Transcript Biotechnology M&A Conference October 4, 2006

Biotechnology M&A Conference
October 4, 2006
Glen Y. Sato
Cooley Godward Kronish LLP
FIRM OVERVIEW
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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
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Partner in the Life Sciences and Public Securities
practice groups
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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
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
Banking – Europe/Japan
Jeffrey Rosen – MD
Matthieu Bucaille – MD
David Gluckman, M.D. – MD(a)
Yasu Hatakeyama – MD
David Low – MD
Marie Roskrow, M.D., Ph.D. – Director
Eric Delbridge, M.D. – VP
Equity Capital Markets
Bill Buchanan – Managing Director,
Co-Head of Corporate Finance,
Head of U.S. Capital Markets
Jeffrey Klein – Director
Robert Berger – VP
LOS ANGELES
Lazard Capital Markets
Alternative Capital Finance Group
CHICAGO
Richard Gormley – Managing
Director, Head of Alternative
Capital Finance Group
Geoff Goodman – Vice President
Special Advisors
Dr. Paul Marks – President
Emeritus, Memorial SloanKettering
David Tashjian – Co-CEO
David McMillan – Managing
Director, Head of Equity
Syndicate
NEW YORK
Est. 1880
LONDON
Est. 1871
HOUSTON
ATLANTA
Dr. Guiseppe Vita – Former
Chairman, Executive Board,
Schering AG
PARIS
Est. 1852
ASIA
TOKYO
Offices in Hong Kong,
Singapore, Seoul
STOCKHOLM
MADRID
SYDNEY
Uniquely Provide World-Class Advice to
both Innovators and Leaders
Overview – Background for Transactions
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Attractive assets are driving deals
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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)
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Pharma and large Biotech are leading the way
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Phase II Deals are all over the map
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Aggressive, competitive views in accessing assets
Situational approach
“Auction” is always best
VC’s see M&A as a viable alternative to IPO’s
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Parallel tracking
Alternative financing choices
Structured finance products
Equity lines, project financing deals
Recent IPOs = Exit for Investors
’03–’05 IPO Class: 44 Companies
100% = 44 Companies
Above
>$200m
33%
$100-$200m
Below
67%
Share Price Relative to IPO
(a)
27 companies have completed secondary offerings
< $100m
27%
3+ Years
40%
2-3 Years
14%
< 2 Years
46%
16%
57%
Pre Money Value at
Current Share Price
(a)
Years of Cash Remaining
Recent IPOs = Exit for Investors
LTM Class: 19 Companies
100% = 19 Companies
Above
5%
16%
>$200m
3+ Years
36%
2-3 Years
32%
< 2 Years
32%
42%
$100-$200m
Below
84%
< $100m
Share Price Relative to IPO
(a)
6 companies have completed secondary offerings
53%
Pre Money Value at
Current Share Price
(a)
Years of Cash Remaining
What are Biotechs Looking For?
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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
Predominantly Come From Biotech
Rather than Pharma
Biotechs are Partnering Fewer of These
Innovations to Pharma
However Those That are Partnered Primarily End Up
in the Hands of Pharma
Source: R&D Directions 2003-2006; Lazard Analysis
Biotech: Increasingly Important Source of
Pipeline/Products
Top 100 Innovative Drugs under Development
100% = 100 Products
Pharma
Biotech
30%
70%
2003
24%
76%
2004
19%
81%
2005
Originator
Source: R&D Directions, March 2003-2006, Lazard Analysis
100% = 81 Products
100% = 28 Products
19%
No
65%
Yes
35%
75%
Pharma
25%
Biotech
81%
2006
Partnered?
