California Biotech Law Blog

Bristol-Myers Squibb has agreed to acquire Hayward-based Kosan Biosciences for $190 million, reported the San Francisco Business Times.  Both boards of directors have approved the deal.

The deal will pay investors $5.50 per share, which amounts to a "huge premium" according to BioHealth Investor, which indicated that the stock was only at $1.65 on the day the deal was made, and that its 52-week trading range was $1.28 to $6.49.

BioHealth Investor reported on the acquisition as follows:

The acquisition of Kosan will enhance Bristol-Myers Squibb’s pipeline will get to enhance its pipeline with compounds in two important classes of anticancer agents, called novel Hsp90 (heat shock protein 90) inhibitors and epothilones.

The company believes this will result in new treatment options for patients as another important milestone in becoming a next-generation BioPharma leader.  Kosan evolved from a research platform to a development company and this should offer a timely opportunity to place its clinical programs in the hands of a much larger company to bring innovative cancer treatment options to patients.

According to the San Francisco Business Journal, a separate exclusive worldwide license agreement was signed simultaneously, which will remain in effect even if the acquisition does not go through.  The terms of that agreement are $25 million up front plus milestones for rights to Kosan's epothilone compounds.

The In Vivo Blog reported on the Kosan deal that while some were underwhelmed by the price Bristol-Myers Squibb paid to acquire Kosan, "The market--and, probably Bristol as well--attached very little value to Kosan's unpartnered projects beyond the epothilones."  In Vivo Blog further explained:

That the deal isn't centered more around tanespimycin probably says more about the difficulties Kosan has faced with this particular molecule than it does about the value of Hsp 90 inhibitors generally. Remember Hsp90, as a target class, has been the driver of multiple buyouts and licensing deals in the past couple years. . . . Instead it probably has more to do with the fact that tanespimycin is one of several Hsp90 inhibitors in development that are derived from geldanamycin, a natural compound relatively high in molecular weight that might have trouble reaching an important hotbed of Hsp90 activity, the interior of the mitochondria. . . .

Meanwhile, Kosan's epothilones are clearly commanding more interest. These molecules target a tumor cell's skeletal infrastructure, much like taxanes, but via a different mechanism, and molecules like Ixempra have been specifically designed to overcome drug resistance. . . . Cornelius and co. are counting on Ixempra as a key part of its strategy to regain leadership in the cancer arena.

So, while this deal may not have resulted in a huge payoff for Kosan investors, there does seem to be a perception among at least some industry watchers that the deal--providing a 230% premium over the stock price--achieved a good result for both sides. 

Biotech companies are running into roadblocks when they enter into deals with the UC System, according to a report this week by the San Francisco Business Journal. 

According to the San Francisco Business Journal, the key problem is that it simply takes too long to get the deal done.  The San Francisco Business Journal reported:

"Most of us would prefer not to work with" the UC System, [Don] Francis [chairman and executive director of the South San Francisco nonprofit Global Solutions for Infectious Diseases and co-founder of Vaxgen, Inc. of South San Francisco] said at a recent UCSF forum on product development partnerships

Francis recalled VaxGen's late-stage AIDS vaccine trials that included UC sites. Because UC lawyers pushed for intellectual property rights for the system -- though VaxGen had done the research and was only conducting paid-for trials at UC -- agreements took months rather than weeks to complete, Francis said. In fact, UC was the last series of clinical sites to sign on. 

It's fixable. . . . but unless changes are made, he said, UC will drive away companies.

The other significant problem, according to the San Francisco Business Journal, is that the UC leadership is just too risk-adverse.  The San Francisco Business Journal reported:

Deals must pass "the Chronicle test," said Jack Newman, a UC Berkeley graduate and now senior vice president of research at Amyris Biotechnologies Inc. in Emeryville. In other words, UC system lawyers want to be sure no one -- those pesky media types, in particular -- can accuse them of giving away too much value.

As an IP attorney who regularly handles deals with universities and companies in the private sector, my personal experience has been that deals with universities in general do tend to take an excrutiatingly long time to get finalized and signed.  Typically, the time period far exceeds the normal negotiating period in the private sector. 

Why is this? 

Well, in all likelihood, it is because the universities operate on a different timeclock.  Businesses are often anxious to get deals signed, so that they can move on to a different set of problems and concerns.  However, universities frequently operate on a different schedule and set of priorities--there just is not the same level of pressure to get the deal closed in a specific period of time that you have in the private sector.  I suspect that if you took a survey of all of the tech transfer offices around the country, you would find that the UC System's turnaround time is fairly representative of what you find at other university tech transfer offices.

I would be interested in hearing from others of you in the blogosphere who have experience with doing deals with universities: what has your experience been with the turnaround time?  Has your experience been similar to mine or have you found that any particular universities are operating at a much faster timetable?  I will, of course, share any feedback I receive on this topic. 

Takeda has agreed to acquire Cambridge, Massachusetts-based Millennium Pharmaceuticals for $8.8. billion dollars. 

The Wall Street Journal reported on the terms of the deal as follows:

Takeda, Japan's biggest drug maker by revenue, will buy Millennium. . . . for $25 a share. The price represents a 53% premium to Wednesday's $16.35 closing price for Millennium shares. The deal, the largest acquisition by Takeda, is structured as a tender offer and is conditional upon a majority of shareholders accepting the terms.

Obviously Millennium came out of this deal quite well: $8.8. billion is certainly not an insignificant amount of money.  In Vivo Blog certainly characterized this as an excellent deal from Millennium's perspective, explaining as follows:

Millennium hit its billion dollar jack-pot a bit sooner than expected. . . . Not bad for a company with just one marketed product and less than a dozen promising, but still risky, clinical assets. . . .In addition to Velcade, Millennium has 10 drugs currently in clinical trials, primarily focused around oncology and inflammatory bowel disease. But the company’s next most advanced product, MLN-0002, an antibody against the gut-specific alpha-4 beta-7 integrin for ulcerative colitis and Crohn’s disease, has yet to enter Phase III clinical trials and isn’t likely to be approved before 2011 or 2012.

Thus, until the Takeda acquisition announcement, Millennium's fate--barring some kind of external business transaction--was entirely dependent on expanding the use of its first-in-class proteasome inhibitor beyond its approved uses in relapsed multiple myeloma and mantle cell lymphoma. . . .

Simply put, Takeda’s rich was offer was too good to ignore. Yes, Velcade growth was strong and growing stronger. But unable to in-license or acquire a late stage product on favorable economic terms, the company was forced to rely heavily on the growth of this product to feed its clinical pipeline until MLN-0002 was ready for prime time. A risky situation and one that already seemed as if it were necessitating tough development choices.

