Geographic Carve-outs in Biotech Deals

A look at alliances between biotech companies and pharmaceutical companies that included a geographic carve-out , and a comparison of them to deals in which the licensee received worldwide marketing rights.

This month, we looked at alliances between biotech companies and pharmaceutical companies that included a geographic carve-out (i.e., the biotech retained marketing rights in a particular market for its own marketing, or for further outlicensing) and compared them to deals in which the licensee received worldwide marketing rights. Often, carve-outs are an overlooked indicator of deal value; one must consider not only how much is paid to a biotech partner for rights to a product, but how extensive those rights actually are. Indeed, the most striking aspect of the $220mm Dec. ‘93 Corange/CellPro deal, to date one the the most expensive biotech deals ever, was the fact that CellPro retained all North American rights to its products.

In the chart below, we compared deals signed since 1994 in which rights were licensed worldwide to those in which a geographic carve-out was retained by the licensor, and broke them out by phase of development. Notably, biotechs retained some marketing rights in over a quarter of the clinical phase deals, suggesting, not surprisingly, that further advanced products afford their owners more negotiating leverage. Vivus Inc. and Gilead Sciences, for example, had already filed for marketing approval of their products by the time they began seeking partners. When they did sign deals, both retained North American rights in addition to receiving impressive deal valuations (Vivus should get $30mm from Astra, plus an option to take over the European sales force Astra establishes, and Gilead could receive $60mm from Pharmacia & Upjohn).

Not reflected in the chart are deals in which worldwide rights are licensed, yet the biotech retains a right or option to co-promote in a key market—as Microcide did in its recent alliances with Daiichi and J&J, holding onto options to co-promote in North America in both deals. Among our sample, we counted 17 of these deals at the R&D stage (about 15% of the total), 17 at preclinical (53%), and 19 in clinical trials (31%)—again, showing a distinct valuation edge to the later-stage products.—KR

Sample includes a total of 115 R&D stage deals, 32 preclinical stage deals, and 61 clinical or later stage deals, all signed since 1994. SOURCE: Windhover’sPharma-Alliances