DeloitteRecap Torreya 110612webinar OptimalTimetoPartner(1)

8/13/2019 DeloitteRecap Torreya 110612webinar OptimalTimetoPartner(1)

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Deloitte Recap Webinar SeriesLicensing Insights: Generating Better Deals, Faster

November 6, 2012Deloitte Recap LLCwww.recap.com
http://www.recap.com/http://www.recap.com/


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1Insight into Action | www.recap.com Copyright 2012 Deloitte Development LLC. All r ights r eserved.

Agenda

Introduction to the Licensing Insightswebinar series

Strategies knowing what youwant; establishing what you can get

Mapping key deal criteria to thestrategy

Every deal is a special deal case

studies

Eric Walczykowski

Recap Business Leader, Deloitte Recap LLC

John CullityPrincipal, Torreya Partners

Mark SimonPrincipal, Torreya Partners

Lisa NatansonSenior Analyst, Deloitte Recap LLC

David GhesquiereIndependent Business Advisor


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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 SheetCurrent InvestorsCapital Markets

Alternative partnering strategiesNon core geographic territoriesAlternative therapeutic applications / LCM


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Module 1: Determining the Optimal Time to Partner

Data analysis Case histories: Assessing the transaction landscape for deals of similar qualitative

type (e.g. therapeutic area, stage of development, geographic region, dealarchitecture)

Financial comparables: upfronts, milestones, royalties and total deal

Related case studies Small biopharma with single Phase I small molecule asset; breast cancer North Asian regional transaction: Keeping the program alive

Phase II trials results missed primary, achieved several secondary endpointsPOC success or failure, or neither?Regional transaction with local development and commercialization rightsnegotiated, with potential participation in broader regional geographiesResult: Cost mitigation and further program maturation


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4Copyright 2012 Deloitte Development LLC. All rights reserved.

Business Development Strategies

Preparing for the sell-side market


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Documentation Term Sheet ContractStructuringStrategicAnalysis Valuation AllianceGovernanceNegotiation

Due diligence: Document

review Evaluation Preparation;

what ifs Financials Plan:

objectives,strategy,tactics

Develop Call List Teasers Develop Slide

Decks Prepare

DiligenceMaterials

Modelconstructionbased on NPVAnalysis

Assetbenchmarking

IP, contracts, Ownership

structure, Liabilities/ assets; Business plan

Bi-, multi-lateral,hub-and-spoke

Steeringcommittee(s)

Designate

managers Dispute resolution:

- Renegotiation- Disengagement- Arbitration,- Litigation,- Termination

Assess currentassets vs.strategic plan

Assess market/patentsituation

Refine clinicalstrategy

Refine CapitalMarketsStrategy

Deal structures Creating term

sheets

An integrated approach to addressing the entirety of the businessdevelopment process, from assessment of strategic options through to

alliance management of completed transactions

Licensing Process Matching Strategy to Context


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Major core elements for consideration in partnering documents Preclinical Clinical Regulatory CMC

IP Commercial

Partnering documents for development

Teaser (non-confidential memorandum) Non-confidential deck Confidential deck Electronic dataroom

This will be the focus ofthe next webinar

addressingCommunications

Module 2: Determining the Optimal Partnering Package


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Effective assets matching between buyerand seller significantly increases theprobability of transaction completionPairing occurs on several domains:therapeutic area, stage of development,cost of downstream clinical trials toname a fewWe have captured these domains forsome 900 active buyers ofbiopharmaceutical assetsDiscussion of our approach and theassociated module will take place duringthe third webinar of this series

The third webinar inthe series will address

Interested Parties

Module 3: Determining the Optimal Partner


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In our view, a good part of the value is created by the clinical, regulatory, CMCand IP surrounding an asset.However, economics are founded upon the capacity to rigorously quantify andcommunicate asset related value.Consequently, we gravitate to comparables based analysis afforded bydatabases such as Recap by Deloitte and product related forecasts.With regard to the latter, we often advise our clients to consider commissioning primary market research to consolidate an understanding ofnet (or reimbursed) price and projected demand.Experience tells us that rigorous valuations work effectively, anchors the

economic dialogue, and often represents a catalyst for transactions.

Commercial assessments will be the topic of thefinal webinar in this series, Valuations

Module 4: Determining Asset Value


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Data Analysis


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


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$2.0$7.3

$17.0

$34.4$43.0

$60.0

$0

$20

$40

$60

$80

$100

$120

Lead Preclinical Phase I Phase II Phase III Registration Approved

Worldwide (All Major Markets) Median

Phase I to Phase II brings the highest increase in upfront

$102.0

Worldwide deals (all three Major Markets) from Lead through Approved stages disclosing the upfront paymentProduct and Technology licenses signed from 1/1/2009 through 7/15/2012 * Major Market Territories include ANY of the U.S., Europe, or Japan; Worldwide territory includes ALL of the US, EU, and Japan

Stage of Asset at Signing

M e

d i a n U p

f r o n t

( $ M

)

102% increase in median upfrontat Phase II

Data Source: Deloitt e Recap LLC

Upfront Payments Increase by Stage


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Failure rates are highest in Phase II development

This "waterfall" graph shows the number (and percent) of clinical projects entering each Phase of development (blue bars) and thenumber terminated at each Phase (red bars) only pursuits that have reached a definitive clinical development outcome of Marketor termination are shown; ongoing efforts are not included. The data are real clinical attrition rates for products sponsored by 316biotechnology companies.