So, why was this a good deal from Takeda's perspective?  Well, as in the case of many pharmaceutical companies, it was all about rebuilding the pipeline.

The Wall Street Journal explained as follows:

By acquiring Millennium, Takeda will help address a revenue problem it will likely face soon. The patents on two of Takeda's biggest-selling products -- ulcer drug Prevacid and diabetes treatment Actos -- expire in 2009 and 2011, respectively. Revenue from Millennium's best-selling product, blood-cancer treatment Velcade, is growing quickly and is expected to reach as much as $345 million this year.

Sales of Velcade could get another big boost this summer when the U.S. Food and Drug Administration rules on an application from Millennium to sell the drug as a first-line treatment for multiple myeloma. Currently, the drug's labeling indicates it should be used only with patients who have already tried another medicine first. A label allowing for broader usage of the drug would likely result in more patients using Velcade for longer periods of time.

Also, according to The Wall Street Journal, the acquisition is part of a larger strategy by Takeda to expand into overseas markets.  The Wall Street Journal reported as follows:

The acquisition. . . .is part of an aggressive campaign by Takeda President Yasuchika Hasegawa to spend a good chunk of the roughly $20 billion the company has in cash on acquisitions or licensing agreements.Last year, the company set aside $10 billion as part of a strategic fund to help it expand into overseas markets. In February, Takeda struck a deal to buy biotech giant Amgen Inc.'s Japan unit, as well as gain marketing rights to 13 Amgen drugs for Japan and elsewhere in Asia. Last month, it bought out partner Abbott Laboratories' share of a U.S. joint venture. 

Thus, in the end, the deal was a win-win for both Takeda and Millenium.  

It seems likely that we will be seeing more such acquistions from Takeda in the near future.  Perhaps biotech companies should take note and put Takeda on their short list for potential strategic partners: Takeda may just be in the market for more such relationships. 

Palo Alto-based CV Therapeutics signed a lucrative deal earlier this week with New York-based TPG-Axon Capital in which TPG-Axon Capital, a New York hedge fund, agreed to pay up to $185 million in exchange for the payment of a royalty in the amount of fifty percent of its North American sales of Lexiscan, reported the San Jose Business Journal. 

According to the San Jose Business Journal, the U.S. Food and Drug Administration("FDA") recently approved CV Therapeutics's Lexiscan injection, an A2A adenosine receptor agonist, for use as a pharmacologic stress agent for patients unable to undergo adequate exercise for stress tests.

The San Jose Business Journal reported on the terms of the deal as follows:

[T]he deal with. . . .TPG-Axon Capital includes $175 million on closing of the transaction and a potential future milestone payment of $10 million. . . .CV Therapeutics retains rights to the other 50 percent of royalty revenue from North American sales of the product [by its partner Astellas Pharma US, Inc., and also may receive a royalty on another Astellas product under the terms of the company's collaboration agreement with Astellas Pharma US Inc.

The San Jose Mercury News further reported:

[I]nvestment bank Leerink Swann described the $175 million payment as "a surprisingly positive transaction," because other heart stressing agents already are on the market.

"The magnitude of this deal is much bigger than we would expect since physicians we have queried seem relatively uninterested in a novel cardiac stress agent," the report said.

It goes with out staying that a deal of this magnitude dramatically improves CV Therapeutics' cash flow situation.  According the the San Jose Business Journal, CV Therapeutics plans to use the financing to meet a 2010 debt obligation and to also support its commercialization plans for Ranexa.

While investors may not aways support biotech alliances as discussed in our  March 27th blog posting, entering into an alliance with a pharmaceutical company can still make good business sense, as in the case of the $320 million Cell Genesys-Takeda deal that closed this week. 

The In Vivo Blog reported on the terms of the deal as follows:

Takeda agreed to fork over $50 million in up-front payments, plus additional regulatory and commercialization milestones worth up to $270 million for exclusive world-wide rights to the product. In addition, Takeda will pay Cell Genesys tiered, double-digit royalties based on net sales of the GVAX immunotherapy in the US; in all other regions, Cell Genesys will receive flat double-digit royalties. Not quite a profit split, but again, by no means stingy.

Just as important, going forward Takeda will pay for all external development costs associated with the the immunotherapy's clinical development and will also pick up the tab for all additional development and commercialization costs. Cell Genesys even managed to wrangle a co-promote option--US only--out of the Japanse firm. Finally, the deal only includes the prostate cancer immunotherapy. Cell Genesys is free to develop its GVAX technology to treat other cancers.

Why did this deal make good business sense for Cell Genesys? 

According to the In Vivo Blog, one reason is that Cell Genesys obtained a deal which will pay the company a significant amount of money in an agreement for technology that remains unproven--Cell Genesys Phase III GVAX immunotherapy for prostate cancer.

Moreover, the partnership will provide the cash to cover the costs that Cell Genesys anticipates burning this year,  The In Vivo Blog explains as follows:

On its fourth quarter earnings call in late February, the company's CFO, Sharon Tetlow, reported it had just $147 million in cash. Not bad for a biotech, but not good considering the $100 to $105 million burn the company forecasted for 2008, thanks largely to the significant costs associated with its prostate cancer immunotherapy trials, VITAL-1 and VITAL-2. With one partnership, the company has managed to off-load the lion's share of these costs, giving it some much needed breathing room, while still enjoying upsides in terms of development and generous royalties. 

All in all, the In Vivo Blog concludes that "[t]here's no doubt the deal makes financial sense for Cell Genesys.  However, did this deal really make sense for Takeda?

First of all, backing the GVAX Prostate is highly risky, according toThe Street.com's Adam Fuerstein, who argues that the clinical data to date is unreliable. 

Second of all, the controversy surrounding cancer immunotherapies may have been a red flag to other companies, who In Vivo Blog suggests would have "steered clear of Cell Genesys's GVAX Prostate."

On the other hand, the In Vivo Blog suggests that the deal furthered Takeda's recent growth strategy:

[Takeda] is desperate to extend its reach beyond Japan given that country's sluggish growth and harsh price cuts. And, like other pharmas, Takeda certainly faces its own patent cliff. But the Japanese pharma is taking bold steps to play in the large molecule arena; according to Windhover's Strategic Transactions Database, Takeda has signed 9 large molecule alliances since 2006. While most of the deals have focused on antibody technology--a la the Amgen partnership--the company is no stranger to risky ventures. Last summer, Takeda became one of the first pharmas to collaborate with aptamer pioneer, Archemix. . . .

So, perhaps this deal will really be a win-win for both parties.  Feurstein expresses his doubts and even the In Vivo Blog is not so sure.

