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Backloading Deal Value for Profitability in Biotech Deals?

Upfront payments for approved products far exceed those in earlier-stage deals, as biotechs have the leverage to demand higher upfronts--but should they demand high upfronts, if reaching profitability is the goal?

Up-front licensing fees in biotech development deals for approved and marketed products, perhaps unsurprisingly, average several times those in clinical or discovery stages (see chart below, in which we've averaged total up-front payments, plus up-front cash and equity separately, for deals over the past year and a half). Conventional wisdom would dictate that biotech licensers, having assumed nearly all clinical risk by the time of contract signing, have the leverage to demand high price tags for their product rights, and expect remuneration for clinical costs.

Millennium Pharmaceuticals Inc. 's recent deal with Johnson & Johnson unit Ortho Biotech Products LP [See Deal],...

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