Category: Reports and analyses

Are you wondering what investors still have money and are investing? At Biotechgate we are tracking all financing of investors and we also run a global database of what investors are looking for. As an example, the following investors have made investments into European Health Care companies in Q1 2014:

• AT NewTec, Germany
• Boehringer Ingelheim Venture Fund (BIVF), Germany
• Eckert Life Science Accelerator, Germany
• HBM Healthcare Investments Ltd, Switzerland
• Investinor AS, Norway
• Jossa Arznei GmbH, Germany
• Novo Seeds, Denmark
• Peppermint VenturePartners, Germany
• Rosetta Capital Limited, United Kingdom
• Sarsia Seed AS, Norway
• Sunstone Capital, Denmark
• Versant Ventures, U.S.A.

 
For further information regarding Biotechgate see here.
 

With the announcement of the portfolio transformation of Novartis this month, we believe this will have a positive impact on the biotech industry. The company will focus on Pharmaceuticals, Eye Care and Generics. The diversification strategy of former CEO and Chairman Daniel Vasella has been axed by the new leadership of Novartis. Key components of the transformation are:

• Novartis acquires GSK oncology products
• The Novartis OTC business will be combined with GSK’s consumer business in a joint venture
• Divestment Vaccines business (excluding flu) to GSK
• Divestment of Novartis Animal Health to Lilly

 
Impact:

For the biotech industry this transformation is good news as we see it. There will be another clear partner for oncology projects with know-how, dedication and resources. That it is another Swiss player might be by chance, but both Roche and Novartis have been very successful compared with their peers and this might be the opportunity for Novartis to capitalize on past success and reshape for the future. On the other side, there is the danger that the number of possible partners for biotech companies becomes smaller and smaller. The question is if mid-size pharma can close this gap?

As a new joint venture company (OTC) will be created, this increases diversification and helps at least to some degree to off-set the trend of M&A activities (Pfizer / AZ).

Overall, transformation shows that the pharma companies are under pressure and that there is a constant ongoing need for new pipeline products.

Value terms:

In value terms, the transformation is very impressive and the investment banks involved will have generated nice fees. The key terms of the reshaping are:

• Novartis pays USD 14.5bn for GSK oncology products plus another USD 1.5bn based on milestones
• GSK pays USD 7.1bn (USD 5.25bn upfront and USD 1.8bn in milestone payments) plus royalties for Novartis vaccine business. Novartis will try to divest the flu business separately.
• The OTC business of Novartis and the GSK consumer Healthcare are brought into a new joint venture. Novartis will own 36.5%.
• Lilly will pay approx. USD 5.4bn for Novartis animal Health Division.

 

Read more here: Press release Novartis.

 

Even with the public biotech was just at an all time high, VCs in the US also have difficulties convincing LPs (Limited Partners) to make investment in their funds. At a recent panel discussion led by Venture Valuation at the RESI (redefining early stage investment) conference in Boston, VCs offered an insight into their perspective of the industry.

 

Alternative investors such as family offices and corporate investors have become more and more important to fill the financing gap. It was a general understanding among the panelists that investment has to come from alternative sources including family offices and corporate VCs. Early stage investors in particular seem to have difficulties to syndicate deals, but need co-investors that can mitigate the risk and have the capabilities to co-finance across several rounds of financing.

Health IT and platform companies were the hot topics discussed by the VCs on the panel. West Coast VCs seem to be very eager when it comes to Health IT companies, combining the strength of Silicon Valley with the life sciences industry.

Investors tend to look for lower risk but also lower return opportunities. It was mentioned that the VCs have reduced their expected returns somewhat. They also expect the risk to be reduced when looking at broader platform technology companies, companies with service components or medical devices.

The balance between Biotech – Pharma – VCs seems to shift and include family offices and corporate VCs, driving biotech companies to look for alternative sources of funding. If you are interested in Biotechgate’s new Investor database, please contact us here.

Does it make sense for a life science fundraising executive in Europe to look internationally for early-stage funding? Should U.S. based firms look at investors in Europe and Asia? As the famous folk singer Bob Dylan sang “the times they are a changing” and the answer is yes!

