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IPOs, Acquisitions, “Bare-Knuckle Tactics” and More: A Recent Panel Discussion

Posted in Life Sciences Agreements

On May 10th, at Foley & Lardner LLP’s 2011 Boston Life Sciences conference, I participated on a panel entitled “Match Making: Identifying Partners, Creative Collaborations and Long Term Outcomes.”  Mike Morency, Ph.D., an Intellectual Property partner in Foley’s Boston office moderated the discussion among John A. Delyani, Ph.D., M.B.A., Head, Therapeutic Areas for Strategic Alliances at the Novartis Institute of BioMedical Research, Gerry Brunk, Managing Director at Lumira Capital, and me.

 A number of interesting and instructional points were raised during the discussion, including:

  • The general lack of an IPO market for life sciences companies and the resulting reliance on acquisitions as an exit for venture investors.  Many more companies are approaching big pharma with acquisition proposals as a preferred structure to traditional collaboration and licensing deals.  However, it was pointed out that acquisitions typically come with more risk for the acquiring company, and as a result, sometimes overall deal valuation can be lower than a traditional partnering structure in order to account for the increased risk.
  • The importance of structuring collaboration and licensing deals to retain sufficient value for future investors and potential acquirors
    • The panel pointed out Epizyme and Plexxikon as examples of companies that successfully retained value in their collaboration deals.  Epizyme’s March 2011 worldwide partnership with Eisai includes a right for Epizyme to opt into a profit share and co-commercialization arrangement in the United States.  Plexxikon’s 2006 deal with Roche similarly included a co-promotion right.  In January, Plexxikon exercised this co-promotion right, paving the way to Plexxikon’s acquisition by Daiichi Sankyo in March 2011.
    • As a correlative point, the panel commented that companies should use caution when considering deal terms that may be viewed as unattractive to a potential acquiror.  For example, obligations to license improvements or other intellectual property rights in the field, or broad noncompetition provisions may prevent acquisitions if the acquiring company does not want to be subject to those obligations.  Of course, unfavorable change-of-control provisions could also effectively block future acquisitions.
  • Bare-knuckle tactics are not as prevalent as some might think.  Recent comments from some members of the venture community have criticized big pharma for engaging in aggressive and inappropriate negotiating tactics when dealing with life sciences companies, including walking away from fully-negotiated deals shortly before signing.  The panel agreed that while this is currently a buyer’s market, they have not seen a change in negotiating tactics.  It was further pointed out that sometimes it is the biotech company that walks away from a deal at the last minute, sometimes due to another partner becoming involved or for other reasons.
  • The ways big pharma accesses new technology
    • John Delyani indicated that there is a relatively small team responsible for reviewing and analyzing the huge number of potential partnering and acquisition opportunities that are presented to them. 
    • In response to a question from the audience as to whether it is better for interested companies to approach big pharma scientists, executives, business development representatives or others, John advised that interested companies would have the best chance of success going through the business development team.
    • In response to my question about whether more deals originate from the business development team’s outreach activities, such as discussions at partnering meetings, or opportunities sent in from interested parties, John said that a significant majority of their deals originate from business development’s scouting and outreach activities.