SOURCE: Cutting Edge Information

Cutting Edge Information

June 29, 2011 12:11 ET

Due Diligence Costs for Pharmaceutical In-Licensing Deals Topping $6 Million

Average Cost of $1.9 Million Makes Due Diligence the Largest Part of the Overall Deal-Making Process, Finds Cutting Edge Information

RESEARCH TRIANGLE PARK, NC--(Marketwire - Jun 29, 2011) - The cost of conducting due diligence for a large or complex pharmaceutical in-licensing deal can run as high as $6 million, though the average cost is $1.9 million, according to a new study from Cutting Edge Information.

In the high-stakes world of pharmaceutical deal-making, ensuring that the fundamentals of a potential deal are sound is more important than closing the deal quickly, despite the costs associated with thoroughly preparing for a new deal. Companies looking to in-license and commercialize a new product can expect due diligence costs to represent two-thirds of the total deal-vetting costs, on average.

Cutting Edge Information's new study, "Pharmaceutical Business Development and Licensing," found that for companies determined to promote an in-licensed product, the average cost of vetting the licensing deal is approximately $3 million. The complexity of these deals means that each element of the vetting process is expensive by itself. Large pharmaceutical companies have many levels of approval prior to moving ahead with an in-licensing deal; each level increases personnel costs and delays often slow the speed of the deal.

"It is still a buyer's market for licensing deals," said Jason Richardson, president at Cutting Edge Information. "Many in-licensers find that, due to the number of incoming offers, examining and discarding offers that do not fit their interests is more time-intensive than actively seeking deals that do."

The range of costs for each phase of the vetting process, from deal identification to negotiation and finalization, differ at each company. One profiled company spent $8 million dollars vetting a potential deal, with the greatest expense being due diligence costs at $6 million. But other companies spent less to vet deals, with one benchmarking partner completing analysis of a major opportunity for $660,000, according to Cutting Edge Information.

"Pharmaceutical Business Development and Licensing: Strengthening Pipelines and Managing Relationships," ( http://www.cuttingedgeinfo.com/research/portfolio-management/business-development/ ) provides best practices and benchmark metrics for companies on both sides of the negotiating table. The study is designed to help companies:

  • Build a top-notch business development team
  • Maximize deal position
  • Master post-deal management

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