Beyond Borders: Global biotechnology report 2010

exercises the option, it typically takes
responsibility for further development
and commercialization. As noted in the
Financing article (“A higher bar”), the
Novartis Option Fund has also been active
with similar arrangements. The Novartis
Option Fund is, however, investing as a
financial investor first, and normally does
not take on option on the biotech company’s
lead program.
In prior years, we have discussed another
type of option arrangement — the structure
used by Symphony Capital to strike deals
with several biotech firms — as a financing
transaction. In these deals, the biotech
company contributes assets to a newly
formed entity that is funded and controlled
by Symphony, but it retains an option to
acquire the new entity or individual assets
over a defined time period. The success of
the Symphony funding model depended in
part on a healthy equity market so that the
biotechs could access capital to exercise
the options at higher valuations than when
the structure was put in place. Given the
more restrictive fund-raising environment
in 2009 and the fact that even positive
clinical news didn’t always move a
company’s stock, Symphony renegotiated
the option terms of several existing deals
in 2009, including those with Alexza
Pharmaceuticals, Dynavax and OXiGENE,
thus becoming a significant equity holder
in these companies.
Tying the knot
Over its 20-year history, the
Roche-Genentech alliance was incredibly
productive for both parties. We have often
wondered why we haven’t seen more
examples of such deal structures — once
referred to as “the 60% solution” in
honor of Roche’s ownership stake in
Genentech — as it allowed Genentech to
grow and adapt largely insulated from
short-term stock market pressures.
In last year’s report, we featured an
innovative partnership between Purdue
Pharmaceuticals (and affiliates) and Infinity
Pharmaceuticals that was intended to
achieve the same objective — albeit with
Purdue holding a minority ownership
interest. With a secure source of financing,
the transaction allows Infinity to allocate
resources to the most promising product
candidates, which may not always be the
most advanced items in their pipeline.
A 2009 version of this structure can be
found in the expansion of an existing
alliance between sanofi-aventis and
Regeneron which is focused on the
development of monoclonal antibodies.
Under this arrangement, sanofi-aventis
will pay Regeneron US$160 million
per year over seven years to conduct
research activities. Sanofi-aventis has
the option to take over development of
the resulting product candidates as they
enter clinical trials. The parties share
the profits from the resulting drugs, with
sanofi-aventis receiving a preferential
profit split until reimbursed for half of the
clinical development costs of the product.
This allows Regeneron to focus on early
discovery and preclinical activities and
only pay for clinical development of drugs
that are approved. Of course, Regeneron
can agree to take on clinical development
for any drug that sanofi-aventis takes
a pass on. Sanofi-aventis is also a 19%
shareholder in Regeneron, but its stake
cannot exceed 30% without approval
from Regeneron. Like the Purdue-Infinity
transaction, the deal does not give sanofiaventis
any board seats. (For more on
the motivation behind this transaction
see “Succeeding together” by Leonard
Schleifer, Regeneron’s CEO.)
While not all biotech companies will have
the technology platform for this type of
arrangement, those that do may want to
consider the option of “getting engaged”
with a larger, patient and strategically
aligned partner.
United States
M&As
The saga of Roche’s acquisition of the
minority interest in Genentech finally came
to close in March 2009 when the biotech
company’s board agreed to a price of
US$95 per share, or nearly US$47 billion
(more than Merck paid for all of
Schering-Plough). This deal closes the
book on the most successful and lucrative
alliance in the history of the biotech
industry. Because of the outsized nature of
the deal and the fact that Roche previously
controlled a majority of Genentech, we
have decided to omit the transaction from
the analysis and charts in this article.
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