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In Context: Aventis-Genta after Bristol-ImClone

Executive Summary

Bristol-Myers Squibb's licensing arrangement for ImClone's Erbitux--both its upfront cash value and its subsequent level of disappointment--continues to define the industry's late-stage dealmaking. Genta's development and marketing alliance with Aventis for Genta's phase III anti-cancer chemosensitizer, Genasense, is no exception: the deal is both bigger, and smaller, than it might once have been had BMS and ImClone not stirred up the dealmaking pot. The Genta product was one of the only remaining unpartnered, important late-stage cancer projects available from a biotech company. It commanded a hefty price --at $135 million in upfront and near-term assured cash terms, and another $345 million in milestones. Before ImClone, Aventis says, it could have gotten this deal for less money. But if the ImClone transaction hadn't gone suddenly south (the FDA in December refused to accept ImClone's BLA submission for Erbitux), Aventis might also have had to pay far more.

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The Foundations of High-Value Discovery Deals

At a time when high-cash discovery deals, and particularly platform deals, are increasingly difficult to find, a number of companies have pursued alternative strategies for creating important transactions. In the first place, many biotechs have changed their attitude to technology transfer, willingly selling technology, and sacrificing any product-related upside from their clients' programs, in return for more significant upfront funding to pay for creating a more integrated in-house discovery effort. Several companies have also, by focusing efforts on just a few partners, expanded the relationships into a series of deeper and more valuable collaborations. Other biotechs have recognized the value of barter, trading off cash compensation for assets, like combinatorial chemistry expertise, assays, cell lines or even product candidates, which allows them to build internal value faster.

The Foundations of High-Value Discovery Deals

At a time when high-cash discovery deals, and particularly platform deals, are increasingly difficult to find, a number of companies have pursued alternative strategies for creating important transactions. In the first place, many biotechs have changed their attitude to technology transfer, willingly selling technology, and sacrificing any product-related upside from their clients' programs, in return for more significant upfront funding to pay for creating a more integrated in-house discovery effort. Several companies have also, by focusing efforts on just a few partners, expanded the relationships into a series of deeper and more valuable collaborations. Other biotechs have recognized the value of barter, trading off cash compensation for assets, like combinatorial chemistry expertise, assays, cell lines or even product candidates, which allows them to build internal value faster.

Terra Infirma: Pharma Dealmaking 2001

With Big Pharma still trying to figure out how to create productive businesses from their mega-mergers, most of the year's high-value M&A saw biotechs buying late-stage or marketed products. But these biotechs are also, with the risk of development failure ever clearer, actively in-licensing and acquiring products and product-creating technologies in order to diversify what are often single-product portfolios. Unlike many Big Pharmas, these companies have been willing to improve existing chemical entities, often exploiting drug delivery and other pharmaceutical sciences. Meanwhile, large companies focused on late-stage in-licensing, in part because they couldn't afford acquisitions--given the valuation disparities between large companies and small ones with valuable late-stage products. Nonetheless, while more affordable than acquisitions, the high price of these deals has transferred the majority of the regulatory and commercial risk to the licensee. As for the early-stage side of the biotech industry: platform companies have not been able to sell their discovery technologies at anything like the prices they expected; as a result, many of them have merged in an effort to create product-focused discovery operations.

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