It’s Not You, It’s US: The Value of Keeping US Rights in Biopharma Partnering
While border control is one of today’s biggest hot-button political topics, US biotech companies are clearly not building any walls when it comes to deal-making. In fact, Locust Walk views regional deal-making outside of the US as a significant value driver for US biopharma (see blog posts “The Case for Europe” and “How to Approach Regional Partnering Deals in Japan and Asia”). When considering a global transaction strategy for your lead asset, however, we believe it is often advantageous to retain full or partial US rights as a means of building long-term shareholder value. Pursuing a global ex-US deal, US profit share, or alternatively raising capital to ‘go-it-alone’ and commercialize solo in the US can hold significant weight down the road and may carry substantial upside in an M&A exit or in the valuation of a standalone company. Conversely, a global deal that places the bulk of US value in royalty collection is one that should be considered carefully in the context of your company’s general corporate strategy, capabilities and pipeline strength!*
Locust Walk recently analyzed global deal strategy and structure for a pool of late development-stage oncology companies. These companies typically had registration-enabling data or an ongoing pivotal trial, and were considering a global transaction to maximize commercial success. We found that companies retaining US rights either as a standalone company, through an ex-US deal, or a transaction with a US profit share agreement in place (typically 50%), now have valuation multiples 3.5 times higher on average than companies who are pure royalty recipients (Figure 1). By holding directly on to a US revenue stream, each of the companies we analyzed were eventually acquired for attractive premiums or built significant shareholder value as a “go-it-alone” commercial oncology company.
Figure 1: Comparison of Oncology Company Valuation Multiples based on Late-Stage Asset Transaction Strategy (n=11)**
Let’s examine a handful of interesting case studies from this analysis. The companies listed in Figure 2 were able to achieve an impressive increase in value when you compare the company value at the time of a global license (or for companies going it alone, pivotal data), versus company value either at acquisition or as a standalone oncology company today.
Figure 2: Case Studies of Successful Oncology Company Value Growth with Retained US Rights**
When viewed graphically below, the upside is obvious (Figure 3). These companies optimized their position in the US market with plans to commercialize and extract more value for the lead asset, all while further increasing company value through developing the rest of the pipeline.
Figure 3: Increase in Market Cap or Acquisition Value of Select Oncology Companies that Retained US Rights at Deal/Pivotal Trial**
The storyline here shouldn’t be too surprising. Solid corporate strategy would tell us that US companies should aim to maximize home field advantage for their most promising asset. Even if there is a need for near-term non-dilutive capital and the right global deal comes along, we’d argue that the long-term value of US rights is worth a smaller regional deal or alternatively pursuing a capital raise in the short-term. Alas, if giving up US rights and collecting royalties is the pursued strategy, we’d recommend this in the context of broader corporate strategy and particularly if you have a robust follow-on pipeline to drive future value creation. Otherwise, shareholders with high anticipation for and value placed on your lead asset would view it as essentially “selling the company without selling the company.”
Finding creative partnering strategies to fund development and commercialization of your lead asset is part of Locust Walk’s role as a transaction advisor. Please feel free to reach out to Locust Walk for more information on how we can assist your business and corporate development needs.
*Note that development and commercial deal strategy should always be considered in the context of broader corporate strategy. For companies positioning themselves as pure research players with no intention of pursuing US commercialization, out-licensing full rights may be the most strategic corporate option.
**Methodology: Locust Walk screened deal databases for late-stage asset licensing transactions over the past 10 years where the asset is currently commercial, and studied deal structure related to US rights. Standalone examples were selected based on Locust Walk experience tracking recent oncology company evolution in the marketplace. In figure 1, valuation was compared based on acquired value or current enterprise value divided by trailing twelve-month revenue. In figures 2 and 3, valuation was compared based on market cap after deal execution or pivotal trial data announcement versus current market cap or acquired value. Data sources include GlobalData, SEC Filings, Press Releases, Yahoo! Finance.
