Slow Deal Flow? - Pharmaceutical Executive


Slow Deal Flow?
10 Quick Fixes for Getting Business Development Back on Track

Pharmaceutical Executive

One way licensing and other corporate teams can stay ahead of the increasingly fierce competition for compounds is to keep appraised of the deal terms in vogue throughout the industry. Generally speaking, financial terms are obvious, it's the other constraints and interests that really need a closer ear. Are you willing to take a territorial split with another company? Can you enhance an early milestone in a back-end deal? Offer one of your own compounds as a potential quid pro quo? Once your team knows what's in their hands, they can be more responsive to the potential partner's requests.

Some companies think that by empowering business development executives, they are giving them "license to deal." However, a better solution might be training. In Europe, the industry has recognized this need for specialized training by establishing via Pharmaceutical Licensing Group (PLG), a formal post-graduate-degree qualification aimed at new entrants to the area. The course is designed to cover all relevant subjects— regulatory, legal, intellectual property, finance, and marketing—to better the skills of these managers in the industry.

5. Take tips from i-bankers

Love 'em or hate 'em, investment bankers know how to do deals because that's how they get paid. Sure, some accuse bankers of "pushing" inappropriate deals, but putting aside those charges, there are still several lessons pharma execs can learn from them.

First, bankers don't suffer from the same type of insular thinking that often afflicts the pharma industry. They seek to understand the deal-making process from the perspectives of all participants—not just their own. That means knowing the details of proposed timelines, political issues, decision makers, and board sensitivities to issues such as earnings dilution, headcount expansion, or the acquisition of even more manufacturing assets. Those daily 6 pm banker teleconferences, in which teams of 10 to 50 people review the day's deal developments, are all about process-management, maintaining momentum, and avoiding surprises by proactive management. In contrast, corporate executives typically adopt a more reserved approach, recognizing deal-stopping issues late in the process, which inevitably delays crossing the finish line.

The second lesson bankers can teach is responsivity. Bankers return phone calls because they know that's the way to execute deals. Moreover, bankers usually respond quickly, within hours by phone or immediately via Blackberry. Compare that with corporate executives, whose familiar response is: "I am traveling" or "I am in a meeting." A couple of weeks delay in responding is not uncommon for some licensing executives (but don't tell the CEO, who still believes his team is really responsive).

6. Highlight accounting issues early in the deal process

In mergers and acquisitions, assessing the impact of acquisitions on earnings and the balance sheet has always been fundamental to the yes/no decision of a deal. However, the same cannot always be said of licensing.

Only in the last few years, as financial reporting standards have become more proscribed, has the accounting of deals become a critical hurdle in licensing. Big Pharma has quite rightly employed finance specialists not only to value opportunities, but also evaluate the potential P&L, balance sheet, or tax issues arising from these deals or partnerships. Development milestones paid to partners can be dilutive, while the threat of impairment of recently acquired products/projects is yet another thing for the CFO to worry about. For the deal team, this means there is now yet another internal hurdle to be crossed along with the already extensive scientific, commercial, and financial ones.

An analogous issue is that of equity in licensing deals. Traditionally, licensing executives have had little experience of equity, which is normally a corporate-finance responsibility. Unfortunately, inadequate communication between corporate/M&A staff and licensing means that this critical perspective and essential component is not brought to the deal early enough, or at all, thereby creating the potential for a very late internal objection to a deal to arise. The consequences can be severe. For instance, there was one occasion when a major licensing/equity deal negotiated by licensing executives omitted anti-dilution provisions in the event of an IPO, which might have resulted in a loss of majority control in the investment.


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