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Why Pharma Needs to Do Early-Stage Deals

Executive Summary

Though there are far more preclinical than late-stage compounds available, drug firms don't license these still-early projects frequently because they prefer to reduce their risk with later-stage compounds. But by increasing the number of preclinical deals, in effect creating a venture portfolio of a few winners among many losers, drug firms would do better economically--even if they increase preclinical deal prices by 50%. That may be necessary: biotechs have held back on preclinical deals because of poor deal terms; sweetened offers, particularly in the current financing desert, would induce them to change their wait-for-late-stage-deal mentalities. Meanwhile, to alter their dealmaking habits, Big Pharma companies will need to make significant changes--among them, redrawing their financial models, elevating the role of and increasing corporate resources for licensing, and restructuring licensing's relationship to internal R&D.

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BioVitrum/Amgen: A Sign of Early-Stage Deals to Come

Biovitrum's record-breaking deal with Amgen--the largest licensing transaction by a European Biotech player to date-secures for Biovitrum the financial and strategic means to help it become a fully integrated biopharmaceutical company. The deal is also strategically important to Amgen, giving the company a way into the primary care segment. But the price and risk are high: there's no clinical proof of efficacy on the compound and there's no competitive compound on the market, or even in late-stage clinical trials, proving the value of the target. Thus the broader implication for the industry: as the costs of late-stage licensing become prohibitive-and the compounds themselves unavailable-in-licensers are increasingly looking to earlier-stage products to bolster their pipelines, with deal prices, and risks, rising correspondingly.

BioVitrum/Amgen: A Sign of Early-Stage Deals to Come

Biovitrum's record-breaking deal with Amgen--the largest licensing transaction by a European Biotech player to date-secures for Biovitrum the financial and strategic means to help it become a fully integrated biopharmaceutical company. The deal is also strategically important to Amgen, giving the company a way into the primary care segment. But the price and risk are high: there's no clinical proof of efficacy on the compound and there's no competitive compound on the market, or even in late-stage clinical trials, proving the value of the target. Thus the broader implication for the industry: as the costs of late-stage licensing become prohibitive-and the compounds themselves unavailable-in-licensers are increasingly looking to earlier-stage products to bolster their pipelines, with deal prices, and risks, rising correspondingly.

Tularik & Amgen: A Model of Business Development (and Good News for Biotech, Too)

Things have been bleak on the discovery side of the dealmaking world, as evidenced by a paucity of Big Pharma alliances. But the Tularik/Amgen transaction indicates a renewed interest in target-stage transactions, though with the best prospects reserved for cancer focused companies with significant chemistry capabilities.

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