Christoph Brandenberger (Healthios Capital Markets), Dr Irina Staatz-Granzer (Staatz BD & Strategy), Dr Sven Oleownik (Gimv Germany), Dr Erich Tauber (Themis Bioscience), Charlie Troup (Duke Street) and Kristian A. Werling (McDermott) discussed licensing and structured M&A transactions. Emmanuelle Trombe (McDermott) moderated the panel, which focused in particular on the convergence of M&A and licensing, structured transactions in privately held companies versus public M&A, and litigation risks related to due diligence obligations.
In discussing the convergence of collaboration/licensing and M&A, the panel pointed out that an increasing number of collaborations between start-ups and industrials include an equity component. Alternatively, such collaborations, with or without an equity component, often pave the way for an M&A transaction. The speakers described the role of strategic investors both from an institutional investor’s perspective and from a company’s perspective. They agreed that strategic investors are no longer seen as hurdles for the exit, even though the ideal scenario is to have more than one strategic investor on board.
The panel also discussed the convergence of M&A payment structure and licensing transactions, given the fact that many M&A deals in health care and life sciences have contingent payments upon development, regulatory or sale milestones, similar to licensing deals. Such contingent payments are often more significant in biotech M&A than in medtech or other health care M&A. The panellists also briefly discussed the notion of contingent payments in public deals, i.e., the so-called contingent value rights (CVRs).
According to the panel, contingent payments are a way for a purchaser to share risk and for a seller to obtain a portion of the upside. It is good practice, however, to limit such contingent payments to short-term milestones, since longer term milestones have little probability of being paid in an environment that is exposed to a variety of risks (e.g., development, regulatory, market access, intellectual property, competition). In addition, the purchaser’s obligation to work toward achievement of milestones is often contractually qualified by a variety of factors, including the notion of “commercially reasonable efforts”, and, depending of such factors, it may be difficult to enforce. The risk of litigation will also depend on the way the milestones are structured: the more objective and the shorter term, the fewer risks of legal challenge.
