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Biotechnology M&A Conference October 4, 2006. Glen Y. Sato Cooley Godward Kronish LLP. FIRM OVERVIEW. - PowerPoint PPT Presentation
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Biotechnology M&A ConferenceOctober 4, 2006
Glen Y. SatoCooley Godward Kronish LLP
FIRM OVERVIEW
Cooley Godward is a premier national law firm that excels in high-stakes, complex business and litigation matters. We represent public and private companies of all sizes, across a broad industry spectrum with a special focus in the technology and life sciences areas. Our clients include both high growth and mature companies as well as entrepreneurs, venture capitalists and financial institutions.
Deep substantive expertise across a range of legal specialties. Deep industry verticals in Life Sciences and Information Technology. Represent many of the largest and most sophisticated information
technology and life sciences companies in the world, including Adobe Systems, Amylin, Applied Materials, eBay, Gilead, Gen-Probe, NVIDIA, Qualcomm and Synopsys.
Offices in Palo Alto; San Diego; San Francisco; Broomfield, Colorado; Reston, Virginia; New York; and Washington, D.C.
Client-oriented, team-based approach.
Glen Y. Sato
Partner in the Life Sciences and Public Securities practice groups PDL-Affymax, ChemoCentryx and BiogenIdec recent deals
Prior to joining Cooley, served for more than five years as CFO for two publicly traded companies with diverse business development, legal, financial, operational and strategic planning responsibilities
Practice focused on corporate transactions, SEC reporting and compliance, disclosure issues, intellectual property licensing, general corporate counseling, insider trading compliance and working with Boards of Directors and audit committees on various risk and accounting related matters
Life Sciences Global Senior Team
NEW YORK
Est. 1880
LONDON
Est . 1871
PARIS
Est. 1852
STOCKHOLM MADRID
SYDNEYTOKYOLOS ANGELES CHICAGO HOUSTON ATLANTA ASIA
Offices in Hong Kong ,Singapore , Seoul
Banking – Europe/ Japan
Jeffrey Rosen – MD
Matthieu Bucaille – MDDavid Gluckman , M.D. – MD (a)
Yasu Hatakeyama – MD
Special Advisors
Dr. Paul Marks – President Emeritus , Memorial Sloan -Kettering
Dr. Guiseppe Vita – Former Chairman , Executive Board , Schering AG
Lazard Capital Markets
David Tashjian – Co -CEO
David McMillan – Managing Director , Head of Equity Syndicate
Bill Buchanan – Managing Director , Co-Head of Corporate Finance , Head of U .S. Capital Markets
Jeffrey Klein – Director
Robert Berger – VP
Equity Capital Markets
Richard Gormley – Managing Director , Head of Alternative Capital Finance Group
Geoff Goodman – Vice President
Alternative Capital Finance Group
Banking – US
New York
Stephen Sands – MD , Global Co -Head
Jason Bernhard – MD , Global Co -Head
Raj Alva – MD
Jonathan Biele – MD
Emily Rosen – Director
Mark Schneyer – Director
San Francisco
David Low – MD
Marie Roskrow , M.D., Ph.D. – Director
Eric Delbridge , M.D. – VP
Uniquely Provide World-Class Advice to both Innovators and Leaders
INDUSTRY LEADERS EMERGING GROWTH, FUT URE LEADERS
$4.3 billion $12.8 billion $5.4 billion Pending $195 million $46 million
HAS ACQUIRED THE VASCULAR
BUSINESS OF
Guidant
HAS AGREED TO BE MERGED WITH
Thermo Electron
HAS BEEN ACQUIRED BY
Indap AB
INITIAL PUBLIC OFFERING
JOINT BOOK -RUNNING MANAGER
HAS ESTABLISHED A COLLABORATION
WITH
Novartis
FOLLOW-ON
SOLE BOOK -RUNNING MANAGER
2006 Pending 2006 2006 2006 2006
$815 million $4.1 billion $6.6 billion $210 million $10/ $19 million $140 million
HAS ENTERED INTO A LICENSING AGREEMENT WITH
FibroGen
HAS MERGED WITH
American Pharmaceutical
Partners
HAS BEEN ACQUIRED BY
WellPoint
HAS AGREED TO BE ACQUIRED BY
AstraZeneca
PIPE/IPO
LEAD PLACEMENT
AGENT/LEAD MANAGER
&BOOKRUNNER
HAS MERGED WITH
Corgentech Pharmaceuticals
2006 2005 2005 2006 2005 2005
$1.8 billion $1.8 billion $525 million $85 million $595 million $209 million
HAS ACQUIRED
Vicuron Pharmaceuticals
HAS ACQUIRED
NeighborCare
HAS ENTERED INTO A ROYALTY
AGREEMENT WITH
Emory University
HAS ENTERED INTO A STRATEGIC