 

To someone looking to fund a life science startup ten years ago, the funding possibilities would have been primarily local. Government programs and angel networks are almost invariably regionally-focused, as are many VCs (particularly within the long tail of smaller VC funds that used to provide capital to life science start-ups, many of which have now closed their doors). However, the new investors on the stage today are typically much broader in scope. Large pharma companies and global PE companies that used to focus on mid to late-stage opportunities are now looking to capture the value of emerging technologies; from the opposite direction, medical foundations that used to support only basic biology research are now focusing on getting new breakthroughs out of the lab and into the marketplace, and while some foundations are regionally based, many are looking for advancements in their field globally. Family offices, too, are most often interested in opportunities worldwide.

To an entrepreneur unaware of how the world has changed around him, regional investment can become a self-fulfilling prophecy; the entrepreneur will focus their fundraising campaign on the traditional, mostly regional sources, and never reach out to the new global investors that might be very interested in the opportunity.

LSN Research in collaboration with Venture Valuation, Biotechgate Database has examined the geographical scope of the investors who take part in early-stage life science deals. We looked at the trove of financial data available via the BTG Company Platform, and took a sample of small financing rounds ($10m or less) raised by companies developing a preclinical or Phase I therapeutic product. From this sample, we aggregated a list of all the lead and co-investors who had participated in these deals, and then we took a more detailed look at each of these investors and assessed the range of their activities. To keep things simple, we categorized the scope of each investor’s allocations as

1. Global, anywhere on the planet where companies are a fit for investor.
2. Continental, North America, Europe or Asia.
3. Regionally, focused on small discrete geographies like Massachusetts, California, or specific countries in Europe.

 

Sample 1: From Biotechgate Company Database

Lead and Co-investors that have Allocated <$10 Million to Pre-clinical or Phase I

As you can see, about 25% of the investors that are active in these early stage deals reported in BTG financing rounds database are global investors. To further support this, we also pulled data from investors in the LSN Investor Database who are willing to allocate under to $10 million in a single round into Pre-clinical and Phase I stage therapeutics companies.

Sample 2: From LSN Investor Database

Investor that are willing to Allocate under $10 Million and are looking at Pre-Clinical and Phase I

Early Stage life science investment is in transition. This means that there is a clashing of the old ways and methodologies and the generally accepted status quo. The investor available categories have morphed as new players fill the void left by the early stage VC investors. The challenge today is to get everybody singing from the same hymnal and up to speed on who’s who in the market place and educate the players on how to find the best fit for and match for capital needs. Below are 3 points to keep in mind when developing a fundraising strategy.

1. Life Science fundraisers are in two camps. One camp still hangs on to out-of-date strategy that the investor market process and protocol is as follows friends and family, angels, government grants, followed by VC’s. This might have been true 5 years ago but is no longer relevant as new players have entered the arena and VCs have waned due to lack of funds and unproven track records. The new process looks more like this, friends family, angels, funding portals, government grants, followed by parsing the new investor landscape and determining who is a best fit for a fundraiser to target the old stand by and these new investors including single and multi-family offices, venture philanthropy, patient groups, corporate development, private equity, hedge funds, pensions and foundations.
2. There is a self-fulfilling prophesy that says that emerging life science companies cannot canvass and get allocations from global investors and that their market place is limited to only going after regional investors. This is simply not true as it turns out that each investor type has its own modus operandi in that an angel or a regional VC strategy may be local where a venture pharma, foundation or a patient group may have no such requirement and are therefore global. Net/net is that the profile and strategy of the life science investor determines their investment sphere.
3. Investors are moving upstream and this creates a trend that in turn moves investors to join in. Previously certain investor types were early stage but now when mid to late players get involved early this then creates a pull on the rest of the investor base. Basically making early stage a topic of consideration for all the mid to late stage investor categories. Investors are demonstrating that in order to remain competitive you need to form early alliances and partnerships or you will miss out. Emerging life science companies are simply forming their partnerships earlier.

 

The recent acquisition of Forest Laboratories Inc. by Actavis for USD 25bn shows the trend of generic producers to move into the innovative drug space. With fewer blockbusters on the market, companies focused on generics will need to move into innovative therapeutics.

