Pharmaceutical Licensing Strategies: Best practices in deal-making, valuations and strategic management

Table of Contents
Pharmaceutical Licensing Strategies
Executive Summary 10
Introducing pharmaceutical licensing 10
Licensing trends 10
Licensing process 12
Licensing valuations 13
Licensing best practices 14

Chapter 1 Introducing pharmaceutical licensing 16
Summary 16
Introduction 17
The age of the partnership 17
Definitions 19
Report outline 20

Chapter 2 Licensing trends 22
Summary 22
Introduction 23
Headline deal trends 23
Licensing deal partners 27
Licensing deal types 32
Licensing deal subjects 36
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Chapter 3 Licensing process 42
Summary 42
Introduction 43
A complex process 43
In-licensing versus out-licensing 45
Licensing strategy 47
Opportunity identification 49
In-licensing 50
Out-licensing 52
Licensing evaluations 56
General portfolio management 57
Applications for licensing evaluations 59
Deal-making and agreement 60
Key elements of a pharmaceutical license agreement 60
Post-deal management and analysis 61
Alliance management 62
Using outside agencies 64

Chapter 4 Licensing valuations 70
Summary 70
Introduction 71
Valuing deals 71
Current best practices 73
Deal-making valuation model 76
Model inputs 77
Evaluation modeling 82
Model outputs 88
Model refinements 91

Chapter 5 Licensing best practices 100
Summary 100
Introduction 101
Top licensing deals of the 21st century 101
Genentech-Roche 101
Idenix-Novartis 102
Millennium-Ortho Biotech 102
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AstraZeneca-AtheroGenics 103
Preferred licensing partners 104
Leading in-licensing companies 104
Novartis 105
Leading out-licensing companies 107
Cephalon 107
Recommendations for the future 109
Licensing trends 109
Licensing process 109
Licensing valuations 110
Licensing best practices 110

Chapter 6 Appendix 112
Primary research survey 112
Sources 115
Index 116
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List of Figures
Figure 2.1: Number and average value of top 10 pharmaceutical company licensing deals, 2001-
2005 24
Figure 2.2: Expected change in number of licensing deals during 2006 25
Figure 2.3: Expected change in average value of licensing deals during 2006 26
Figure 2.4: Number of top 10 pharmaceutical company licensing deals by partner, 2001-2005 28
Figure 2.5: Number of top 10 biotech company licensing deals by partner, 2001-2005 30
Figure 2.6: Number of biotech out-licensing deals by partner, 2001-2005 31
Figure 2.7: Number of top 10 pharmaceutical company licensing deals by deal type, 2001-2005 33
Figure 2.8: Number of top 10 biotech company licensing deals by deal type, 2001-2005 35
Figure 2.9: Proportion of product-based licensing deals by therapy area, 2001-2005 36
Figure 2.10: Number of product-based licensing deals by therapy area, 2001-2005 37
Figure 2.11: Number of R&D licensing deals by development stage, 2001-2005 38
Figure 2.12: Number of biotech R&D licensing deals by development stage, 2001-2005 39
Figure 3.13: Expected change in number of potential partners chasing each licensing deal during
2006 44
Figure 3.14: Expected change in the length of time required to complete a licensing deal during
2006 44
Figure 3.15: The pharmaceutical licensing process 46
Figure 3.16: Parties involved in identifying potential licensing opportunities, 2006 65
Figure 3.17: Parties involved in conducting due diligence for potential licensing opportunities, 2006
66
Figure 3.18: Parties involved in the valuation and negotiation of potential licensing deals, 2006 67
Figure 4.19: Information shared between partners during licensing negotiations, 2006 74
Figure 4.20: Valuation techniques used in determining optimal licensing deal terms, 2006 75
Figure 4.21: R&D costs by phase, 2000 78
Figure 4.22: R&D lead times by phase, 2000 79
Figure 4.23: R&D success probabilities by phase, 2000 80
Figure 4.24: Drug market diffusion curve – product lifecycle 81
Figure 4.25: Likelihood of outcomes for new phase I, phase II and phase III drugs 85
Figure 4.26: Expected real values (non-discounted) for new phase I, phase II and phase III drugs 86
Figure 4.27: Discounted expected real values for new phase I, phase II and phase III drugs 87
Figure 4.28: Discounted expected real values for new phase I, phase II and phase III drugs
(adjusted for lower R&D cost inflation) 88
Figure 4.29: Deal outcomes for out-licensor 89
Figure 4.30: Deal outcomes for in-licensor 89
Figure 4.31: Share of expected deal outcomes by partner 90
Figure 4.32: R&D costs by phase by therapy area, 2000 92
Figure 4.33: R&D lead times by phase by therapy area, 2000 93
Figure 4.34: R&D success probabilities by phase by therapy area, 2000 94
Figure 4.35: Peak sales and year of peak sales by therapy area, 2000 94
Figure 4.36: Discounted value of sales by therapy area, 2000 95
Figure 5.37: In-licensing partner of choice, 2006 104
Figure 5.38: Business development and licensing department, Novartis 106
Figure 5.39: Licensing process at Novartis 106
Figure 5.40: Out-licensing partner of choice, 2006 107
Figure 6.41: Licensing trends survey respondents by company focus 112
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Figure 6.42: Licensing trends survey respondents by functional responsibility 113
Figure 6.43: Licensing trends survey respondents by licensing responsibility 114

List of Tables
Table 4.1: R&D cost by phase and peak sales, 2006 (expressed in 2006 dollars) 83