ALLIANCE WITH
Astellas
HAS ACQUIRED
ESP Pharma & Retavase
HAS ACQUIRED
aaiPharma’s Pharmaceutical
Division 2005 2005 2005
2005 2005 2005
Overview – Background for Transactions
Attractive assets are driving deals High level of activity Phase II and later assets most attractive Large Biotech competing with Pharma Biotechs are “more realistic” about funding
requirements and capabilities required to be FIPCOs Tight capital markets More mature management teams Time is of the essence
Overview – Background for Transactions (cont’d)
Pharma and large Biotech are leading the way Aggressive, competitive views in accessing assets
Phase II Deals are all over the map Situational approach “Auction” is always best
VC’s see M&A as a viable alternative to IPO’s Parallel tracking Alternative financing choices Structured finance products Equity lines, project financing deals
Recent IPOs = Exit for Investors
’03–’05 IPO Class: 44 Companies
(a) 27 companies have completed secondary offerings
67%
33%
57%
16%
27%
46%
14%
40%
Share Price Relative to IPO Pre Money Value atCurrent Share Price
Years of Cash Remaining
100% = 44 Companies
Above
Below
>$200m
$100-$200m
< $100m
3+ Years
2-3 Years
< 2 Years
(a)
Recent IPOs = Exit for Investors
LTM Class: 19 Companies
(a) 6 companies have completed secondary offerings
84%
16%
53%
42%
5%
32%
32%
36%
Share Price Relative to IPO Pre Money Value atCurrent Share Price
Years of Cash Remaining
100% = 19 Companies
Above
Below
>$200m
$100-$200m
< $100m
3+ Years
2-3 Years
< 2 Years
(a)
What are Biotechs Looking For?
Cash, cash and more cash Complementary capabilities Retained commercial rights Significant downstream control Booking sales “Try it on for size” deals
Biotech vs. Pharma Innovation Trends
Most Innovative Drugs in Development Most Innovative Drugs in Development Predominantly Come From Biotech Predominantly Come From Biotech
Rather than PharmaRather than Pharma
Biotechs are Partnering Fewer of Biotechs are Partnering Fewer of These Innovations to PharmaThese Innovations to Pharma
Source: R&D Directions 2003-2006; Lazard Analysis
However Those That are Partnered However Those That are Partnered Primarily End Up in the Hands of Primarily End Up in the Hands of
PharmaPharma
25%35%
65%75%
100% = 81 Products 100% = 28 Products
Pharma
Biotech
No
Yes
Partnered? Partner
Biotech: Increasingly Important Source of Pipeline/Products
Source: R&D Directions, March 2003-2006, Lazard Analysis
Top 100 Innovative Drugs under Development
70% 76% 81% 81%
30% 24% 19% 19%
2003 2004 2005 2006
100% = 100 Products
Originator
Pharma
Biotech
Pharma-Biotech % of Respondents
All (N=128)
Pharma (N=47)
Biotech (N=63)
75% 83%
70% 70%
49% 35%
23% 46%
19% 24%
42%
39%
20%
14%
72%
80%
19%
13%
Key Consolidation Drivers: Pharma-Biotech
Rank Order of Importance, % of Respondents Selected as a Top 3 Choice
Source: Lazard Survey, 2006 Preliminary Results
Late Stage
Early Stage
Rank
’05 ’06
1 1
3 3 Strengthen or Acquire IP/Technology
4 4 Investors Seeking Exit
NA 5 Pharma’s Desire to Use Repatriated Earnings/Cash
NA 6 Increasing Cost/Risk of Gaining FDA Approval
2 2 2 2
Strengthen Strengthen PipelinePipeline
Intra-Biotech % of Respondents
All (N=128)
Public Biotech (N=41)
Private Biotech (N=22)
67%
63%
53%
43%
20%
16%
76%
68%
54%
34%
29%
5%
68%
68%
64%
32%
14%
23%
Key Consolidation Drivers: Intra-Biotech
Source: Lazard Survey, 2006 Preliminary Results
Rank Order of Importance, % of Respondents Selected as a Top 3 Choice
’05 ’06
1 1 Strengthen Pipeline
3 2 Financial Flexibility/Enhance Access to Cash
4 3 VC Investors Seeking Exit
2 4 Achieve Critical Mass
5 5 Forward Integration
6 6 Strengthen or Acquire IP/Technology
Rank
Biotech M&A
127
107
5
3
11
5
3
4
720
14
28
12
2003 2004 2005 2006YTD
M&A Activity(# Transactions > $50m)
Source: Lazard Analysis
Preclinical Phase I Phase II Phase III NDA / Marketed Product
$527M (a) $210M $373M $667M $999M
= 2005 Transactions
Average Valuation
M&A Transaction Values by Stage of Development
(a) Pfizer/Angiosyn transaction was primarily comprised of milestone payments and compared more to a licensing deal than an acquisition.