The acquisition of Forest Laboratories Inc. by Actavis is a clear sign where the future growth of generic companies will be – it’s the patent protected innovation. Such projects can either be generated in-house or through licensing / M&A of innovative young biotech companies. Through the extension of the business model of generic companies, they will be able to control the whole life cycle of drugs from the patent protection into the generic phase. Novartis has actually implemented this approach many years ago with the purchase of Hexal and Eon Labs, for USD 7.3bn in 2005, which later became Sandoz. Now generic companies are going the opposite direction from generic to innovation.

The same trend we also notice in Asia where many generic companies are based. There is an increased appetite for innovative projects from Europe and North America. Based on our own analysis of data in Biotechgate where we track which companies are looking for what kind of in-licensing opportunities, the demand in Asia is led by China, followed by South Korea. About a third of the companies that are seeking in-licensing projects in Asia focus on oncology followed by metabolic diseases. In terms of stage, over half are looking for pre-clinical products and about a forth for clinical stage products. Find more information on Biotechgate and what companies are looking to in-license here.

The meaning of a “discount rate” is best understood by making a parallel with the interest rate you get from the bank on your savings account. While the interest rate is a % you use to calculate what 100 USD or EUR on your account will become after a number of years, the discount rate is a % to convert future cash into today’s money.

A start-up company with a product in development, for instance, will (hopefully) generate revenues in the future. The revenues in years x, x+1, x+2 etc. need to converted into today’s value with a discount rate. By first deducting future expenses from all future annual revenues, you get the Free Cash Flow in each year and when discounted those future free cash flows back to today, you will get what is called the company’s Discounted Cash Flow.

The discount rate will thus have a huge impact on the calculation of the value of a company. It is a % that will need to be determined in the valuation process, and it is not just the interest rate you get on a bank, but needs to also incorporate several risk factors. There are two kinds of risk factors that will need to be taken into consideration in the case of a biotech company with no products on the market:

• The general risk associated with the characteristics of the company, of which its management definitely the most important one.
• The product specific risk: obviously, a development project in phase 1 is much riskier than a phase 3 project. (this risk can be applied separately for a risk adjusted net present value calculation rNPV)

In other words, these are risk factors that determine whether the investor will ever see his/her money back, and collectively they will drive up the discount rate to a much higher % than the interest rate you get from the bank.

If you are interested to learn more about how to value companies and biotechnology products, our one day valuation workshop is a must. See more here ››

For Life Sciences companies it has never been easy selecting a location for HQs, shared services centers, manufacturing or R+D operations in Europe. A huge variety of factors must be taken into consideration. Venture Valuation, together with KPMG has analyzed the key decision factors relevant to site selection in Europe. Click here to read or download the full report ››

English (PDF) – 2 Pages 290kb

Singapore The Business Times, Growing business opportunities (page 6)

English (PDF) – 15 Pages 8799kb

Most companies dream about closing a licensing deal with big Pharma. But what do these deals really contain from a financial perspective and can any trends be found for potential big Pharma licensees in order to assist licensors in the deal making process?  To gain insight in these aspects, we have analyzed the financial deal structures of more than 270 therapeutic licensing deals for 11 big Pharma companies since 2007 listed in the Biotechgate Licensing Deals database.

By Karin Bakker, May 2012*

Orphan diseases have become an attractive licensing target for big Pharma. In the last year both Pfizer and GlaxoSmithKline established a research collaboration on lysosomal storage disorders with Zacharon Pharmaceuticals respectively Angiochem. Potential deal sizes were valued at USD 210m for the Zacharon-Pfizer deal focusing on small molecule drug discovery targeting glycans and minimally USD 300m for the enzyme replacement collaboration between Angiochem and GlaxoSmithKline on EPiC enzymes crossing the blood brain barrier. The upfront payment of around USD 30m for the latter collaboration was comparable to the upfront payment of a worldwide licensing deal established between Amicus Therapeutics and GlaxoSmithKline in 2010 on a phase III chaperone product for Fabry disease. Protalix Biotherapeutics received USD 60m in upfront payments from Pfizer on an enzyme replacement therapy for Gaucher’s disease in the pre-filing phase. Both of the latter deals had a cost-sharing component.

