Dealmaking Roundtable - Pharmaceutical Executive


Dealmaking Roundtable
With recovery from the 2009 recession now underway, good deals are back on the drawing board. The challenge will be to paint over legacy risks and fill the canvas with the right mix of assets at the best price for long term shareholder gains

Pharmaceutical Executive

William Looney: So is there a consensus that the number of deals is not the real issue, but rather a broader trend toward "strategic bifurcation, where the focus is on separating out the good deals: those grounded in strong science, that target favored therapy areas, provide clear patent terms, and allow for competitive differentiation that appeal to payers?

Jeff Brennan, Targacept: For a more collaborative relationship between Big Pharma and biotech, you need greater alignment on what the ideal licensing package should include. Biotech's strength is identifying the unmet medical need in complex diseases, and figuring out how to get proof of concept [PoC] with novel mechanisms to the patient as quickly and efficiently as possible. Pharma's strength is in Phase III development, CMC and commercialization. Over the years, biotech companies have been told by pharma that their PoC-stage licensing packages don't meet the internal standards for a PoC designation. To be sure, some of this is part of the negotiation dance, but it is also becoming a "box-checking" exercise. Overall, it can affect the value and complicate the probability of successfully licensing our compounds.

To adapt to this, we are seeing biotech companies focus on fewer compounds in order to produce a more robust licensing package. This too can have unintended consequences. The biotech company spends considerably more money on each program, so there are fewer PoC candidates. Those PoC packages that are successful are in high demand and in response in-licensing costs have risen dramatically.

Doug Giordano, Pfizer: This dynamic ought to be of concern to us, as the emphasis on late-stage projects combined with a tight cost structure means that the early work that must take place to drive future innovation is being neglected. It's another impediment to the basic discovery trench work that we rely on to yield the next generation of products.

Alex Scott, Eisai: What is driving the tighter scrutiny is the dictates of a changing market. The most important aspects are customer and payer expectations about value. In evaluating any deal, you have to ask first if the compound has been advanced under the old development approach, which emphasized meeting clinical endpoints and securing FDA registration; or under today's rubric, where the product is designed with the value proposition in mind for each stakeholder. A lot of candidates fail to register on the competitor-differentiation scale. By the time a product is in Phase III, building that broader case for reimbursement from scratch is virtually impossible.

Doug Giordano, Pfizer: Another factor is the importance companies now place on diversification of the revenue stream, away from a singular focus on small molecule R&D. This is creating opportunities for profitable deals in new areas like established off-patent products, which Pfizer is re-positioning not as a shrinking, end-of-life-cycle portfolio, but as a growth asset. It's a tremendous new opportunity for partnering: taking older branded medicines with a track record in one market and introducing them to a new generation of patients in China, Brazil, and other high-potential countries. Cephalon just announced acquisitions that establish it as a leading European player in new generic formulations and related drug delivery technologies; this is another example of using the M&A card to leverage existing asset strengths. These deals create a more stable overall revenue base, which in turn allows more head room for higher risk innovations. But they also require a more diverse negotiating skill set than is the case under the traditional playbook built around licensing of a Phase II. The risk-to-return profile is markedly different.

Alec Scott, Eisai: The advent of the customer-focused business model also means that company culture must bend to the art of the deal. This is important because, as has been noted, good acquisition or licensing opportunities are scarce. When they do arise, speed in both evaluation and execution is critical to sealing the deal with partners that often have multiple options. Further on, you have to avoid the mindset of insisting that an acquisition or licensee fit into some existing structure instead of working to place the new asset where it can have the most impact. We say at Eisai that our partnering strategy combines the resources of a large company with the ingenuity and flexibility of the smallest startup. This is an appealing message to the diverse constituencies with whom we work.


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