December 7, 2011

Peer Pressure

It is commonplace that pharmaceutical and biotechnology companies enter into partnerships to license developmental drugs. These collaborations provide the former with access to promising compounds while offering the latter reduced risk when undertaking clinical trials (and, later, manufacturing and marketing the drugs).

In fact, biotech licensing deals with big pharma are a means to an end, rather than the end goal itself. Most industry analysts and insiders would have you believe the licensing deal is a necessary validation point for a biotechnology company itself.

But, as I have previously blogged, there is a risk-reward aspect to a biotechnology company licensing a drug to  or being acquired by big pharma. For example, this risk-reward relationship is illustrated below:

All too often, a biotechnology management team licenses a drug too early, as a means to an end, rather than the end goal itself. As a result, shareholders are ill-served. Provectus has not yet licensed PV-10 for some indication. Is management unable to do so: Are they incompetent? Are the results unimpressive? Is big pharma uninterested? Hardly.

I believe the company has turned down a big pharma licensing deal for metastatic melanoma. I also believe such a deal likely was valued in the low- to mid-hundreds of millions of dollars. Why? Management instinctively felt the price was low, in a vacuum and in concert with the efficacy found in other indications. My diligence suggests they have turned down other deals because, again, the prices were low.

The end goal is to license one or more or all of the indications to big pharma at the right price. Management knows this. It is part of their strategy. Shareholders ultimately will be well-served by management's approach.

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