Asian biotechnology companies lack of experience in pharmaceutical alliances can be quickly overcome by deliberate preparation careful identification of potential partners and anticipation of the due diligence process of partnering
Strategic alliances and partnering between biotechnology companies—at all stages of their development—and established pharmaceutical companies have characterised the biotechnology industry since its inception. Many companies in the U.S. and Europe have accumulated the experience in developing relationships, executing transactions and delivering completed projects and products. Those that are successful, follow a plan of analysis and preparation that serves as a model for companies new to the field. Asian biotechnology companies are largely new to the culture of pharmaceutical alliances. The lack of experience can be quickly overcome by deliberate preparation, careful identification of potential partners and anticipation of the due diligence process of partnering.
If there is a common thread in the 30-year history of the biotechnology industry, it is that strategic alliances between companies for R&D, marketing or both have been a consistent source of funding, diversification and growth. Each year some 400 to 500 partnering transactions occur within the industry. But this is perhaps a mere 10 to 15 percent of all the opportunities promoted by more than 8000 biotechnology companies globally. As the proliferation of biotechnology companies in Asian countries continues, and as their technology develops, the number of prospective deals will increase dramatically. There are thousands of business opportunities in a year for any pharmaceutical company. Are the winners and losers separated solely by technology or commercial factors? There are companies that have projects not quite ready for partnering while many others would be appealing to partners with better positioning and planning. Asian companies have additional challenges that, with the right thinking, can become advantages.
Good managers and their scientific colleagues know what their companies have, but often they do not place that within the broader context of the interests of the markets, the clinical perception of needs, and the universe of activity in their area of work. The process of establishing the context requires the management team to step back, engage in a little humility, and ask critical questions:
Forming the context is the critical foundation of determining how a project can be appealing. For Asian companies targeting US or European partners, this context requires profound understanding of the regulatory and reimbursements frameworks operating in those geographies. Historically, the US has been accepting high pharmaceutical prices. Current trends are to the contrary and over the coming decade there will be significant pressure on pricing and reimbursement. The major companies will be dramatically reassigning their own strategic interests.
Having established a context, the difficult work begins in targeting specific prospective partners. All too many firms make a decisive error in broadcasting their projects too widely with obvious consequences: shifting of the emphasis from quality to quantity; dilution of management time; curious but no serious responses; and failure to identify and target the correct pathway into what would have been the most promising of companies means that the project will fall through the cracks.
What are some of the best practices in identifying, targeting and approaching a prospective partner? To understand best practices, do two things: place yourself in the position of the management and scientific staff at your target, and work backwards. Put another way, look at role playing as a way to get ready and then imagine that you have been successful in forging an alliance with a given company and asking yourself how and why we were successful.
The role playing dimension can be revealing, but not unless some homework has been done and answers to the following are available: the product lines and pipelines of prospective partners; the number and commercial characteristics (such as general financial terms, sharing of responsibility, and exclusivity or non-exclusivity) of the deals that they have announced over, say, the previous two years; the internal structure and composition of their business development teams; their decision making process; their transaction process; where announced, the general economic and commercial structure of the deals that they have done; the general time frame of the process; and history in co-managing projects.
Obtaining historical information is a tall order. Consider where such sources might be and how to get to them. At a biotech company business development professionals attend almost every scientific and industry conference but this isn’t the effective deployment of human resources. Scientific staff of a company is an extension of the business development team and generally welcome training and networking at conferences outside their peer group. Everyone in the organisation is a source of partnering intelligence. Every prospective partner being studied and profiled will have unique attributes, but the typical commonalities are:
What is “working backwards?” Simply stated, you describe to yourself a (reasonable) dream deal and imagine that the ink on the contract is dry. How did your company get to that point? Almost certainly you realised success by walking through an intensive gauntlet of due diligence. Success is a function of anticipating the range and depth of due diligence and having a full portfolio of information to satisfy the most rigorous of reviews.
