tags are also included in the accompanying spreadsheet.
A Change of Control (“CoC”) involving the originator impacts the alliance structure in 79% of recent deals, versus 77% of earlier alliances. A CoC involving either party impacts the alliance structure in 21% of recent deals, versus 20% of earlier alliances. Specific CoC tags are included in the accompanying spreadsheet.
Finally, the originator has the right to terminate in the event of a Patent Challenge by the licensee in 31% of recent deals, versus 27% of earlier alliances. Specific Patent Challenge tags are included in the accompanying spreadsheet.
This analysis has shown recent global biopharma alliances have grown in frequency and changed in structure over the past 5+ years. Commitment to co-development has declined, while optionality has increased. Control provisions continue largely to favor licensees over originators.