Monday, October 29, 2007

Take the Money…or Let it Roll?

In his talk introducing the top-10 most licensable oncology drugs at the Therapeutic Alliances conference last Friday, Ben Bonifant of Campbell Alliance asked an intriguing question. If you’ve got an oncology product in Phase I, should you license it out – or spend the extra money to get phase II data?

Well, it depends (good consultant that he is, Bonifant qualifies all over the place). But basically the analysis, based on data Campbell consultants analyzed from Windhover’s Strategic Transactions Database, ain’t all that complicated. If you’re confident that you’ll get even reasonably good Phase II results, and can sign a middle-of-the road deal, wait to do the deal till you’ve got the data.

Here’s the argument. Take a multi-indication Phase I oncology product. You could sell rights to your candidate today, netting an NPV, Bonifant posits, of about $50 million. Or you could invest an additional $30 million or so in order to get Phase II data.

The decision depends on your answers to two additional questions. First, what’s the chance you’ll get positive Phase II data? Second, will that positive data generate a high-, medium-, or low-value deal?

If you believe your drug will only get low-value terms from a Phase II deal (even though “low” doesn’t look so bad--$50 million upfront and $130 million in milestones for two indications), you should take the money now. There’s almost no scenario in which you’ll get a better NPV from your deal than what Phase I data will bring.If, on the other hand, you think there’s an at least 50% chance your drug will generate positive Phase II data, and that data will net you an at least medium-case deal (say $65 million upfront and $175 million in milestones for two indications) – invest the money in a Phase II trial.

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