Regardless of how Takeda fares, it is clear that Cell Genesys will benefit from this alliance--thus demonstrating in a very clear way why entering into alliances can be a good business decision for biotech companies.

VaxGen announced the termination of its merger agreement with Raven in a press release issued last Friday.  As a result, liquidation may be in the company's future, reported Steve Johnson for the San Jose Mercury News. 

According to Johnson, VaxGen had planned to have its shareholders vote on the merger Monday morning, but it became clear that the deal was not going to be approved by VaxGen's investors.

Johnson reported on the "troubled" history of VaxGen as follows:

Founded in 1995, it labored for years to develop a vaccine for the AIDS virus, HIV, but was forced to give up that quest in 2003 after its vaccine proved ineffective. In subsequent years, the company disclosed that its financial records were in disorder, resulting in it being delisted from the Nasdaq Stock Market in 2004.

The government provided a brief salvation. Following the Sept. 11, 2001, terrorist attacks, federal officials in 2002 and 2003 gave VaxGen $101.2 million to begin developing a new anthrax vaccine. The government followed that up in 2004 with $877.5 million more to provide 75 million doses of the vaccine.  It was the biggest contract ever awarded under President Bush's anti-terror program, Project BioShield, but it was short-lived. The government revoked the contract in December 2006 when the vaccine failed a key test. .  . .

In the interest of full disclosure, VaxGen was a client of my previous employer, Pennie & Edmonds, LLP and I did some work for the company during the term of my employment at the firm.  It has been sad to see the company fall on hard times, and I am sorry now to see this report of the company moving toward liquidation.  I remember a time when VaxGen's future seemed very full of promise, and when the management team's enthusiasm for its work was quite infectious (no pun intended).  While the nature of the biotech business model is inherently risky and some companies will inevitably fail while others will be wildly successful, it is still sad to see VaxGen come to the end of its road under these circumstances.   I had hoped that the company would enjoy a very different fate: that its AIDs vaccine would prove to be the answer to preventing AIDS that we hoped it to be.  Hopefully the work of VaxGen--despite all of its "troubles"--has nevertheless brought us one step closer to finding that answer. 

Gilead Sciences has now overtaken Amgen as the world's second most highly valued biotech company after Genentech, according to Seeking Alpha.

Seeking Alpha reported:

Investors now think that a biotech company with less than one-third the revenue of Amgen (AMGN) is worth more than the former sector king. . . .

Genentech (DNA) is the commanding number one with a market cap of more than $83 billion. It's a little nip and tuck between GILD and AMGN, but as I write this Amgen's market cap stands at approximately $43.5 billion and Gilead's at $45.5 billion. Amgen is still tops when it comes to revenue: $14.8 billion in 2007 versus Genentech's $11.7 billion and Gilead's $4.2 billion.

While Gilead Sciences' ascension to the number two slot has little if any bearing on the biotech legal landscape, it undoubtedly will have some impact on the negotiating power of Gilead Sciences in future commercial negotiations.  So, transactions attorneys are on notice: negotiating against Gilead Sciences may be on the verge of becoming a more challenging exercise.

The In Vivo Blog ran an interesting posting today, which asserts that  investors dislike biotech alliances.

The In Vivo Blog explains this argument as follows:

Since November 2007, there have been nine deals by public biotech companies with upfront payments (equity and cash) of greater than $20 million – to us a reasonable proxy for a biggish deal. Among them: Isis Pharmaceuticals’ mipomersen deal with Genzyme ($325 million upfront); Merck’s with GTx on its Phase II SARM and two backups ($70 million upfront); and Sanofi Aventis’ multi-antibody arrangement with Regeneron ($85 million upfront).And yet, with all this mostly undilutive capital flowing in, the market’s reaction has been distinctly negative. The median share price among these nine biotechs is down 15% from the day the deal was signed. . . .

[Y]ou’d expect better from companies with pretty darned good news. Regeneron, for the third time non-exclusively monetizing its VelocImmune antibody production system and this time adding a rich co-development deal on a series of programs, with spectacular downstream economics, has nonetheless lost 16% of its value since it announced the deal.

What is the explanation for the investors' behavior? The In VIVO Blog concedes that the "entire decline cannot be blamed on the deals" but gives three possible explanations for the dislike of biotech alliances:

At one time, a Big Pharma deal was the required validation for an IPO or additional public round. But now it’s clear that the market no longer gives a damn about such imprimaturs. Big Pharmas’ frequent missteps in development haven’t shined up their product-picking reputations. More importantly, biotech’s institutional investors now have the teams to do their own scientific and clinical homework.

Second, the M&A-based logic of the market leads investors to the conclusion that any product-based deal subtracts value. We’re not aware of any data that actually supports that conclusion (we’ll look into it, of course). But as long as acquirers are willing to pay a nearly 100% premium to what IPO investors are willing to pay, investors are hardly willing to jeopardize a potential merger windfall by selling off rights to a key product.

And finally, investors just don’t like some of the deals biotech is signing, despite the big dollars attached to them. One reason, noted Bill Slattery of Deerfield Partners at the opening BIO-Windhover panel in New York: deals often give Big Pharma development control.

The In Vivo Blog raises some interesting arguments.  As an IP transactions attorney myself, I cannot help but wonder if there is some truth in their arguments: is it possible that biotech companies are just making bad deals--perhaps due to inexperience or poor negotiating? or due to running low on cash?  Or is it the case that recent alliances just have not been as successful as anticipated on signing?  On the other hand, is something more going on, and alliances are just little by little becoming disfavored by the investing community?

I am interested in what California Biotech Law Blog readers have to say on this issue. What do you think: do investors dislike biotech alliances in 2008?  Why or why not?   We will let you know what  kind of feedback we get on the issue and share it with the readers, as I am confident many biotech companies would benefit from the insight, and those of us in the legal community advising such companies would likely benefit as well.

The Washington Post ran a column today by Jon Leibowitz of the Federal Trade Commission, which addresses a suit recently filed by the agency against Cephalon, Inc., which will test the legality of the practice of entering into "pay for delay" settlements.

 Liebowitz describes the  "pay for delay" settlement controversy at the root of this case as follows:

When these troubling deals first came to light in the late 1990s, the FTC fought them -- and stopped them cold. Between 2000 and 2004, no brand and generic companies entered pay-for-delay deals; in other words, companies resolved patent disputes without anticompetitive payoffs.

Unfortunately, that success is under siege. Two federal appeals courts -- in rulings that conflict with the analysis of a third appellate court -- have found that a brand-name drug company facing a patent challenge is free to pay any amount to keep a generic producer from entering the market until the patent expires. These rulings depart from the spirit of Hatch-Waxman and our nation's antitrust laws, and they harm consumers by subverting the competition at the heart of our free-market system.

