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Biotech / Medical : Pharmos (PARS) -- Ignore unavailable to you. Want to Upgrade?

To: Michel L. who wrote (370)	12/28/1998 7:22:00 PM
From: Omer Shvili	Read Replies (4) \| Respond to of 1386

In the last couple of months, we talked about who are the potential partners for PARS, when we expect to hear about the deal (my bet is late April), whether the partner would or wouldn't want to see the third cohort results before he signs (I don't think the partner would want to wait) and other topics relating HU211. However, we never discussed how the deal will actually look, what exactly PARS would get and what it will give in return. Since we're getting closer to the date of the deal, and PARS is getting ready and geared up for negotiations (the $10 million deal and the addition of a very experienced board member, were done exactly for that), I think we should start to talk about the kind of deal we could get. I've done some homework on the subject these past few weeks, and here's what I came up with. First of all I searched the recap site, where they have statistics about deals between biotechs and big pharma over the past 10 years. They have data on deals that were closed at different stages of development. Obviously, the most interesting info to us, is the average size and formation of deals that were done after P II was completed (as that's where PARS is currently). Here's what I found (btw, thanks paigow for refering me to the site). The average size of a deal between a biotech and big pharma after P II is (the data is based on deals from between '94-'96) about $65 million dollars. The average deal had about $4 mil up front, ~$5 mil in R&D payments, a whopping $35 mil in milestone payments and about $15 mil of equity investment. These numbers include all deals that were signed after P II, meaning also P III deals. After digging a little deeper, and talking to some from the industry I got the following numbers for deals that are signed between PII and PIII (where we are right now). The average size of a deal is $40 - $50 million. This is split up as follows : ~$8 up front, $5 R&D, $15 - $20 milestone and $10 equity investment. Apart from that, the partner pays for the clinical trial (i.e. PIII), and the partner also gets royalties from revenues. I didn't get any averages for the royalty levels, but I'll stick to my conservative 10% - 15% estimate. This is basically the kind of deal PARS can get, and I guess that's the kind of deal they're looking for (as these are the industry averages). I understand that PARS wouldn't want a very big equity investment (they don't want to dilute us), and I guess our deal will shift some of the cash from that part to either the up-front or R&D payments. So, I guess PARS' deal will look something like this: $10 - $12 million up front payments $7 R&D payments $15 - $20 milestone $5 equity stake Partner pays for P III PARS gets ~12% - 15% royalties (varry from region to region). I think such a deal will include HU211 and the lead compound for stroke. PARS might also throw in other compounds for other indications, but if that happens, the deal will be much bigger (much more milestone and R&D payments). I hope PARS keeps the other indications for itself, and that it will push them forward on its own. However, if they get a good offer (meaning a lot of R&D and milestone payments, and high royalty payments for the other indications at such an early stage), I think they should take it, and give the partner the entire package. PARS has tons of great science, and it has other projects we'll probably hear about (not less exciting than HU211), and with more cash and profits, it will be able to push those further ahead, as well as its cancer program. I tried to somewhat clarify the picture, and give my take on how a deal will look. As you see there are still many questions and possibilities, but I think all of them are quite positive for PARS. I'm sure our management team will get us the best deal possible, I have complete confidence in them. The future looks very exciting and promising for PARS, and I hope and believe that in '99 this great future will also be reflected in the stock price. Take care, Omer