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Deal Structures: More Options for Companies

February 11, 2015
By most measures, 2014 was a great year for the biotechnology industry. Venture capital deal values, , licensing values and volume were all up, as were big pharma M&A deals and asset swaps. What do these trends mean for dealmakers in 2015? Answering that question was the task of a panel at the 2015 BIO CEO & Investor Conference, Emerging Trends in Deal Structures.

Moderated by Fenwick and West’s Effie Toshav, the panel included:

  • Bruce Booth, Partner, Atlas Venture

  • John Gustofson, Senior Director, Ventures & Early Stage Collaborations, AbbVie

  • C. Randall Mills, PhD, President and CEO, California Institute of Regenerative Medicine (CIRM)

  • Adelene Perkins, CEO, Infinity Pharmaceuticals

  • Mark Schoenebaum, MD, Managing Director, Evercore ISI

The go-go market is contributing to a shortage of assets as biotech companies have more options than in the past, allowing them to be more discerning when choosing potential deals. AbbVie’s Gustofson observed:

“Now we’re in a great time as everyone knows, the IPO market is open, venture capital companies are able to raise funds again, and we have a great environment… so there are other avenues that a company could look at for an exit: it’s not just an acquisition or a BD deal. Those trends are going to continue.”

There was broad agreement that it’s possible to make an agreement in which one comes away with too good of a deal, leaving their partner with insufficient incentives to move the program forward. In structuring any deal, the most important consideration is the quality of the product and the value being created; deal structure is secondary and ought to be ordered to that end goal.

“If you have a successful product, you will almost never have overpaid for it, and if you have a product that fails, you will always have overpaid for it,” noted Infinity’s Adelene Perkins. “So it really doesn’t matter what the structure and the terms are, it’s ‘Did you get a good product?’ and I think that’s something people often lose sight of when asking ‘Did you get a good deal?’ – it’s possible to get too good a deal if there’s an imbalance between the parties interests. There has to be a relationship where the parties really share the objective of what you’re trying to do.”

The panelists agreed that, in most cases, a deal structure satisfactory to both sides can be arranged provided the quality of the product is high. Mark Schoenebaum posed a question to Abbvie’s John Gustofson: Of the deals that he looks at, how many of them are not done for product reasons vs dollars/deal structure reasons? “The majority is all product reasons… the economics being the sole killer of a deal is very rare,” said Gustofson.

Mark Schoenebaum closed by noting that, while now is a great time to raise money if you’re a biotech looking for capital, recent history has taught us that conditions can change quickly. In other words, don’t wait too long.