Courts that have sided with pharmaceutical companies believe, in essence, that even an infirm patent gives its owner the right to pay competitors not to compete. . . .Not surprisingly, after two courts blessed such payoffs, the frequency of these settlements has increased sharply. In fiscal 2006, fully half of all pharmaceutical patent settlements (14 of 28) contained such payments. Brand-name manufacturers, seeing the potential to continue reaping monopoly profits, have taken advantage of this apparent judicial leniency. . . .

This dispute clearly puts Hatch-Waxman to the test: should a patent owner have the right to pay to keep a competitor out of the market until the patent expires? 

Clearly, insurers and the public would say yes.  According to Liebowitz, Cephalon made an additional $4 billion dollars as a direct result form entering into this "pay for delay" settlement--this is money that came directly out of the pockets of insurers and patients.  As a member of the public who lost my health insurance following the collapse of my former law firm just over four years ago, when my former employer terminated COBRA at the six month mark, leaving me in the position of having to pay full price for prescription medications, I know all too well how expensive it can get to pay for prescription medications, when no generic is available.   There is definitely an impact on the public at large, insurers, and individuals when they have to foot the bill for a more expensive medication.

On the other hand, as an IP lawyer, I can't help but scratch my head a bit over this case: the FTC is effectively taking issue over a patent owner trying to protect its exclusivity until the patent expires.  Isn't that the patent owner's right?   

Not according to the FTC.  The FTC's position is that patent owners do not have the right to enter into these types of settlements--that such deals violate the spirit of Hatch-Waxman and antitrust law.

It makes perfect sense to me why certain courts have sided against the FTC on this particular issue, and also why the FTC anticipates this case going to the Supreme Court.   According to Liebowitz, however, a bill is also making its way through Congress that would prohibit such agreements.  The FTC, of course, supports this legislation. 

The California Biotech Law Blog will keep you posted as this battle unfolds.

Pfizer announced on Thursday its decision to discontinue sales of its new inhaled insulin drug Exubera. 

Exubera was developed by San Carlos-based Nektar Therapeutics, which licensed the drug to Pfizer.   According to the Philadelphia Business Journal, Pfizer plans to transfer the rights to Exubera back to Nektar Therapeutics and take a "$2.8 billion charge to dispose of its interests in it."

The Philadelphia Business Journal reported:

Pfizer at one time said Exubera, approved about two years ago by the Food and Drug Administration, would be a $2 billion-a-year drug, but it was slow in rolling out the marketing of the drug and its device, which was criticized by doctors and insulin users as being too bulky.

So what happened to cause Pfizer to pull the plug on Exubera?

The San Jose Mercury News reported on the background to this decision as follows:

Because 21 million Americans have diabetes and many of them dislike injecting insulin, Exubera - the first-ever inhaled insulin system for adults - was widely expected to be a blockbuster. . . . But despite a recently launched TV ad blitz by Pfizer, the product has been a major disappointment. Although Pfizer has been vague about overall sales, the company revealed that Exubera's revenue for the second quarter of this year was a mere $4 million. Some people attribute Exubera's dismal sales to the fact that it is more expensive and complicated to use than injectable insulin. Figuring out the proper dose of Exubera also is somewhat different than with injectable insulin. And because Exubera can hinder lung function in some cases, anyone using it is supposed to get a lung test first. In addition, some doctors complain that a daily dose of Exubera costs at least twice as much as the injectable variety and that some insurance companies won't pay for it.  But others fault Pfizer for not manufacturing it quickly enough, trying to market it initially with an ill-prepared sales team and delaying its ad campaign until this summer.

The Wall Street Journal Online reported on Pfizer's decision as follows:

Drug companies often cancel drugs during human trials, and occasionally after they go on the market if there are any red flags about safety. But to pull a new drug from the market because it didn't sell -- in the absence of a red flag -- is almost unprecedented.

"This is one of the most stunning failures in the history of the pharmaceutical industry," said Mike Krensavage, an analyst at Raymond James & Associates. "I hope it would give Pfizer pause about buying any more assets."

Pharma Marketing Blog took the analysis of Pfizer's decision one step further and compared the failure of Exubera to the sinking of the Titantic:

There are plenty of . . . similarities between Exubera's failure and the failure of the "unsinkable" Titanic. I am specifically talking about Pfizer's hubris and marketing's poisoned Kool Aid. Like the builders of the Titanic, the Exubera marketers felt they had an "unsinkable" product that would quickly reach blockbuster status and make the company a bundle.

It is unclear to date as to the exact terms and conditions of the Nektar Therapeutics license agreement, but the Wall Street Journal Online described Pfizer's action as a "termination" of the license agreement for a definitive price, and The Mercury News reported that Nektar Therapeutics will have the ability to sell and market the Exubera itself on an ongoing basis.  Thus, there is reason to believe that Pfizer's decision constituted the termination of an exclusive licensing agreement, and that the parties had previously agreed in writing to the specific damage amount to be paid to Nektar Therapeutics in the event of termination.

Apparently, however, Nektar Therapeutics is still recovering from the shock it received yesterday with Pfizer's announcement, and has yet to announce its future plans for the drug.  The Wall Street Journal Online reported:

The news that Pfizer was abandoning Exubera came as a surprise to Nektar of San Carlos, Calif., from which Pfizer licensed Exubera. Nektar issued a scathing news release late yesterday accusing its partner of a poor marketing job and of not alerting Nektar it would be terminating their licensing deal. Pfizer says it told Nektar of its plans minutes after releasing the news, because the announcement was material for both companies.

The Wall Street Journal Online points out that, even if Nektar Therapeutics does try to move forward with the commercialization of Exubera, questions remain as to the safety and overall viability of inhaled insulin products:

[T]he market for other inhaled-insulin products still in development [is up in the air]. Part of Exubera's problem -- the safety concerns that come with inhaling a drug -- will be hard to surmount for any product that goes into the lungs, in the absence of long-term data. There is also the question of whether patients want to inhale insulin, or are really resistant to needles.  In the 11 years since Pfizer bought into the idea, insulin pens have made injecting the drug less painful than the traditional needle and syringe.

The Exubera debacle shines a spotlight on the role of the medical community in determining whether a novel technology is a success or a failure.  While there is no doubt that a variety of factors contributed to the product's failure, clearly Pfizer did not focus adequately on addressing the concerns of the medical community in its attempt to bring Exubera to market.  Too many lingering questions about the product and its delivery system remain, and my suspicion is that the conservative medical community urged patients to stick with the tried and true products rather than to give Exubera a try.  In all likelihood, the fact that the product was more expensive than the other options on the market was just the icing on the cake.   

