The Cross-Border Biotech Blog

Biotechnology, Health and Business in Canada, the United States and Worldwide

Tag Archives: royalties

The Partnering Process – Deal Structure: Part 18 of Valuation and Other Biotech Mysteries

[Ed. This is the eighteenth part in Wayne’s series. You can access the whole thing by clicking here. Please leave comments or questions on the blog and Wayne will address them in future posts in this series.]

Assuming that a partnering deal is signed, what are the usual financial components?

  • Up-front cash usually has no conditions and is a non-dilutive financing. Big pharma generally does not want equity as it just clutters up their balance sheets and is an even bigger problem if the partnership gets terminated.
  • Clinical and regulatory milestone payments are fairly standard. The basic milestones are the initial U.S. and E.U. approvals but may include approvals of additional indications if they increase the market potential.
  • Sales milestone payments have become more common in the last decade. If the pharma partner does not believe the market potential, milestones can be included for reaching certain annual or cumulative sales milestones.
  • Royalties on sales are generally no longer a simple X% on net sales. They can be tiered, increasing after annual or cumulative sales milestones are reached.
  • If there is an R&D program, who conducts it and who pays for it?
  • Who executes and pays for the clinical and regulatory programs?
  • Some companies would like to retain or have an option on some sales and marketing rights in specific territories. These rights may cease to exist if there is a change of control at the smaller company.

The only way to learn about deal structures is to create a fictional deal, make the spread sheet and start looking at the impact of structural changes on the product NPV. The following assumptions have been used to create the attached Excel workbook. Read more of this post

Angiotech Expands and Reworks Baxter COSEAL Deal (for real)

Angiotech Pharmaceuticals, Inc. (NASDAQ: ANPI, TSX: ANP) reworked its COSEAL deal with Baxter International Inc.  For a $25 million one-time payment, Baxter will pick up the rights to COSEAL in Japan, completing a worldwide package, and will add additional fields of use for COSEAL, as well as rights to COSEAL derivatives. Baxter will owe no further royalty or milestone obligations to Angiotech.

Market reaction has been positive, with the stock up 18% so far today.

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