Ten Considerations for Companies Evaluating a Pre-Negotiated Acquisition -

In recent years, there has been a shift in the research and development strategy of large pharmaceutical and medical device companies from internal development of new technology to external investment in promising young companies. As opposed to a large company facing scrutiny over the failure of an internal project, funding external development allows these large companies to abandon projects that do not meet expectations at a lesser cost. From their perspective, they want access to technology and a “finger on the pulse” of its development without a wholesale commitment to its costs. One common way to achieve this goal is through an option structure, where a cash payment is made up front to an early-stage company to fund the development of its project(s) in exchange for the right—but typically not the obligation—to acquire the technology or the company in the future. Consideration under these so-called “pre-negotiated acquisitions” often takes the form of a smaller upfront payment upon the acquisition, with more significant contingent payments occurring in the future based on milestones or a certain date.