Partner
Key Consolidation Drivers: Pharma-Biotech
Rank Order of Importance, % of Respondents Selected as a Top 3 Choice
Pharma-Biotech
% of Respondents
Rank
All (N=128)
’05
’06
1
1
Late Stage
80%
Pharma
(N=47)
Biotech
(N=63)
75%
83%
70%
70%
49%
35%
23%
46%
19%
24%
19%
13%
 Strengthen Pipeline
2
2
3
3
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Strengthen or Acquire
IP/Technology
4
4
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Investors Seeking Exit
NA
5
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Pharma’s Desire to Use Repatriated
Earnings/Cash
NA
6
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Increasing Cost/Risk of Gaining FDA
Approval
72%
Early Stage
Source: Lazard Survey, 2006 Preliminary Results
42%
39%
20%
14%
Key Consolidation Drivers: Intra-Biotech
Rank Order of Importance, % of Respondents Selected as a Top 3 Choice
Intra-Biotech
Rank
’05 ’06
% of Respondents
Public Biotech Private Biotech
(N=41)
(N=22)
All (N=128)
1
1
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Strengthen Pipeline
3
2
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Financial Flexibility/Enhance
Access to Cash
4
3
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VC Investors Seeking Exit
2
4
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Achieve Critical Mass
5
5
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Forward Integration
6
6
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Strengthen or Acquire
IP/Technology
Source: Lazard Survey, 2006 Preliminary Results
67%
63%
53%
43%
20%
16%
76%
68%
68%
68%
54%
64%
34%
32%
29%
14%
5%
23%
Biotech M&A
M&A Activity
(# Transactions > $50m)
28
7
20
3
14
5
12
21
27
12
2003
12
4
3
5
10 (> $50m)
Announced
12
28
Transactions
44
7
8
19
7
11
36
17
10
2004
2003
Intra-Biotech
Source: Lazard Analysis
11
2005
7
2006YTD
2004
Pharma-Biotech
2005
2006YTD
Spec Pharma-Biotech
M&A Transaction Values by Stage of
Development
($
($ in
in millions)
millions)
$2,000
$2,000
= 2005 Transactions
UCB/Celltech
UCB/Celltech
Amgen/Abgenix
Amgen/Abgenix
Pfizer/Vicuron
Pfizer/Vicuron
Amgen/Tularik
Amgen/Tularik
GSK/ID Biomedical
GSK/ID Biomedical
1,600
1,600
1,200
ICN/Ribapharm
ICN/Ribapharm
Roche/IGEN
Roche/IGEN
Pfizer/Esperion
Pfizer/Esperion
1,200
Genzyme/ILEX
Genzyme/ILEX
OSI Pharma/Eyetech
OSI Pharma/Eyetech
800
800
400
Pfizer/Angiosyn
Pfizer/Angiosyn
400
AstraZeneca/KuDOS
Takeda/Syrrx
AstraZeneca/KuDOS
Takeda/Syrrx
0
0
Pfizer/Idun
Pfizer/Idun
JNJ/TransForm
Cephalon/Salmedix
JNJ/TransForm
Sosei/Akrakis
Cephalon/Salmedix
Dendreon/Corvas
Sosei/Akrakis
Dendreon/Corvas
Preclinical
$527M (a)
Phase I
$210M
Phase II
$373M
Valeant/Xcel
Valeant/Xcel
GSK/Corixa
MGI Pharma/Guilford
GSK/Corixa
Novartis/Idenix
MGI
Pharma/Guilford
Novartis/Idenix
JNJ/Peninsula
JNJ/Peninsula
Cell Therapeutics/
Novus
Pharma
Cell
Therapeutics/
Chiron/Powderject
Chiron/Powderject
QLT/Atrix
QLT/Atrix
Genzyme/Bone Care
Genzyme/Sangstat
Genzyme/Bone Care
Cephalon/CIMA Labs
Genzyme/Sangstat
PDL/ESP
PharmaLabs
Cephalon/CIMA
PDL/ESP Pharma
Salix/Inkine
Salix/Inkine
Novus Pharma
Phase III
$667M
Average Valuation
(a) Pfizer/Angiosyn transaction was primarily comprised of milestone payments and compared more to a licensing deal than an acquisition.
NDA /
Marketed Product
$999M
Characterization of Recent PharmaBiotech Transactions
Biotech Acquisitions Over $50 million last 24 months(a)
($ in billions)
Number of Deals by Type
100% = 47 deals
Spec. PharmaBiotech
21%
IntraBiotech
38%
100% = 19 deals
4
10 Deals
$2.6
18 Deals
$5.6
19 Deals
$13.3
PharmaBiotech
41%
32%
6
47%
9
Total
Source: Lazard Analysis
(a) 9/2004–8/2006
21%
Memo:
Total Trans. Value
$13.3bn
Strengthen
Late Stage Pipeline
$8.6bn
Strengthen
Early Stage Pipeline
$1.7bn
Access IP/Technology
Capabilities
$3.0bn
Characterization of Recent Intra-Biotech
Transactions
(a)
Biotech Acquisitions Over $50 million last 24 months
($ in billions)
Number of Deals by Type
100% = 47 deals
100% = 18 deals
PharmaBiotech
41%
19 Deals
$13.3
IntraBiotech
38%
44%
8
17%
18 Deals
$5.6
3
10 Deals
$2.6
2
28%
5
Spec. PharmaBiotech
21%
Source: Lazard Analysis
(a) 9/2004–8/2006
11%
Memo:
Total Trans.