17% ApprovalSuccess Rate

21%

-315

-720

62%1,167

Development Stage of Asset

N u m

b e r o

f P u r s u i t s

1,482

-161

36%447

286

-34

12% 252

Phase I Phase II Phase III Regulatory Filing Market

More than half of allindication pursuitswill fail at Phase II


Clinical Attrition Rates Decrease by Stage


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Oncology (n=590) Autoimmune/Inflammatory (n=106)

Neuroscience (n=143) Infectious Disease (n=173)

21%cumulative

success rate

62%73%



13% ApprovalSuccess Rate60%

20% Approval

Success Rate51%


Attrition and success vary by disease

Phase II Attrition Rates by Therapeutic Area

Data Source: Deloitte Recap LLC


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$2.0$7.3

$17.0

$34.4$43.0

$60.0

$0

$20

$40

$60

$80

$100

$120

Lead Preclinical Phase I Phase II Phase III Registration Approved

M e

d i a n

U p

f r o n

t ( U S $ M ) Worldwide (All Major Markets) Median

When is the right time to in-license or out-license?

$102.0

102% increase in upfront payment

Phase I hurdle (safety) cleared

62% Phase II risk ahead

Worldwide deals (all three Major Markets) from Lead through Approved stages disclosing the upfront paymentProduct and Technology licenses signed from 1/1/2009 through 7/15/2012

* Major Market Territories include ANY of the U.S., Europe, or Japan; Worldwide territory includes ALL of the US, EU, and Japan

Phase II is optimal for Sellers

Phase III and Registration arefavorable for Buyers

Stage of Asset at Signing

M e

d i a n U p

f r o n t

( $ M

) 25% increase in upfront

payment

Phase II hurdle (Proof ofConcept) cleared

36% Phase III risk ahead

40% increase in upfrontpayment

Phase III hurdle (reproducibleefficacy) cleared

12% Regulatory risk ahead

Upfront Payments Versus Risk



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Looking at the Major Strategic AlternativesOption What it Means Pros Cons

Outright sale orMerger of Company

Sell full control of company forvalue today

Simple and clean transaction of knownvalue

No continued exposure to clinical andcommercial risk

Potential value of lead asset andpipeline likely to be heavily discountedfor clinical and commercial risk

Lead asset likely to dominate valuation

Structured Sale ofCompany

Sell control for a combination ofupfront payment, milestones, and

royalties or final buyout

Likely to be highest headline price andprovided share of upside

Milestones and royalties can be

monetised monetized laterBuyer undertakes commercialisation

Continued exposure to clinical andcommercial risk

Exposure to risk of buyer change instrategy (no chance to take backproducts)

Administrative complexity and long tailon payments (but they can bemonetized)

Outright sale of leadasset and relatedcompounds

Sell full control of lead asset forvalue today, distribute all or part ofproceeds

Retain pipeline for further

development and future value

Simple and clean transaction of knownvalue with no continued exposure toclinical and commercial risk of leadasset

Opportunity to create incremental

value in retained pipeline using part ofproceeds

Potential value of product likely to beheavily discounted for clinical andcommercial risk

Need to continue management of

company and pipeline

Structured sale oflead asset and relatedcompounds throughlicensing or relateddeal

Sell commercialization rights forcombination of upfront and futurepayments, such as:

Upfront Payment Clinical/Regulatory milestones Launch/Sales milestones Royalties

Maintain some control of developmentand possibly greater future upside

Opportunity to create incrementalvalue in retained pipeline using part ofproceeds

Mechanism to recover lead asset inevent of discontinuation

Complex to negotiate & administer

Continued exposure to clinical andexecution risks

Long tail on proceeds (though thesemay be monetizable later)

Need to manage company and pipeline


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Access to Capital


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Capital Raising: Reflecting on the Sources

Investor participation

Venture CapitalGeneral and Limited Partner constraints

Venture debt High net worth / family offices Public markets

IPO sentimentFollow on rounds

Royalty monetization On the riseGovernment and foundations

Sources of non-dilutive capital via grantsLicensing and asset sale Becoming more structured, and arguably harder to complete; option based, back-

ended Addressing the competing needs for risk mitigation and portfolio augmentation


