Becoming Partners of Choice

Nov 01, 2002
By Pharmaceutical Executive Editors

Victims of their own success, pharma companies are under pressure from Wall Street to continue stellar sales growth for blockbuster products. That forces major companies, even the mega-mergers, to bolster pipelines with guaranteed winnersónearly impossible without turning to alliances with other pharma and biotech companies. (See ìAlliances Quadruple in Five Years,î page 13.) In fact, pharma companies license approximately 20 percent of the products they develop from biotech companies. And a study of 691 new chemical entities meeting FDA approval between 1963 and 1999 showed that 38 percent were developed through alliances.

Although a few pharma companies have been successful at collaborating, no single company has emerged as the biotech industryís ìpartner of choice.î Based on ìBuilding Pharmaceutical-Biotechnology Partnerships,î a Cutting Edge Information study of innovative practices resulting from 40 deals at 27 pharma and biotech companies, this article recommends steps that pharma companies can take to achieve that status.

Potential Gains

The first companies to master pharmañbiotech alliances will create huge scientific and financial opportunities for themselves and their partners. Those ìpartners of choiceî will gain the inside track to the best new product opportunities as well as the prestige of working with leading scientists in a given therapeutic area. They, in turn, can help their biotech partners build market acceptance as "players" in that arena.

More and more lucrative deals are signed each year and the largest ones get bigger year after yearóbiotech companies raised $6.2 billion from pharma alliances in 1998, more than three times the amount they raised in public and private equity markets. Pharmañbiotech alliances are bringing considerably more products to market each year. In fact, approximately 30 percent of todayís therapies in clinical trials come directly from biotechs, up from 7 percent ten years ago. (See ìFruits of Alliance Labors,î page 14.)

The largest pharma-biotech deals have steadily increased in value during recent yearsófrom SmithKline Beechamís $125 million deal with Human Genome Sciences in 1993, to the $500 million BayerñMillennium Pharmaceuticals partnership in 1998, to $1.3 billion for Bayer and CuraGen in 2001.

Although no clear leader has emerged in pharmañbiotech collaborations, Pfizer has established itself as the 'partner of choice" in pharmañpharma alliances, gaining access to blockbusters such as Lipitor (atorvastatin) from Warner-Lambert, Celebrex (celecoxib) from Searle, and Zyrtec (cetirizine) from UCB Pharma. Small- to medium-sized pharma companies seeking to commercialize their products have endowed Pfizer with a pipeline far more robust than it could have developed on its own. Pfizer began focusing on alliances in the 1980sómuch earlier than many of its competitorsóand, today, it collaborates in some form with 450 companies; 250 in R&D alone. Other collaborations involve sales and marketing, building on Pfizerís reputation as the industryís best sales force. (See ìPfizerís Partnership Tactics,î page 15.)

The first companies in both pharma and biotech to build top-notch alliance reputations will see a clear competitive advantage and will be able to apply that advantage to drive overall corporate success, just as Pfizer has leveraged its pharmañpharma alliance expertise to become the worldís largest pharma company.

Potential Pitfalls

A Wharton School of Business study shows that products produced by pharmañbiotech alliances are 30 percent more likely to get FDA approval than those developed by a single company. However, companiesí lack of experience in managing pharmañbiotech alliances has led to uneven performance. Recent high-profile failures highlight the dangers of sloppy alliance execution. This year alone, FDA actions prevented six alliance-developed products from reaching the market. The problem in many cases is not product quality; it is poor delegation of responsibilities. Although companies are stepping up their alliance activities, most partnerships still fail to meet both companiesí expectations. More than a third of alliances are cancelled or renegotiated before the end of their projected term.

Research demonstrates that companies that fail at pharmañbiotech alliances often stumble in the deal-making stage. What seems to be simple bad luck may, in fact, be faulty partnership design, planning, or execution. The components that make or break collaborations are simple enough: Every contract must address deal structure and payments, risk factors, control of the product and the relationship, and project milestones.

For pharma companies, choosing the wrong alliance partner could lead to a drop in stock price. Biotech companies face greater risks from selecting the wrong partner: Promising products can lose resource support and fail to reach the market based on negotiation phase decisions.

"Partner of Choice" Recipe

There is no single ìbestî method for maximizing pharmañbiotech alliances. Many companies, unable to understand the critical challenges of collaborations, have tried to apply pharmañpharma alliance capabilities to their biotech relationships, with inconsistent results.

Bristol-Myers Squibbís Erbitux alliance with ImClone put the FDA approval process primarily in ImCloneís hands. The FDA rejected Erbitux (cetuximab) and BMSí chief science officer, Peter Ringrose, retired amid the controversy. One lesson learned from that and other high-profile FDA rejections is the importance of injecting the pharma partnerís regulatory expertise into the regulatory review process.

As pharma focuses on developing new blockbusters, the competition for innovative new technologies has increased to a fever pitch. Spotting, evaluating, and closing lucrative deals require companies to gain as much expertise in pharmañbiotech alliances as they have in R&D.

The "partner of choice" recipe begins with a strong, well resourced alliance program with influential leaders who internally champion the companyís focus on partnerships. The Cutting Edge study shows that internal buy-in must transcend exciting kick-off events and contract-signing ceremonies. It must also remain strong two or five years after making the deal, when researchers are slogging through laboratory data.