Value
Total
Strengthen
Pipeline
Enhance Scale/
Achieve
Critical Mass
$5.6bn
$3.6bn
$1.3bn
Access IP/
Technology
Capabilities
$0.2bn
Strengthen
Balance
Sheet
$0.5bn
Ally vs. Buy Tradeoff
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+
+
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–
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Shared Risk of Approval
Payments Timed to Progress
Less Wall Street Downside with Failure
Impact of Periodic Milestone Payments
Shared Economics
Alliance Management Issues
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+
–
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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
Ally
Buy
Structured Acquisitions
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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
What are Collaborators Interested In?
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Advanced ( Phase II) products
Complementary assets
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Therapeutic area match
Filling pipelines
Locking up interesting technologies or assets
“Earn outs”
Industry Metrics for Collaborations
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According to Recap, Phase II Pharma deals continue to
increase in payment size, from 2003 – mid-year 2006:
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Upfront: median $19M, mean $32M
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R&D Funding: median and mean: $26M
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Milestones: median, $187M, mean $244M
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Equity: median, $18M, mean $30M
Examples of Structured Deals
UPFRONT
/
/
/
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/
Source: WallsStreet Research.
million
consisting of:
 $109 million for a
13% equity stake
 $20 million cash
OTHER KEY TERMS/CONSIDERATIONS
 $129
 Exclusive
 $245
 Antibiotic
 $300
 Up
million for 100%
of equity shares
million
consisting of:
 $225 million for a
51% equity stake
 $75 million cash
 $145
million
 Small
double digit
payment
option on additional compounds/programs
 Research support on GSK in-licensed program
 Milestone and royalties of $162 million to $240 million per
program
 Put/call options on shares
PPI-0903 spun off to Peninsula shareholders prior to
acquisition
to $35 million in additional milestones
 US and EU co-promotion
 Option to co-develop a third product
 Full research funding for telbivudine and valtorcitabine
 Earnouts
 Total
based on regulatory filings, approvals and product sales
earnouts of $527 million
Recent Representative Examples
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Larger deals
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Fibrogen-Astellas; Affymax-Takeda; and
ChemoCentryx-GSK
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Phase II assets
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“Extraordinary” Bio$ deals
Background
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Each of the deals was an auction scenario
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Fibrogen and Affymax were for superior EPO
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Each involved existing collaborators
Recent Representative Examples
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Fibrogen-Astellas--$2+Billion Deal
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Anemia treatments (hypoxia-inducible factor and
prolylhydroxylase)
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Europe, CIS, Middle East and South Africa
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Licensing fee $300M; equity $50M
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Development milestones $465M
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Fibrogen keeps No. Am. Rights
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Shared development costs ROW; Fibrogen No. Am.
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Built on existing Japan deal
Recent Representative Examples
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Affymax-Takeda--$535M Deal
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Hematide and back-ups
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Upfront fee $105M
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Milestones, $280M development; $150M commercial and ROW
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50:50 co-promotion in U.S.
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Takeda bears first $50M of development expenses and 70% of
U.S. development costs
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Affymax manufactures; holds NDA
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In U.S., Affymax leads anemia; Takeda leads oncology
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Takeda responsible for ROW
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Built on existing Japan deal
Recent Representative Examples
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ChemoCentryx --$1.5+B Deal
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4 targets, 6 worldwide exclusive product options; lead
chemokine in Phase II
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Upfront payments $63.5M (fee and equity)
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Milestones all products $1.5+B
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Royalties to ChemoCentryx
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Co-promotion rights in certain indications
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GSK leads development, holds regulatory filings after existing
studies
Final Thoughts
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Understand the market and who is really a
potential collaborator/buyer
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Do your homework-- understand the partners
and have a strategy and goals
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Control and be thoughtful about the process,
particularly timing
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Be willing to walk away or choose a different
path