The Silicon Valley Chapter of Licensing Executives Society ("LES") recently sponsored an event in whch representatives from Stanford and the University of California ("UC") offered tips on licensing with the Stanford and UC systems.  Katharine Ku of Stanford University and Viviana Wolinsky of Lawrence Berkeley National Laboratory each gave an excellent presentation, outlining their respective university's policies and procedures, as well as some of the issues of concern currently facing each organization.  Nader Mousavi of Wilmer Hale, which hosted the event, also participated.

What were some of the insights on their employers' respective licensing programs that the two speakers shared?

Regarding the issue of exclusive licensing terms, Ku indicated that Stanford prefers fixed terms of exclusivity.  In contrast, Wolinsky indicated that UC is generally more willing than Stanford to agree to exclusive licenses that run for the full term of the patent.

On the issue of royalty rates, the speakers agreed that the range often runs from 3 to 6 % of net sales.  Wolinsky shared that the UC system is willing to consider royalty stacking, if this is brought up in the negotiations, and that UC may be willing to reduce the royalty rate on each license to half of what would otherwise be agreed to. 

On the issue of sublicensing, the speakers agreed that a royalty based on net sales from sublicensees is the current standard for UC and Stanford license agreements, replacing the once-common standard of a royalty based on sublicense income (which, in all honesty, I have never seen used in the licensing negotations I have been involved with).  The panel advised that in cases where sublicense income is used as the standard for the sublicensing royalty rate that the following should be excluded: research and development payments, equity, patent reimbursements, other research and development materials and equipment, and the fair market value of cross-licenses. 

The speakers highlighted an important distinction in how UC and Stanford prefer to handle patent prosecution in exclusive licenses.  The UC position is that the university controls all patent prosecution, whereas the preferred Stanford position is that the licensee controls all patent prosecution.  In both cases, the universities require that the exclusive licensee pays for the costs; however, UC prefers that the licensee reimburse UC for the patent prosecution costs, whereas Stanford prefers that the licensee pay the costs directly.

How do the universities deal with patent enforcement?

Ku indicated that Stanford's default position is that Stanford has the right to enforce the patents, and that the licensee can step in if Stanford declines to enforce the patents.  Ku further stated that if the licensee enforces the patents, any damages recovered should cover costs first and then the balance should be treated as net sales/sublicense income. 

In contrast, Wolinsky stated that UC's default position is the same as Stanford's position, except that any damages recovered should go to the party bringing suit. 

Both Stanford and UC require university consent prior to any settlement, and provide the right to name the university as a party for standing.

How are Stanford and UC dealing with the recent MedImmune v. Genentech decision?

UC is taking the most unforgiving position on this issue.  According to Wolinsky, the position is that UC is drafting language into the license to state that if a licensee disputes the validity of a patent, the patent terminates.

In contrast, the Stanford position is a little more tolerant: Stanford is drafting language into the license to state that if a licensee disputes the validity of a patent, the licensee has to pay all costs.

Regarding other issues in the news, both Ku and Wolinsky indicated that the universities were very concerned about the prospect of patent reform, particularly with respect to the proposed changes to the "First to File" Rule.  Ku and Wolinsky also stated that both systems were now adding export control language to their NDAs as well as licenses.  Finally, with respect to sponsored research, Ku indicated that the Stanford policy is that the university is declining to set a royalty rate for inventions arising out of sponsored research, whereas Wolinsky indicated that UC continues to agree to a royalty rate range.

All in all, Ku and Wolinsky gave a very informative presentation on current licensing policies at their respective institutions.  After attending this presentation, however, I now find myself wanting to hear more from other universities on their current policies and procedures on licensing.  So, I am formally issuing an invitation into the blogosphere to any other universities who would like to share information to prospective licensees on their current licensing policies, procedures, and negotiating strategies: please share with us any insights on licensing at your schools, and this blog will gladly provide you a platform to publish that information to the biotech and licensing community.   I welcome your commentary. 

Biotech companies continue to rely on mergers & acquisitions over IPOs as a primary exit strategy, according to a new report by the San Diego Business Journal.

The San Diego Business Journal reported:

Normally, we can get a better valuation by doing a trade, sale or merger than an initial public offering,” said Ivor Royston, managing partner and founder at Forward Ventures. “We get better returns. I see a continuation of mergers and acquisitions that has been so dominating over the last two years. We just don’t see that many IPOs" . . . .

Royston, who was a founding partner of the former Hybritech, the first San Diego biotech, said large pharmaceutical companies are increasingly interested in acquiring startups as their pipelines run dry.

“Drugs are going off patent, and there is stifled innovation,” Royston said. “There are good relations now going on between private biotech and large pharmaceutical companies.”

Despite the continued trend toward reliance on mergers & acquisitions to cash out, the biotech industry has seen some IPO activity in the last year.

The San Diego Business Journal further reported:

The value of IPOs in the biotech industry in 2006 was $944 million, up 50 percent over 2005, according to the Ernst & Young 2007 Global Biotechnology Report.

But just $80 million, or 8.4 percent, of the total raised by companies going public in 2006 came from the San Diego region. Cadence Pharmaceuticals Inc. and SGX Pharmaceuticals Inc. were the only two [San Diego] biotech IPOs in 2006.

The San Francisco Bay Area had twice as many in 2006, according to the report, raising a total of $211 million — making up 22 percent of the amount raised by biotech IPOs in the nation last year.

IPOs in the Mid-Atlantic region and New England each made up 20 percent of the nationwide total raised from stock offerings in biotech.

The San Jose Business Journal's report is consistent with what I have always seen in the biotech industry--that the ultimate plan of most biotech companies is to sell the company.   Of course, in recent years, high tech companies have been following a similar strategy.  IPOs in the Silicon Valley have been few and far between, but there have been many transactions by merger or acquisition.  So, for many companies across the board, mergers and acquisitions rather than IPOs have become the preferred manner by which to raise capital or exit the business. 

Will this trend continue?  My prediction is a definite "yes."  While I think IPO activity is starting to pick up and there may be more IPOs in the biotech industry as well as other industries in the coming year, I predict that mergers and acquisitions will continue to be the primary exit startegy for biotechs for many years to come. 

I happened across an article this weekend on biotech licensing, which I would recommend to any readers who are contemplating licensing negotiations in the near future.

The article, "Biotech Patent Licensing: Key Considerations in Deal Negotiations," was written by Jeffrey P. Somers, an attorney at the Massachusetts firm of Morse Barnes-Pendleton, PC.  I thought Jeffrey did did an excellent job of capturing the essence of biotech licensing and the issues that must be considered in drafting and negotiating a biotech license. 