GSK/ ID Biomedical
Pfizer/ Vicuron
Cephalon/ CIMA Labs
Genzyme/ Bone Care
Salix/ Inkine
OSI Pharma/ Eyetech
GSK/ Corixa
JNJ/ Peninsula
Valeant/ Xcel
Novartis/ IdenixPfizer/ Idun
JNJ/ TransFormCephalon/ SalmedixSosei/ Akrakis
Takeda/ Syrrx
Pfizer/ Angiosyn
Chiron/ Powderject
ICN/ RibapharmRoche/ IGEN
Genzyme/ Sangstat
AstraZeneca/ KuDOS
Amgen/ Abgenix
PDL/ ESP Pharma
Genzyme/ ILEX
QLT/ Atrix
MGI Pharma/ Guilford
Cell Therapeutics/Novus Pharma
Amgen/ Tularik
UCB/ Celltech
Dendreon/ Corvas
Pfizer/ Esperion
0
400
800
1,200
1,600
$2,000
($ in millions)
GSK/ ID Biomedical
Pfizer/ Vicuron
Cephalon/ CIMA Labs
Genzyme/ Bone Care
Salix/ Inkine
OSI Pharma/Eyetech
GSK/ Corixa
JNJ/ Peninsula
Valeant/ Xcel
Novartis/ IdenixPfizer/ Idun
JNJ/ TransFormCephalon/ SalmedixSosei/ Akrakis
Takeda/ Syrrx
Pfizer/ Angiosyn
Chiron/Powderject
ICN/ RibapharmRoche/ IGEN
Genzyme/ Sangstat
AstraZeneca/ KuDOS
Amgen/ Abgenix
PDL/ ESP Pharma
Genzyme/ ILEX
QLT/ Atrix
MGI Pharma/ Guilford
Cell Therapeutics/Novus Pharma
Amgen/ Tularik
UCB/ Celltech
Dendreon/ Corvas
Pfizer/ Esperion
0
400
800
1,200
1,600
$2,000
($ in millions)
Pharma-Biotech
41%Intra-Biotech
38%
Spec. Pharma-Biotech
21%
18 Deals$5.6
19 Deals$13.3
100% = 47 deals
10 Deals$2.6
9
6
4
Total StrengthenLate Stage Pipeline
StrengthenEarly Stage Pipeline
Access IP/TechnologyCapabilities
Number of Deals by Type
100% = 19 deals
47%
21%
32%
Memo: Total Trans. Value $13.3bn $1.7bn$8.6bn $3.0bn
Characterization of Recent Pharma-Biotech Transactions
Biotech Acquisitions Over $50 million last 24 months(a)
($ in billions)
Source: Lazard Analysis(a) 9/2004–8/2006
Spec. Pharma-Biotech
21%
Intra-Biotech
38%
Pharma-Biotech
41%
18 Deals$5.6
19 Deals$13.3
100% = 47 deals
10 Deals$2.6
Characterization of Recent Intra-Biotech Transactions
Biotech Acquisitions Over $50 million last 24 months(a)
($ in billions)
5
2
3
8
Total StrengthenPipeline
Enhance Scale/Achieve
Critical Mass
Access IP/Technology
Capabilities
StrengthenBalance
Sheet
Number of Deals by Type
100% = 18 deals
28%
11%
44%
17%
Memo: Total Trans. Value
$5.6bn $1.3bn$3.6bn $0.2bn $0.5bnSource: Lazard Analysis(a) 9/2004–8/2006
BuyAlly
+ Shared Risk of Approval+ Payments Timed to Progress+ Less Wall Street Downside with Failure– Impact of Periodic Milestone Payments– Shared Economics– Alliance Management Issues
Ally vs. Buy Tradeoff
+ Purchase Accounting Treatment+ Current Valuations+ 100% of Economics+ Control Over Clinical Trials and IP– Assume Risk of Approval Up Front– Retention of Key Employees/R&D
Relevant for Private Companies Provide Upfront Cash on Cash Return
for Investors Real Visibility on Earn-out/Back-end
Payments Align Interests/Motivations of Both
Acquiror and Management
Structured Acquisitions
What are Collaborators Interested In?
