Insight journal - Deals and alliances

Option and evaluation: recent partnering industry trends

Posted on 25 February 2014

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The article here analyses the recent partnering industry trends in the option and evaluation deal type areas. There are two major forms of deal terms that allow a party to secure rights to an asset subject to a future event.

Evaluation agreements allow a party to the deal to obtain rights to a technology or compound, subject to a period of time to evaluate the quality, scope and applicability of the technology to its intended endpoint.

Option agreements differ in that the option is often an integral part of an agreement already entered by the parties, providing the party with the option right to retain or extend certain rights to the technology already partnered.

Option agreements are becoming increasingly popular as they create further flexibility within a deal for additional rights that the parties do not wish to commit at the outset of the agreement.

According to Current Agreements life science deals and alliance database, there have been over 1000 option and evaluation deals in the last five years.

Figure 1: Option and evaluation partnering since 2009

 

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Source: Current Agreements, 2014

The figure above indicates that the number of option and evaluation agreements announced has declined steadily since 2009, suggesting that option and evaluation has become less popular for licensors. It should be stated that the majority of option and evaluation deals are reserved rights or options to rights should the product reach market

Reasons for entering an option based deal

For big pharma:

-        Preserves capital, instead investing multiple small amounts in different technology and companies

-        Externalizes R&D effort into small autonomous units

-        Majority of risk remains with the early stage company

-        Option provides exclusive access to the product/technology if exercised

-        If product/technology fails prior to option exercise there is no further commitment

For the early stage company:

-        Provides much needed funding to survive and continue R&D

-        Provides non-dilutive funding

-        Validation of product/technology by involvement of big pharma company

-        Clear focus on defined milestone achievement

-        Time limited option so that if lapses, asset returns in full to company

-        Receive market terms if option exercised

In the foreseeable future, it is likely that option-based deals will remain popular with big pharma.

The deals provide an attractive approach to accessing novel technologies at an affordable price before entering into expensive licensing deals. The option-based deal allows big pharma to make an investment in numerous emerging technologies as opposed to committing to a select few.

The most active option and evaluation dealmakers are the big pharma companies shown below

Figure 2: Most active option and evaluation dealmakers 2009-2014

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Source: Current Agreements, 2014

It is a significant finding  that most of the high value partnership deals involve big pharma as the licensee. This is the primary means by which big pharma have acquired pipeline candidates. However, the table below is topped by a recent equity purchase deal between Walgreens and Alliance Boots with an option to acquire the remaining shares of Alliance Boots.

Figure 3: Top option and evaluation deals by value since 2009

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Source: Current Agreements, 2014

The data in this article was abstracted from the Option and Evaluation Partnering Terms and Agreements in Pharma, Biotech and Diagnostics report, which provides comprehensive understanding and unprecedented access to the option and evaluation partnering agreements entered into by the world’s leading biopharma companies. In addition the report provides details of deals broken down by deal type, therapy focus, and company A-Z. The report provides a detailed understanding and analysis of how and why companies enter option and evaluation deals - more details here.

Sources

The above information has been abstracted from the following resources:

 

Related

Read: more on option deals in pharma, biotech, life science partnering deal news, insights and glossary

Read: more on evaluation deals in pharma, biotech, life science partnering deal news, insights and glossary

Buy report: Option and Evaluation Partnering Terms and Agreements in Pharma, Biotech and Diagnostics report

View: Current Partnering’s Partnering Scorecard – view top life science partnering deals by value

View: Current Partnering’s Deal Metrics – the latest deal trend infographics for life science deal making

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