Jeffrey's article addresses five topics of interest: (i) field of use restrictions; (ii) the multi-purpose compound; (iii) special issues related to non-exclusive licenses; (iv) the payment term; and (v) rights to the drug master file upon early termination of the license.  His article also provides practice tips related to each of the topics. 

While Jeffrey issues a disclaimer in his article that his background is in representing the pharmaceutical company and that he is therefore biased toward that perspective, this article should be informative to both sides of the negotiating table. 

The Kansas City Business Journal stated:

According to the report, universities tend to focus their limited technology-transfer resources only on the patenting and licensing of technologies that promise big, fast paybacks.

The report -- written by Kauffman researchers Robert Litan, Lesa Mitchell and E.J. Reedy -- argues that universities should shift from a sole focus on that patent/licensing model, which seeks to maximize income, to a volume model. A volume model emphasizes the number of innovations that university research generates and the speed at which those innovations are commercialized.

The Report outlined four volume models as follows:

• Free agency model: Faculty members have the power to choose a third party (or themselves) to negotiate license agreements for entrepreneurial activities, provided they return some portion of their profits to the university.
• Regional alliances model: Multiple universities form a consortium that develops mechanisms for commercialization. Economies of scale allow for lower costs of the commercialization function overall, and the universities are able to share costs among multiple participants. This model may prove particularly attractive for smaller research universities, which may not have the volume to support a seasoned and highly able licensing and commercialization staff independently. 
•  Internet-based model: Closely related to the regional alliance model, Internet-based approaches use the Web to facilitate commercialization. The iBridge Network, a program funded by the Kauffman Foundation that works with a consortium of universities, is an example of such a model.
• Faculty loyalty model: This calls for universities to consider giving up their intellectual property rights, anticipating instead that loyal faculty will donate a portion of their commercialization proceeds back to the university.  

The argument raised is an interesting one--there is a good argument that the focus of universities should be on commercializing good research for the societal good rather than making as much money as possible with "home runs".  From a commercial perspective, "home runs" make good business sense, but universities take pride in their higher purpose and there is certainly a good argument that tech transfer policies should reflect this higher purpose. 

Business Week Online ran an interesting article this week on a new trend in the biotech world: private equity investing. 

According to Business Week Online, "at first blush, private equity and biotech make for an odd marriage."  Business Week explains as follows:

The biotech industry is famous for unstable cash flows and massive research-and-development budgets that produce many more flops than blockbusters. Private equity players aren't known for their patience, either, and successful drugs often take decades to come to market. No amount of financial engineering can speed up the science. Still, some private equity players think they can earn big returns in the sector, even though it means investing in R&D.

The article goes on to say that, to date, the deals have been limited to businesses that have steady cash flow streams or have found ways to keep the money flowing; however, the article concedes that another play is "finding outfits that provide services to biotech scientists and thus don't have huge research tabs." 

As Business Week Online  points out, the market for private equity could be tremendous in the biotech industry.   Indeed, the article states as follows:

Such biotech treasures could be plentiful for private equity. Stephen Evans-Freke, managing general partner at Celtic Pharmaceutical Management, a private equity firm specializing in the sector, estimates that half of biotech's 300-odd publicly traded companies have a market value of less than $250 million—a size that makes it tricky to raise extra cash. On top of that, there are 1,000 or so privately held biotech enterprises, many of which have been struggling to pull off a public offering since the 2001 market crash. . . .

The article raises some interesting points.  It would be interesting to know just how much this trend has really taken off.  Could private equity really be another option for biotechs who aren't quite ready for an IPO? 

Raptor Pharmaceutical Inc., an early stage biotechnology research and development company owned by Novato-based Raptor Pharmaceuticals Corp., has announced that it has signed an exclusive, worldwide license agreement with Washington University in St. Louis for the use of Mesd reagents for therapeutic treatment of cancer and osteoporosis.  Mesd  is a chaperone protein needed for the proper folding of the signal transduction receptors LRP5 and LRP6.

The St. Louis Business Journal reported that Raptor intends initially to test the potential of Washington University's Mesd-based peptides for the treatment of cancer and osteoporosis, and that CEO of Rapto Pharmaceuticals Corp., Dr. Christopher Starr explained the agreement as follows:

"Mesd significantly adds to our growing franchise in the drug targeting area. . . . Mesd complements and extends our current programs and we believe will increase our reach and capabilities into a number of under-served disease indications with substantial market potential."

Foster City based Applied Biosystems announced last Tuesday that it has signed an agreement with Eagle Research and Development LLC in which the parties agreed to collaborate on a single molecule detection device developed by Eagle.  Applied Biosystems reported that it has received an exclusive two year option to license the technology.

According to the San Jose Business Journal:

"Eagle's technology, currently in prototype stage, identifies and quantifies molecules based on their unique electronic charge signatures. Applied Biosystems said the technology could have significant implications for advancing personalized medicine based on its potential for faster, more efficient and less expensive protein and nucleic acid identification, protein-protein and protein/small molecule interaction measurements, and DNA sequencing."

If you missed the recent blogpost by Stephen Albainy-Jenei, What's a Reasonable Royalty Rate?, I urge you to check it out. Stephen addressed the question I know that many transactional lawyers like me struggle with: what exactly is a reasonable royalty rate in any particular transaction?

While Stephen acknowledges that Organizations like the Association of University Technology Managers ("AUTM") and the Licensing Executives Society ("LES") publish lists and statistical analyses of royalty rates, Stephen says of those publications:

Granted, using an established royalty rate shown in certain guides sounds good since these are derived from prior actual licenses for comparable products. The rates in the guides come from negotiation and paid by a sufficient number of licenses. As with reasonable royalty, an established royalty rate derives from the outcomes of willing parties licensing without the threat of a suit, or resultant from litigation. These rates are reflective of the profitability of industry segments. Correspondingly, what might pass muster for an established royalty depends upon the definition of a market segment. Commodity items tend to garner a relatively low royalty rate, just shy of 3%, consumer goods 5%, while software garners around 7-8%. But generalities don't tell you anything about your particular deal.

So, if you can't rely on particular guides to tell you what is reasonable, how do you ever really know what is reasonable? Stephen says to this point:

A reasonable royalty rate is often based on economic sense by utilizing a financial model which relates the investment required to develop a therapeutic technology to the income generated by such technology. What does that mean? It means you have to have a good business plan in place before you can talk turkey on royalty rates. And I don't mean those wildly inflated fluffy business plans that companies create showing revenue in colorful logarithmic growth charts to impress potential investors. No, I mean a real, down-to-earth, cold shower type of business plan that takes into account all of the pain and suffering that could be encountered along the way.