Your first experience with due diligence will be as informative to you as it is to your prospective partner. Detailed profiling of the team and demonstration as to how and why they fit each task can be the first step in this direction. In the Asian setting, companies (and venture investors) often find it difficult to do the indepth analysis of management backgrounds. This is not to suggest that there is inherent mistrust, but in the U.S. and Europe, it often seems like everyone knows everyone else in the industry. Hence, it becomes imperative for you to be prepared with extensive professional references. Clear statement of your business model with an informative executive summary as to why you are seeking a partner need to be developed. This model should also cover the other aspects like co-marketing, reserve rights in specific countries, manufacturing, etc. Organise the material in a meticulous logical framework and cross-check the evidence of your own assertions.
Conduct internal due diligence relating to specific and achievable scientific and clinical milestones with detailed corresponding budgets for each phase. Be prepared to make a solid case as to why the milestones are appropriate as well as demonstrate why these coincide with value infection points. Develop a strategy for regulatory and intellectual property rights that would look at regulatory issues and patent issues from your would-be partner’s point-of-view. Finally, sketch out the respective roles that your team and your partnering team will perform.
By far, the major concerns of a prospective pharmaceutical partner are managing intellectual property rights and regulatory issues.
Intellectual property remains the cornerstone of the pharmaceutical and biotechnology industries. In the U.S., Europe and Japan, there is vast, accumulated experience going back three decades on IP issues in partnering. Many Asian companies are relatively new to the landscape of IP issues and will have to prove their ability in managing and using IP. A list of items for the preparation of the same is given in ‘Intellectual Property Due Diligence Package’.
Intellectual Property Due Diligence Package
The second most influencing factor in the pharma and biotech industries is the regulatory issues. Regulatory issues determine the feasibility of the project and hence it is highly imperative for you to carry a due diligence on the same. Regulatory issues in this regard include disclosure of the use of a clinical research organisation and its role in your clinical development, which is a must-be-stated fact. Prospective partners will spend considerable time conducting separate due diligence on the CRO, even if it is an internationally known company. Your regulatory due diligence should include all the items mentioned in ‘Regulatory Due Diligence Package’.
Regulatory Due Diligence Package
Generally, there are varying levels of concern about your business models and commercial plans. Prospective partners will have their own ideas which may differ considerably from your own. Nevertheless, you should have a well-documented explanation and justification for your position. These issues also form the basis for the economic negotiations in the licensing discussions and the amount and pace at which funds will flow from the partner to your company.
The foremost issue is to position your company in the value chain from discovery to distribution and the role you play in this position in terms of development and manufacturing. Second issue can be costs and pricing. This includes forecasted cost of goods across geographies and target markets; breakdown of cost of labour versus cost of materials; and pricing forecasts by country markets targeted and the research that supports the estimates. Third issue is the distribution network in your country—how they work and their pricing. Fourth issue can be Intellectual property rights, risks of counterfeiting and drug re-importation. Fifth, clinical context issues; and issues in detailing to physicians; target patient population; and the costs involved therein. Finally, competitors’ response to your entry, their pricing and growth strategies should also be taken care of.
It is axiomatic that most young biotech companies are in a constant sell-mode or in some instances a survival mode. Any prospective partner knows that, but it is less of a factor in negotiations than it might seem to be. A good negotiation team on the side of the smaller company can compensate for the disadvantage. There is, however, a more insidious dynamic. Do not stop asking yourself the most critical issues of all:
Once you have thought through all of the above issues and made a candid assessment of the universe of potential partners, you will be ready for the more difficult aspects of doing a transaction, but the homework will produce the highest possibilities for success and the h3est terms in the deal itself. One final caveat, however, is that deals should not be measured on the short-run economics alone. The real test of success is the probability of reaching the market with a product that offers people real health benefits. The revenues and profits will follow, and your reputation as a desirable partner will soar.