We’re All In This Together
Why would I want to shoulder all this risk myself? That’s been a growing cry in the industry, and a particular theme from the past month.
First, the acrimonious mating dance of Sanofi-Aventis and Genzyme has finally come to a close, with Sanofi finally agreeing to pay $74 a share, or about $20.1 billion, for the Boston biotech. Sanofi has been after Genzyme since last July, when it privately offered to acquire the company for $69 a share and was rebuffed. The French pharma giant stuck by that number for half a year, first in private negotiations and then by taking it directly to shareholders in a hostile tender offer. (Hostile tender? What a great oxymoron...)
But nothing doing, Sanofi just couldn’t make it work, and many analysts suggested the company would have to up its bid beyond $75 to close the deal. And although Sanofi officially stuck with its original offer through January 21, it was quietly working on a different plan: A contingent value rights (CVR) agreement that bridged the gap between the value that Sanofi saw and the value Genzyme’s board believed was in its pipeline. The main point of contention was Campath, which Genzyme sees having peak annual sales over $3.5 billion in multiple sclerosis, while Sanofi thinks it might only peak at around $700 million.
So in a new-ish wrinkle on “let’s-share-the-risk,” Sanofi agreed to sweeten its bid in part through the offer of CVRs to shareholders, which guarantee an additional payment if Campath sales pass a certain threshold. And with that uncertainty duly hedged, we move forward.
But Lilly really took the cake for risk-sharing this month. The company has set up three funds and is looking to raise up to $750 million to finance development of a colection of molecules through mid-stage clinical trials (and it has apparently finalized one fund with four molecules already). Venture capitalists will kick in the money and retain certain rights to the drugs, while Lilly will maintain the option to further develop anything coming out of the funds. This not only offloads some of the risk of early development but potentially lets the company pursue more avenues of research, because it is not limited to its own funding limits.
And Lilly didn’t stop there; it has even extended this risk-sharing to its own employees, announcing that it is now basing bonuses on research advances. Necessity, they say, is the mother of invention. But whatever the reason, there’s clearly some innovative thinking going on in Indianapolis these days. -Karl ThielRead the BioPharm Executive online newsletter February 2011.
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