article by:Tara R. St. Amand, Ph.D., BroadOak Capital Partners

With over $22 billion in partnering deals for 2007 (Current Partnering Scorecard for top 20 deals in 2007), and a larger figure expected for 2008, the changing dynamic between pharmaceutical and biotechnology companies is in full focus. Deals such as the Genzyme/Isis partnership for $1.9 billion including an upfront payment of $750 million for a phase III cardiovascular drug and Merck's partnership with Addex for a preclinical CNS drug are just two examples of activity in the market this year. Transactions such as these are expected to continue, driven by the need for established pipelines, global expansion and a selective IPO market. Strategic alliances provide a unique reduced risk/increased reward profile for all parties that is more attractive in today's market.

The pharmaceutical industry has been through significant transition over the last few years, resulting from cost containment needs, regulatory changes, safety issues and patent expiration. Along with this transition came significant consolidation and restructuring particularly in the way pharmaceutical companies interact with the market. As costs and pricing move in opposing directions pharmaceutical companies have pushed off non-core operations and are focusing on specific competencies including late stage development, distribution and marketing. As a result there is an increased reliance on early stage biotechnology firms to take on the task of drug discovery. Accordingly today's market favors companies with out-licensing opportunities. Licensing deals including the $1.4 billion GlaxoSmithKline/OncoMed and $250mm Pfizer/Scil transactions are proof of the increased interest in early stage opportunities including preclinical and phase I products.

On the international front, European biotechnology and pharmaceutical companies are looking for inroads to the U.S. market, the largest current market for drug therapies. Similarly, U.S. companies are looking for a means to gain access to global markets and are seeking partners in Asia, Europe, India, and the Middle East. China, for instance, is a high growth area and is expected to pass U.S. pharmaceutical sales by 2020 to become the world's leading consumer of pharmaceuticals (Burrill and Company, Biotech 2007 Life Sciences: A Global Transformation) . Not only does this provide in roads to markets that are harder to target but also helps to lay the groundwork for innovation directed by these global markets.

Partnerships provide a unique risk/reward profile that benefits all parties involved both as individuals and as an alliance (see Table I below). Before considering a transaction in this market, early stage life sciences companies should balance their willingness to share control of key assets (i.e. intellectual property, people) with their objectives for risk sharing and upfront payment. This balance will drive the appropriate transaction structure (see Table II below).

Table I

Table II

Partnering is a competitive market and requires a thorough and rigorous selection process. For every deal done there may be over 100 initial contacts made. BroadOak Capital Partners can assist you with managing the process and closing a successful partnership. We are a full service, life science focused investment bank located in Bethesda, MD. We provide services ranging from strategic alliance partnerships to mergers and acquisitions. Our Strategic Alliance group provides advice to all stages of biotech/pharma, from early stage research partnerships and product development collaborations to commercialization agreements and marketing alliances. Dr. Tara St.Amand is spearheading this effort as Director of our Strategic Alliances group. Tara comes to us from Parker Boston, a private equity investment bank and advisory firm in New York. Tara received her B.S. in Biochemistry from the University of Notre Dame, her Ph.D. in Molecular Biology from Tulane University, and her MBA with a concentration in finance from Columbia Business School. Please visit our website at www.broadoak.com

For further information, Contact Tara R. St. Amand, Ph.D. or (301)358-2698

Page Updated: 21 August, 2008