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Built to purpose

How build-to-buy deals are reaching an inflection point

With almost 40 start-ups engaging in build-to-buy deals since 2013 and an average 2-4 years for up or down decisions, the next year could see a spate of acquisitions -- or options declined -- that will show how often and how well the gamble of surrendering upside in favor of reduced risk pays off.

At least seven companies are expecting decisions by the end of 2018, according to disclosed deal terms and interviews with BioCentury. Another 12 have disclosed milestone-driven decision structures that conceivably could come to fruition in the same time frame, although the timing hasn’t been revealed.

The timelines for two deals fall beyond 2018 and the rest haven’t revealed how the decisions will be made.

BioCentury’s analysis of 48 build-to-buy deals recorded since 2007 shows that preclinical assets predominate, but the deals are not so often employed for innovative platforms. Companies and VCs have used them largely to form products around single targets or to advance new twists on known technologies. The structure provides a sheltered vehicle for incubating programs that gives founders experienced hands to help steer development and pharmas another format for boosting their pipelines.

Of the 20 deals that have disclosed an outcome, six ended with an acquisition. The bulk of that class was formed before 2012 when the IPO window was closed and build-to-buys offered a way to de-risk early stage investments (see “Built and Bought”).

Table: Built and bought

At least six deals characterized as “build-to-buy” by investors or acquirers, or with the characteristics of a build-to-buy deal, have led to a completed acquisition. The list includes development deals for an early stage asset with an equity investment and an option to acquire the private company. While the most recent deals included an option agreement in 2015 and acquisition in 2016, the others were signed between 2006-2013 and involved 2-4 years between the original agreement and exercise. With nearly 40 similar deals signed since 2013, this suggests the near future may hold a flurry of build-to-buy acquisitions. Venture amounts include all disclosed venture rounds, including money raised from investors other than founding VCs and acquiring companies. Purchase amounts include milestones. (A) Includes $45 million in equity and research funding from Celgene; (B) Zymeworks acquired 19.99% stake for $3.6 million; no other venture funding amounts; (C) Plus undisclosed milestone payments and royalties to CDRD; $M; Sources: BCIQ: BioCentury Online Intelligence, company press releases, SEC filings

Company AcquirerFounding VCDisease areaSingle asset / platformVenture raised Purchase amountOption dateExercise date
Symphony Icon Inc.Lexicon Pharmaceuticals Inc.

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