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Financial Growing Pains of a Biotech

Financial Growing Pains of a Biotech Illustrations by Tomasz Walenta Large risks and high costs dominate the financial life cycle of a biotechnology company, but the potential payoffs are huge. By Sam Hall and Alastair J.J. Wood Illustrations by Tomasz Walenta Related Articles 2, legacy pharmaceutical companies typically pay biotech licensors a midpoint value of ~$220 million for Phase III drugs, compared with only ~$65 million for drugs in Phase I clinical

By | August 1, 2008

Financial Growing Pains of a Biotech

Illustrations by Tomasz Walenta

Large risks and high costs dominate the financial life cycle of a biotechnology company, but the potential payoffs are huge.

By Sam Hall and Alastair J.J. Wood Illustrations by Tomasz Walenta

Related Articles

2, legacy pharmaceutical companies typically pay biotech licensors a midpoint value of ~$220 million for Phase III drugs, compared with only ~$65 million for drugs in Phase I clinical trials. While these headline figures, often referred to as biodollars, illustrate the increased value of later-stage deals, they include cash payments actually received by the biotech company as well as payments that might one day be received if specific criteria (which we call milestones) are met.

Closer examination of the terms of licensing deals reveals an even bigger disparity in the actual cash payments. For example, while a biotech company might receive $5-10 million in up-front cash in a Phase I deal, the remainder of the ~$65 million is made up of highly uncertain success-based payments that may never materialize. By contrast, the typical Phase III deal includes $40-100 million in cash, $150 million in concrete milestones, and attractive royalties on product sales (References

1. McCully, Michael G. Digging into the Data: The Latest Trends in Alliance Structures and Valuations. Drug Delivery Partnerships 2008. January 23, 2008.
2. Edwards, Mark G. Deal Valuations in 2006: Is This a Bubble Market? 2007 LES Winter Meeting. February 2007.
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Comments

Avatar of: Jack Robinson

Jack Robinson

Posts: 1

September 9, 2008

Inexperienced management teams of new biotech firms tend to underestimate the importance of investment in the preclinical stage of compound development. The article did a good job of identifying the progression towards value creation. We would love to provide a complimentary article on the value of early stage research in better isolating the most promising compounds sooner!
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