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

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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...

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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