Stephen shares with us some examples, but in the end, he seems to come back to the fact that the reasonable royalty rate is a somewhat amorphous concept, which is, of course, is basically how most of us have been answering the question when it is posed to us. We give the classic "it depends" answer, which is sure to drive the non-lawyer public nuts everytime they hear it. Still, Stephen has some interesting royalty rate negotiation insights that he shares in his blogpost, which are quite helpful, so even if he provides no definitive answer to the issue, I would definitely urge you to take a look at it.

San Diego-based Ambrx, Inc., and Roche have announced that they have entered into a collaboration agreement, in which Ambrx will use its proprietary technology to develop next generation proteins and peptides. The parties plan to use the technology platform to generate novel pegylated interferon alpha molecules. The terms of the agreement provide for Roche to fund research and development of the products and to retain exclusive worldwide commercialization rights. In return, Ambrx will receive license fees, research funding, development milestone payments, and royalties on product sales. The Roche Venture Fund has also agreed to make an equity investment in Ambrx.

The Biotech Stock Blog raised some noteworthy concerns about the recent announcement by American Pharmaceutical Partners, Inc. that it will acquire its largest shareholder, American Bioscience, Inc., creating a biopharmaceutical company "Abraxis Bioscience." If you did not read BioBlogger's blogpost Bait and Switch: American Pharmaceutical Partners' Proposed Acquisition of American BioScience (APPX) , you should check it out.

The terms of the acquistion provide for American Pharmaceutical to issue 86 million additional shares to American Bioscience, raising American Bioscience's ownership of American Pharmaceutical's shares from 64.4% to 83.5%. Abraxis Bioscience will own the global rights to Abraxane, a cancer treatment marketed in the United States for metastatic breast cancer, and American Pharmaceutical chairman and American BioScience CEO Patrick Soon-Shiong will become the chairman and CEO of the new Abraxis Bioscience.

It is this last point that caught the attention of BioBlogger, who said of the acquisition:

The rationale behind the transaction is to simplify the corporate structure while acquiring all the rights to the cancer drug, Abraxane, and a pipeline of development stage drugs. The question is: Is this transaction being done in the best interests of shareholders? In my opinion, the only person that will be enriched by the deal is American Pharmaceutical Partners' (APP) Chairman and CEO, Patrick Soon-Shiong, who also happens to own over 80% of American BioScience (ABI) and is its President and Chief Financial Officer. . . . The most disquieting fact pertains to Patrick Soon-Shiong who owns more than 80% of ABI and is its President, Chief Financial Officer, and a Director while also serving as APP's Chairman and CEO. Since ABI owns almost 48 million shares of APP, Mr. Soon-Shiong is a de facto shareholder in APP to the tune of about 40 million shares. The relationship between ABI and APP isn't what one would define as "arm's length." Mr. Soon-Shiong's interests are clearly not aligned with APP's minority shareholders. The proposed merger of APP and ABI illustrates this point...

As a consequence of the merger, existing shareholders, in addition to their shares being diluted, will sacrifice 50% of their interest in the profitable generics business in exchange for ABI's early stage pipeline. The majority shareholder in ABI, and as a result the de facto majority shareholder in APP, Patrick Soon-Shiong, will increase his APP interest from about 40 million shares to about 130 million shares. In the process, Mr. Soon-Shiong gets a top valuation for is private stake in ABI and converts the aforementioned stake into publicly traded APP shares. He accomplishes all this while also pawning off ABI's product development risk to APP shareholders and gaining exposure to APP's profitable generic business. It's easy to see how this benefits Mr. Soon-Shiong, but how does it benefit APP shareholders?

Clearly, BioBlogger raises serious concerns regarding the underlying reasons for this acquisition, including even the rationale for the $4 billion valuation for Abraxane. It goes without saying that many people are going to be watching Mr. Soon-Shiong as this deal closes.

Genzyme Corp. has agreed to acquire the San Diego manufacturing operation of South San Francisco-based Cell Genesys, Inc. The 47,000 square foot manufacturing facility was sold for $3.2 million.

The sale for Cell Genesys is part of a restructuring plan by Cell Genesys to focus its resources on the development of its most advanced and most promising products, which resulted in a decision to reduce the company's manufacturing capabilities in the viral product area. The San Diego team has been conducting work in advancing the production of oncolytic virus therapy and gene therapy products. The majority of those employees will now become part of the Genzyme workforce.

Genzyme's interst in the manufacturing facility, on the other hand, is to utilize the new assets and facilities to support the growth of its gene therapy program and strengthen its ability to manufacture quantities of both Adenovirus vectors and Adeno-Associated virus vectors, which are used to deliver genes to the appropriate cells in patients. Genzyme is currently in Phase 2 clinical trials for Ad2-HIF-1 alpha in patients with peripheral arterial disease. Genzyme's therapy is designed to promote the growth of new blood vessels and improve circulation in patients' limbs.

The agreement between Cell Genesys and Genzyme provides for Cell Genesys to have the opportunity of having its lead oncolytic virus therapy product, CG0070, manufactured under contract with Genzyme. CG0070 is currently in a phase 1 trial for recurrent bladder cancer.

The purchase comes six years after Genzyme terminated a $350 takeover offer for Cell Genesys following the withdrawal of support for the offer by the Cell Genesys board on the grounds that the offer failed to reflect the increased value of its nineteen percent stake in Abgenix, Inc., which had increased by $240 million since the announcement of the merger. Cell Genesys paid a $15 million break-up fee to Genzyme, when it backed out of the deal.

South San Francisco-based Theravance Inc. has entered into a license, development, and commercialization agreement with Astellas Pharma, Inc., a Japanese corporation, for the development and commercialization of Theravance's investigational antibiotic, Televancin.

Televancin is an injectable antibiotic, which is developed to be the first-line therapy for serious infections in hospital settings. Theravance seeks to establish in the trials that Televancin is superior to Vancomycin, the current standard of care treatment for such infections. Televancin is currently in phase 3 studies for the treatment of complicated skin and skin structure infections ("cSSSI")and hospital-acquired pneumonia ("HAP").

According to the Form 8-K, the agreement between Theravance and Astellas provides that on the effective date, Theravance will grant Astellas an exclusive license to develop and commercialize Televancin on a worldwide basis, except in Japan, and that Astellas will pay Theravance an up-front payment of $65 million. The Agreement also provides for Astellas to make clinical and regulatory milestone payments to Theravance of up to $156 million, including $136 million for completion of enrollment, filing, and approval in the ongoing Phase 3 programs in cSSSI and HAP, and $20 million if the Phase 3 data demonstrates televancin's superiority over Vancomycin for patients infected with MRSA. Theravance will further receive royalties on global sales of televancin that range from the high teens to the upper 20s.

