[The section on the Vertex-Novartis deal was corrected on June 2, 2001.] 

Here's a personal ad for all you risk-tolerant investors trying to identify future leaders among biotech drug makers: "Cash rich, established suitor ISO nimble biotech with promising technology. Offers security of a Sugar Pharma Daddy in exchange for exciting opportunities to broaden product line. Serious relationship sought, but marriage unlikely. We may date others."      

It's been running a lot, apparently, because about once a year a happy couple announces a pricey partnership. No wonder. Unprofitable biotech drug makers must raise cash to keep the computers running and top-drawer scientists paid long before any drugs hit the market, and it doesn't hurt if they partner with a worldwide marketing power. Meanwhile, the big drug makers -- big pharmas such as Pfizer (NYSE: PFE), Johnson & Johnson (NYSE: JNJ), or Merck (NYSE: MRK) -- are desperate for ways to reduce the 10-15 year, $500 million dollar per drug development cost and move more successful drugs to market. They are often quite happy to pay a newer, cash-needy company to do what it would take them years, dollars, and risk to develop themselves.

So watch their deals for investing opportunities. But because not all relationships are created equal, ask whether they are Faustian bargains or true win-wins. As with cellular phone agreements and marriage contracts, read the fine print: Find out how much the drug maker receives, what it gives up, and, with a deal worth "up to" some large sum, what it has to do to ring the bell. 

Here are four deals worth a closer look, concerning Millennium Pharmaceuticals (Nasdaq: MLNM), Vertex Pharmaceuticals (Nasdaq: VRTX), CuraGen (Nasdaq: CRGN), and Human Genome Sciences (Nasdaq: HGSI).

What the market will Bayer
September 1998 brought good news to Millennium Pharmaceuticals, when Germany's Bayer AG (OTC: BAYZF) and the company formed an alliance worth $465 million to Millennium: $130 million for a 14% equity investment in the company and the remaining $335 million in guaranteed payments as part of Millennium's discovery of 225 drug targets to deliver to Bayer. Drug targets are the proteins that a gene, when "turned on," causes a cell to produce, and proteins by and large carry out the body's metabolic functions. Bayer picks from the targets, eventually paying royalties to Millennium on any marketed drugs. Millennium can do what it wants with those Bayer passes over.   

The magnitude of this deal startled investors. Today's pharmaceutical business toils with 400-500 targets developed over the last 100 years. With genomic advances, Millennium contracted to add roughly 50% in five years. Hardly seemed possible, yet by last January, Millennium had delivered 80 of its promised 225 targets in just 18 months of the five-year deal. The partners also announced their first drug candidate ready for FDA application to enter human trials. The candidate was moved from target to compound in a mere 18 months, versus the more common two to three years.

Millennium now a more expensive date
Two and one-half years later, the price of Millennium's expertise has gone up dramatically. In March, Abbott Laboratories (NYSE: ABT) and Millennium formed an alliance to identify drug targets for obesity and diabetes and to develop drugs. This 50/50 pact has Abbott buy $250 million in Millennium stock, with $50 million at the start and $200 million more over two years -- almost double Bayer's 1998 equity investment.   The two companies are joining their obesity and diabetes research programs entirely, as if they did a partial merger. Their goal is to place two drugs in human trials by 2002 and two to three per year thereafter. Even though this includes Abbott's existing development programs, it's quite ambitious. And potentially quite lucrative: No more royalties, but a 50/50 split. 

Can you top this?
A year ago, biotech drug maker Vertex Pharmaceuticals broke the record in a deal with Switzerland-based Novartis (NYSE: NVS) worth up to $800 million. Novartis agreed to pay $15 million upfront and adds $200 million over six years in exchange for eight protein kinase drug candidates (note that Novartis's new Gleevec treatment for leukemia is a kinase). If Vertex provides those candidates, it receives up to $200 million in interest-free, forgivable loans, plus the license fees (royalties) for those drug candidates, as well as reimbursement fees for intellectual property. According to the company, those "plusses" are well over an additional $100 million. Milestones for clinical development then make up the balance of the $800 million. With Vertex at work on drugs for involving a universe of 500 kinases, there will likely be many candidates left over for its own development. All in all, a sweet deal for Vertex.

$1 billion -- sold
And finally a deal broke the $1 billion barrier. Or did it?

Bayer -- again -- brandished its checkbook and signed in gold ink to CuraGen, both companies announcing a $1.5 billion deal. Focusing on the two fastest-growing drug markets, CuraGen will identify 80 gene and protein targets for obesity and adult onset diabetes drugs, the same two areas for which Abbott and Millennium teamed up. Bayer will then apply its massive drug discovery efforts to finding small molecule compounds that work on those targets. The partners commit jointly to the clinical development of 12 drug candidates, splitting up to $1.34 billion in development costs over 15 years, with Bayer paying 56% and CuraGen 44%. They will also split future profits the same way, a far sweeter deal than the high single digit to low teens royalties paid to other biotech drug maker hopefuls. True, CuraGen is spending a lot up front. If  the average $500 million per successful drug development cost persists, it only takes 44% of two drug candidates to deplete CuraGen's current cash stash, and CuraGen currently has no drug candidates in trials.

The only upfront cash comes through Bayer's buy of $85 million in CuraGen stock and commitment to spend $39 million more to develop CuraGen's pharmacogenomic and toxicogenomic databases. That's only about two-thirds of Bayer's 1998 $130 million upfront investment in Millennium. 

CuraGen investors are probably happy to have the security of a long-term partner and the chance of a 44% payoff, but that same 44% can impose a lot of costs that could come at very difficult times to raise more capital. While $1.5 billion sounds great, it isn't the best deal when you look closely.        

And HGS?
All of which brings us to ask about Human Genome Sciences. Its deal with the main group of big pharmas  expires this July, after which HGS is free and clear to develop its own drugs and leverage its intellectual property, all with a lovely mountain of $1.75 billion in cash and equivalents. HGS has its own drugs in Phase 1 and Phase 2 trials and a claim for royalties on a large percentage of drug candidates in partners' current pipelines. It's sitting pretty.   

In terms of retaining autonomy and the biggest shot at future profits, the best deal award goes to HGS, about to regain full control over its arsenal. Millennium comes second, though it's anybody's guess what it will mean to the company to offer 225 targets to somebody else first, and the Vertex deal could be tied. CuraGen's deal is not chopped liver, but it is not as impressive as the others when examined closely. 

Lesson? Your development-stage biotech drug maker needs cash and must be able to get it. But every investor parent wants to see the child weaned. HGS may be the first in that position, with Millennium and Vertex well-positioned.         

Tom Jacobs (TMF Tom9) lives with his partner in Old Town, Alexandria, not far from Fool HQ, so he won't get lost on his way to work. At press time, he owned no shares in companies mentioned in this story. To see his stock holdings (and guffaw), view his profile, and check out The Motley Fool's disclosure policy.