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European Biopharmaceutical Review

M&A and Licensing – Two Journeys, Same Destination

To increase the number of products on the market, biotech companies are radically rethinking the way they view the relationship between licensing and M&A opportunities. Gavin Weir and Isabella Roberts at Simmons & Simmons examine this forward-thinking new trend

Pharmaceutical companies are under increasing pressure to deliver growing profits to shareholders. Patent expiry, pricing controls, stringent regulatory requirements and consolidation of generics continue to present significant obstacles, while stocking product pipelines and bringing new drugs to market also present serious challenges. But now more than ever there are fewer new product candidates with blockbuster potential in development.

Research commissioned by Simmons & Simmons, published May 2007, asked senior executives from 20 of the leading global pharmaceutical companies to identify the challenges facing the industry as well as the emerging trends, and in particular looked at licensing and M&A opportunities.

The survey indicates that:

  • Pharmaceutical companies must acquire rights to new, often speciality products at an earlier stage and, in some cases, with less market potential than they would previously have considered
  • Licensors expect licensees to assume more risk, but often with less outright control over development
  • Deal structures are becoming more innovative to enable licensees to remain competitive – increased collaboration on developmental decision making, co-promotion and advanced royalty sharing are all now important elements
  • M&A deals are on the increase, with the majority of activity directed towards the acquisition of biotechs or smaller pharma companies, rather than peer-to-peer mergers (with a few notable exceptions)
  • Traditional boundaries between M&A and licensing are becoming blurred as a greater number of licensing deals involve M&A type structures and the risk profiles of the two become more aligned
  • Target identification, valuation and negotiation of deal terms are major challenges facing pharma executives
  • More than three-quarters of pharma executives interviewed believe that biotech and new product valuations have not yet peaked

These findings demonstrate that the risk/reward balance is shifting in favour of biotechs, while the focus of pharmaceutical companies is very much on identifying M&A and licensing targets, and getting the deal done to maximise shareholder value. Flexibility and speed in deal-making are crucial to success.

Deal volume and complexity are likely to increase, with pharmaceutical companies spreading their investment risk across a larger portfolio of product candidates and a wider spectrum of development phases. This in turn will lead to greater challenges for internal projects and their funding allocation, with divestment of projects where candidates fail to meet expectations or where anti-trust regulations require it.


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Gavin Weir is a partner in the life sciences group at Simmons & Simmons and advises on a broad range of corporate finance, including international and domestic M&A, public and private takeovers, capital markets and corporate governance. He has particular experience in the life sciences and financial institution sectors, where he has advised a number of clients on IPOs, mergers, acquisitions, fundraisings and joint ventures.

Isabella Roberts joined Simmons & Simmons in 1997 and qualified into the corporate department in 1999. She is a member of the life sciences group at Simmons & Simmons and has experience of a wide range of corporate work, in particular M&A and equity capital markets work, with a particular emphasis on the life science sector. Recent work includes acting for Sinclair Pharma plc on its admission to the Official List and Euronext and for Piper Jaffray as nominated adviser to Vectura Group plc in connection with its all-share offer for Innovata plc.

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Isabella Roberts
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