Do partner “option” deals truly contribute to viability?
Scientists, managements and investors get excited by a candidate compound’s potential; but
small-cap companies can’t afford to singularly bring drugs through the FDA as development costs are about $800M.
Thus, the definite need for partner initiatives; but deals needs to be better – benchmarked – to reward clinical utility rather than receipt of lengthy go/no-go options.
A compound “if” it makes it through clinical trials to approved drug has about 5 years of good market penetration therefore deals need to be better compensated to create ROI and market value on an ongoing basis.
- More companies are more focused on partnering due to the lack of capital market access.
- Partnering “option” agreements are increasingly popular for Pharma “partners” who do “not” wish to totally “commit” at the outset of an agreement.
- The terms of the “option” and payment triggers (not defined in press releases) as contractual options differ in providing the “rights” to retain, extend or exit participation.
- Low up-front dollars help short-term sustainability as there is a huge need for “any” up-front payment and news stimulants.
- Pharma continues to leverage their risk; who can blame their hesitancy and skepticism without definitive data from clinical trials and utility.
- Partnering “option” deals dissipate the viability of biotechs as the ROI is too often long-term and can to be discarded.
- Market research on the actual need and potential usage for the compound “must” be better developed by biotechs!
The Bottom Line: Taking “something” or “anything” is the usual consensus to further sustainability and then praying! But, it comes down to shareholder value; should investors let “their” money sit in small-cap biotech companies whose first signs of viability “might” be in 2020. This might not be a good use of “investor” dollars as small-cap companies just having an “option” partner and cash doesn’t enhance their ROI.