Advanced ( Phase II) products Complementary assets
Therapeutic area match
Filling pipelines Locking up interesting technologies or assets “Earn outs”
Industry Metrics for Collaborations
According to Recap, Phase II Pharma deals continue to
increase in payment size, from 2003 – mid-year 2006:
Upfront: median $19M, mean $32M
R&D Funding: median and mean: $26M
Milestones: median, $187M, mean $244M
Equity: median, $18M, mean $30M
Examples of Structured Deals
UPFRONT OTHER KEY TERMS/CONSIDERATIONS
n $129 million consisting of: n $109 million for a
13% equity stake n $20 million cash
n Exclusive option on additional compounds/ programs n Research support on GSK in-licensed program n Milestone and royalties of $162 million to $240 million per
program n Put/ call options on shares
n $245 million for 100% of equity shares
n Antibiotic PPI-0903 spun off to Peninsula shareholders prior to acquisition
n $300 million consisting of: n $225 million for a
51% equity stake n $75 million cash
n Up to $35 million in additional milestones n US and EU co-promotion n Option to co-develop a third product n Full research funding for telbivudine and valtorcitabine
n $145 million n Earnouts based on regulatory filings, approvals and product sales
n Small double digit payment
n Total earnouts of $527 million
/
/
/
/
/
Source: WallsStreet Research.
Recent Representative Examples
Larger deals
Fibrogen-Astellas; Affymax-Takeda; and
ChemoCentryx-GSK
Phase II assets
“Extraordinary” Bio$ deals
Background
Each of the deals was an auction scenario
Fibrogen and Affymax were for superior EPO
Each involved existing collaborators
Recent Representative Examples
Fibrogen-Astellas--$2+Billion Deal
Anemia treatments (hypoxia-inducible factor and
prolylhydroxylase)
Europe, CIS, Middle East and South Africa
Licensing fee $300M; equity $50M
Development milestones $465M
Fibrogen keeps No. Am. Rights
Shared development costs ROW; Fibrogen No. Am.
Built on existing Japan deal
Recent Representative Examples
Affymax-Takeda--$535M Deal
Hematide and back-ups
Upfront fee $105M
Milestones, $280M development; $150M commercial and ROW
50:50 co-promotion in U.S.
Takeda bears first $50M of development expenses and 70% of
U.S. development costs
Affymax manufactures; holds NDA
In U.S., Affymax leads anemia; Takeda leads oncology
Takeda responsible for ROW
Built on existing Japan deal
Recent Representative Examples
ChemoCentryx --$1.5+B Deal
4 targets, 6 worldwide exclusive product options; lead
chemokine in Phase II
Upfront payments $63.5M (fee and equity)
Milestones all products $1.5+B
Royalties to ChemoCentryx
Co-promotion rights in certain indications
GSK leads development, holds regulatory filings after existing
studies
Final Thoughts
Understand the market and who is really a potential collaborator/buyer
Do your homework-- understand the partners and have a strategy and goals
Control and be thoughtful about the process, particularly timing
Be willing to walk away or choose a different path
Recommended