To be competitive, pharma companies must next develop a clear alliance strategy to quickly close hot deals. If their corporate and partnering strategies are clear enough, alliance teams can move rapidly to land big partnerships. Small companies, which are nimbler and quicker to implement change, can fine tune their segmentation strategies to land complicated partnership deals more quickly than in the past.

Identifying ìsuperstarî productsólate-stage compounds with excellent chances for market successóis easier said than done. Established alliance functions get a jump on competitors by finding the best opportunities through in-depth investigation and due diligence. One large biotech company looks at potential partnersí product portfolios, projected sales, and the ability to replicate a partnerís technology to identify great deals. Once a company has identified ìsuperstarî opportunities and established itself as a major alliance player, it must prioritize opportunities and target those that promise success. One company profiled in the study trains staff to monitor each key product area and source of information, using competitive intelligence tools and field-based touch points. Such employees routinely identify potential blockbuster deals.

Of course, no alliance is worth undertaking unless it meets both partiesí needs. Companies must structure their relationships to reflect each partnerís differences and encourage them to focus on their areas of competitive advantage, thereby increasing the collaborationís total value. Successful relationships are based on respect, understanding, and open communication. Pharma companies that respect smaller partnersí strategic needs build reputations as safe havens for promising products.

Leading Edge Spotlight

Aventis has built a solid reputation for pharmañbiotech alliances. Its peers point to the companyís ability to reach out to biotech research and marketing partners and to customize mutually beneficial deals. Aventis has taken several clear steps to build strength through biotech alliances, dedicating significant staff and marketing dollars to them to demonstrate its commitment to business development. It also builds each deal from the ground up, taking careful note of its partnersí therapeutic area specialties, niches, and geographies.

In turn, Aventis has helped expand its geographic reach through collaborations with several emerging companies. Its reputation with innovative companies from all over the world has blossomed. That global view has helped distinguish Aventis in an industry that seems committed to oversaturating the North American market. As a result of all that work, the company has built strong relationships with its current, and several prospective, partners. Those companies are often willing to accept Aventisí guidance on timing and direction of partnerships because the company has demonstrated its sensitivity to partnersí interests, as well as its own.

Status Marketing

The pharma and biotech industries judge alliance success on both financial merits and intangibles such as good will and admiration. In discovering and pursuing future opportunities, companies that meet those criteria have a strong reputation card to play.

Once a company has developed its ìpartner of choiceî strengths, it must advertise them to potential partners through traditional media channels, sales forces, corporate web sites, co-branding, venture capitalists, and investment bankers.

Publicizing collaboration efforts through corporate websites and sales reps can identify a company as a center of excellence for successful partnerships. Companies also need to communicate their partnership activity through the news media to continue to build and benefit from ìpartner of choiceî status, because the best known industry players are the ones companies with exciting products turn to first.

Alliance teams tout their partnership strengths and past successes alongside their marketing, sales, and scientific expertise and capabilities. Several companies have used innovative strategies and tactics to approach pharmañbiotech alliances:

Johnson & Johnson. J&Jís broad therapeutic range provides opportunities to search for partners in both established and emerging technologies. That enables it to innovate in new therapeutic areas as well as breathe new life into existing products within lucrative niche markets. As a partner, J&J brings the experience of coordinating and communicating across its 150 divisions. Many smaller partners have come to view J&J as a giant that has the attitude of an equal.

Bristol-Myers Squibb. BMS flexes its scientific muscle and highlights commercial capabilities to attract partners in several key therapeutic areas, such as cardiovascular, oncology, and virology. Rather than developing full capabilities at a high internal cost, the company has found partners to help meet its strategic goals. It has also concentrated its alliance efforts on therapeutic areas closely related to its own franchisesósuch as its success with Pravachol (pravastatin) for hypertensionóallowing partner research teams to communicate clearly while avoiding overlap.

Millennium. Millenniumís success in balancing business models as a genomics data provider and biopharmaceutical innovator earns it a reputation for being a key collaborater. Flexibility combined with a track record of sound science helps the company position itself as a partner of choice.

Abgenix. Leveraging its versatility as a mid-size biotech company, Abgenix has successfully pursued several deals structured to ensure that both companies would maximize their market returns. That willingness to think outside the traditional pharmañbiotech box earned the company a spot on almost every ìto-be-consideredî list in oncology and other top therapeutic areas.

Amgen. The biggest of the ìbig biotechsî operates as both the smaller and bigger half of various collaborations. The company pulls from both internal experience and its partners to improve its alliance performance. Amgen hopes to retain its reputation as a fast-moving innovator while reaping the commercial benefits inherent in being a large organization.

Bayer. CuraGen and Bayerís $1.3 billion pact did more than just turn heads; it forced other pharma companiesí business development executives to reconsider their strategic goals and use their high-level resource allocations to go for bigger deals. Such deep pools of capital give front-line business development pros the green light to go after the most attractiveóand highly valuedópartnerships.

The Good with the Bad

Companies that recognize their strengths and limitations develop lucrative partnerships without overtaxing their resources. It takes a mature, well-managed organization to deal honestly with its shortcomings. Identification of corporate limitations is a critical factor in driving successful collaborations. Biotech companies must be clear about what they need from a Big Pharma partner, and that task is not always easy. Veteran negotiators make frank appraisals of their companyís capabilities and use that understanding to develop winñwin deals. On the other side of the table, pharma companies must know when to rein in their partnering impulses. The most lucrative deals can turn disastrous if they fail to fit strategic objectives or depend on non-existent expertise, resources, or infrastructure.

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