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1H2012 vs. 2009-2011

Life Science VC Deal Volume by Subsector

0

20

40

60

80

100

120

TxDev/Del

Dx/PMTP

20092010

2011

1H 2012

Data Source: ZephyrBiotech LLC


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0.00

500.00

1000.00

1500.00

2000.00

2500.00

TxDev/Del

Dx/PMTP

2009

2010

2011

1H 2012

Life Science VC Investment by Subsector (MUSD)1H2012 vs. 2009-2011

Data Source: ZephyrBiotech LLC


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October IPOs 20% above their IPO prices

KYTHERA Biopharmaceuticals lntercept Pharmaceuticals

$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

Average $61M $57M $60M

2010 2011 2012n=13 n=11 n=17

IPOs



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Regional Transactions by Design vs. Default


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Regional by Default Considering the Transaction Profile

Situation

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

Typical dealarchitecture

Modest upfront < $5M Shared development costs of Regional RCT Regional rights ceded Percentage of global rights ceded

Outcomes

Regional Co. 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


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Regional by Default Case Studies

Case Study #1

Situation: European company. Phase IIOphthalmology asset.

Challenge: Phase II clinical dataequivocal. Missed primary outcome. Hitsome secondary outcomes.

Solution: AsiaCo generics focusedophthalmology company seekingbackward integration. Manufacturingcapacity available. Regional growthambitions.

Action: Regional transaction design.Regional developmental and commercialrights. 50% cost of regional Phase II.Modest upfront. Clinical, regulatory andcommercial milestones. Manufacturingsupply agreement for region. Percentageof global rights to AsiaCo.

Case Study #2

Situation: US company. Phase IIRespiratory asset.

Challenge: Phase II clinical data negative.Missed primary and secondaryoutcomes.

Solution: EuroCo generics / brandedfocused respiratory. Regional andinternational growth objectives.

Action: Regional transaction design. EUdevelopmental and commercial rights.

Cost of EMA accepted Phase II RCTcovered. Modest upfront. M Clinical,regulatory and commercial milestones.Transfer price agreement on clinicalbatch and commercial supply. Percentageof global rights to EuroCo.


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Case Study

Small biopharma with single Phase I asset


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Case Study Background

Platform target based company (proprietary receptor-based bioassays; severallead 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 andosteoporosis)

Deliverables: Identify relevant partners Identify comparable deal precedents and deal models Analyze by development stage key deal terms, financials, and structures


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Category Selection Criteria

Technologies All technologies

Deal Structure License; Broad collaboration; Co-development

Partners Pharmaceutical company; biotechnology company

Clinical Phase Survival Rates Oncology

Therapeutic Areas Cancer

Stage at Deal Signing Lead molecule; Preclinical; Phase I; Phase II

Territory Worldwide

Selection Criteria for Benchmarking


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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



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Deals Comparables

Selected 10 deals for Phase I vs. Phase II licensing Phase I: $ 26M Phase II: $ 332MIdentified deal opportunities with ranked competing criteria

Marketed: 3 Filed: 1 Phase III: 9 Phase II: 36 Phase I: 20

TherapeuticArea

TotalDeals

(n)

No. DealsDisclosingUpfrontPayment

AggregateDisclosed

TotalUpfront

Payments($M)

Range MeanUpfrontPayment

($M)

MedianUpfrontPayment

($M)

(n) (%)

Cancer 161 35 22% $681.7M $100k-$150 $19.5M $8.5M


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Category Selection CriteriaTechnologies Small molecules; monoclonal

Deal Structure Co-development

Clinical Phase Survival Rates Breast cancer

Partners Biotechnology company

Competing drugsPhase I and II sorted by target type in diseaseindication

Therapeutic Areas Narrow focus on target type and disease indication

Endpoint with contingencies Phase II

Territory Worldwide with regional exclusions

Narrow Selection Criteria for Comparables


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Comparables with narrow focus on target type and disease indication: breastcancer and receptor types = 30% survival (vs. 11 for non-receptor)

Narrow Comparables Clinical Phase Survival Rates



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Current financial environment demands a proactive partnering strategysupported by strong deal analyticsKey initial step is determining financing options (IPOs, licensing, M&A,options)Benchmark potential deals against several modelsNo two deals are identical Consider a regional by design transaction strategy

Summary


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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 ofbiopharmaceutical transactions advisory and financing

Top tier investmentbanking and pharma /biotech executives

Intimate understanding ofpharma / biotechtransaction processes

Extensive track record andbiopharma relationships

Reputation as thoughtful,objective and experiencedprofessionals which fostersreceptive audience withinpharma

Deloitte Recaps premierinternationalbiopharmaceuticaltransactions database

Experienced team ofbiopharma consultants andadvisors

The power of Deloitte withwrap around services inmarket research andfinancial structuring

Deloit te | TorreyaLicensing Insight


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Contact Deloitte Recap for More Information

Stay tuned for details on the next webinarModule 2: Determining the Optimal Partnering Package

Subscriptions and Consulting

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DeloitteRecap Torreya 110612webinar OptimalTimetoPartner(1)

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