Stem cell research is another area of interest for big Pharma with a variety of early stage deals established over the last 5 years.  Cytori Therapeutics’ evaluation of  the potential of adipose derived stem and regeneration cells for liver disorders is supported by a USD  10m equity investment from Astellas Pharma in exchange for a 2 years right of first refusal.  While the Epistem-Novartis stem cell target and drug discovery collaboration obtained a comparable upfront payment to the preclinical inflammatory bowel disease product license between Athersys and Pfizer, potential milestones for the latter totaled USD  105m compared to USD  45m per product for Epistem.  The monoclonal antibody, protein and small molecule approach against stem cells in oncology used by Oncomed Pharmaceuticals in their research collaborations with GlaxoSmithKline and Bayer Schering Pharma seems much more profitable.  Milestones for the collaboration with GlaxoSmithKline could total up to USD 1.4 billion for 4 monoclonal antibodies.

Licensing deals between big Pharma companies often contain a cost-sharing component. BristolMyers Squibb and Pfizer negotiated a 40:60 cost-sharing arrangement for development of BristolMyers’ phase III direct Factor Xa inhibitor. Under a 2005 US-licensing deal between Bayer and Johnson & Johnson on a similar product in phase II development also global cost-sharing was negotiated. The latter deal was valued at USD 290m, while BristolMyers Squibb will obtain up to USD 1 billion in upfront and milestone payments for their phase III product from Pfizer.

Not in all cases a licensing deal with big Pharma seems the most profitable for a licensor.  Milestone payments for NeurOp’s NR2B subunit specific NMDA-antagonist research in depression and neuropathic pain totaled USD 74m from BristolMyers Squibb. Concert Pharmaceuticals’ licensing deal for their preclinical dual NMDA-antagonist and sigma-1 modulator for neurological and psychiatric disorders with non-big Pharma Avanir Pharmaceuticals seems more profitable. Concert will obtain milestones of up to USD 200m from Avanir.

Profit sharing percentages between GlaxoSmithKline and their licensors can differ upon different countries and indications. Deal structures for new research alliances between GlaxoSmithKline and existing licensors were found to be similar. Five Prime Therapeutics and GlaxoSmithKline established two research alliances in 2010 and 2012 on musculoskeletal and respiratory disorders. Both deals contained an upfront payment, milestones, research funding over 3-4 years, equity and tiered royalties. The majority of the research alliances of GlaxoSmithKline contain double digit royalties.

For Novartis profit sharing occurred in only around 10% of all licensing deals found in the Biotechgate Licensing deal database. Milestone payments for two phase II oncology products from different compound classes back in 2007 both totaled around USD 700m for licensors Antisoma and Transgene.

Milestone payments by Merck & Co. to its licensees for start of phase II clinical trials in oncology were shown to depend on the indication and varied between USD 2.5m and USD 15m. Milestone payments even differed for two infectious diseases drug discovery alliances established with Ranbaxy Laboratories (now Daiichi Sankyo) and Orchid Chemicals and Pharmaceuticals in 2008. With both companies responsible for multiple-target drug discovery and development through phase IIa clinical trials, milestone payments to Orchid were USD 100m in total, while Ranbaxy obtained milestone payments of USD 100m per target.

More financial information on big Pharma deal making is available through both our new big Pharma benchmark reports and our online Biotechgate Licensing Deal database. If you are interested to learn more about our benchmark reports or our online Biotechgate Licensing Deal database, please contact our Business Development Executive Alan Jones directly:

a.jones@biotechgate.com

Direct phone: + 41 (44) 500 38 48

www.biotechgate.com

 

The Biotechgate Licensing Deals database contains more than 1400 therapeutic deals over a 16 year period from small company licensors to big Pharma licensees. The database only contains deals on therapeutics with at least one financial component. Each deal entry is categorized and searchable by licensor, licensee, indication, compound details, compound name, development stage (research – filed for regulatory approval), licensed territory, potential deal size, upfront, total milestone payments, regulatory milestone payments, sales milestones payments, royalties on sales, research funding, equity and by year of deal establishment.

As of May 2012 targeted deal benchmark reports are offered, providing vital information on deals for selected big Pharma licensees, indications, product development phases and/or compound classes.

More information is available at www.biotechgate.com/deals

 

*Karin Bakker is the managing director of PharmaPlus Consultancy, a specialist in licensing

related services in the Life Sciences field. PharmaPlus has monitored and collected

Licensing Deal information since 1996, which are available online in Biotechgate.