The Form 8-K also says that the terms of the agreement provide for Theravance to lead the development of Televancin for cSSSI and HAP and collaborate substantially with Astellas in marketing in the U.S. for the first three years. Astellas will lead all other development, regulatory, manufacturing, sales, and marketing activities worldwide, except Japan. Theravance will be responsible for all development costs for cSSSI and HAP, while Astellas will be responsible for substantially all costs associated with commercialization and further development of Telavancin.

The Chiron board has accepted a $5.1 billion purchase offer from Novartis AG. Novartis already owned 42% of Chiron's shares, and was unhappy with the recent direction of the company, following a string of manufacturing problems, including the contamination of last year's supply of flu vaccines. Despite these recent problems, however, Novartis saw the potential for the vaccines business. As the San Francisco Chronicle reported:

Novartis sees Chiron as a springboard into an expanding international market, not only for next-generation flu vaccines, but inoculations for other illnesses like meningitis and even cancer.

Chiron is one of the manufacturers trying to sidestep the process of producing flu vaccines in live chicken eggs, an arduous and time-consuming method that makes it hard to adapt vaccines quickly as flu viruses mutate into different strains. Chiron is developing vaccines produced in cell culture, which may produce higher yields in less time, and thus higher profits. . . .

The move by Novartis, as the San Francisco Chronicle noted, is similar to the move taken by Roche Holdings, Inc., another Swiss pharmaceutical giant, which has held a majority share in Genentech, Inc. since 1990. Genentech and Chiron are two of the three oldest companies in the biotech industry.

This acquistion highlights how Novartis has taken the unusual step of positioning itself as both a brand-name and generics pharmaceutical company, having just recently purchased generics drugs makers Hexal in Germany and Eon Labs in the U.S. In Vivo wrote about the Hexal/Eon Labs purchase as follows:

[T]he significance of this proposed transaction extends beyond the generics sector. Novartis, whose core focus remains on patented drugs, is thereby making a statement about the role of generics in a wider environment where both pricing pressures and the hurdles to proving innovation are increasing. It's also making a statement about pharma firms' perceived image and credibility among payers, governments and patients.

It's not clear whether Novartis will achieve the stated objectives of this deal, either on the credibility front, or financially. The Swiss giant paid a healthy price for businesses in two large, but tricky markets. It also faces the ongoing challenge of successfully managing the very different businesses of branded and generic drugs. . . .Whatever the outcome, Novartis's move is bold, and it demonstrates this firm's belief that Big Pharma needs to make some radical changes to its model in order to return to historical growth rates.

It is evident that Novartis is continuing to make bold moves in the biotech/pharmaceutical industry. We will just have to wait and see whether those bold moves reap the big benefits that Novartis is counting on.

David Marston and Eric Stein of PricewaterhouseCoopers LLP presented yesterday, September 28, 2005, at the event "Designing and Implementing an Effective License Compliance Program," sponsored by the Silicon Valley Chapter of the Licensing Executives Society ("LES"), and provided some alarming insights into problems that exist with the enforcement of royalty terms in licensing agreements.

According to Marston and Stein, many companies have no one in charge of the royalty compliance process. Instead, it is common for compliance oversight to get pushed to the legal or accounting departments, which have other duties that get higher priority than royalty enforcement. As a result, Marston and Stein often find that no one is really monitoring the royalty payment process at all.

To enact an effective compliance program, Marston and Stein recommended that companies first establish a separate compliance group within the company whose only job is to monitor the royalty collection process, and that this group should conduct a handful of audits each year as a matter of course on some of the agreements. They also recommended sending out a general letter to all customers before commencing an audit program just to advise customers that the company was enacting a better compliance program and that they might receive an audit letter in the next few months. By taking these intial steps, they advised, customers will be reassured that they are not being singled out. Several months after the receipt of the general letter, Marston and Stein say that companies should then send out their first audit letters to select licensee customers. Interestingly enough, the speakers indicated that receipt of a general letter alone will often prompt companies to go back and take a look at old agreements and even to make a restatement of the royalties, particularly if the licensor company initiating the process has offered forgiveness of late charges for a period of time after receipt of the general letter. In the end, Marston and Stein suggested that this process can produce millions of dollars in unpaid royalties that were just slipping through the cracks.

As a lawyer who has drafted numerous royalty clauses, I was really taken back to hear how these royalty clauses were operating in practice. Clearly, it was a bit of a reality check on my practice and the gaps that can exist between what I draft and how it is enforced. Also, the presentation really brought to light how companies that are strapped for cash should look to an effective compliance program to finance some of the operating expenses necessary to run the company.

We should all ask ourselves what our companies or, in the case of outside service providers, what our clients are doing right now in the licensing compliance area. If licensing compliance efforts are generally as ineffective as Marston and Stein believe them to be, then we may be horrified to discover that our companies or our clients' companies are losing millions of dollars each year in uncollected royalties.

At the San Francisco Business Times event that was held this past Friday in San Francisco, CA, "The Art of the Deal: Dealmakers who are reshaping Bay Area Biotechnology," panelists Mark McDade, CEO of Protein Design Labs, George Scangos, CEO of Exelixis, Joe McCracken, Vice President of Development at Genentech, and Nick Simon, Managing Director of Clarus Ventures shared their insights on modern biotech dealmaking.

The speakers indicated that as the industry matures, deals are becoming increasingly complex, so the parties no longer look to get mere cash from the party across the table, but instead are looking to secure valuable partnerships and to tap into new resources and compatible goals. In addition, the speakers indicated that modern dealmaking is heavily influenced by the prevalence of underlying relationships in the industry, since the biotech indusry is a relatively small world where many of the players have a previous history of working with other players at prior companies.

Another trend in modern dealmaking is that biotech companies are increasingly looking to do deals with large biotech companies, instead of limiting deals to just large pharmaceutical companies, since they perceive the big biotech world to have a better understanding of the issues facing smaller biotech companies. Also, there is more of a perception that the biotech company can better preserve its independence and continue to pursue its long-term goals by entering into deals with large biotech companies, as opposed to a deal with a large pharmaceutical company.

The presentation struck a chord with the audience by conveying just how complex modern dealmaking has become, and for the service providers in the audience, it conveyed the importance of understanding everything that the parties will be bringing to the table, including the parties' underlying relationships and their long-term goals for the company. We as service providers need to listen to our clients and push the deals forward that best advance their plans for the company, and to recognize when underlying issues are affecting the negotiations.