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: What do the new business unit [BU] structures initiated through the megamergers of the past several years mean for the business development function? What are the implications for potential partners to Big Pharma in the biotech community?

Mary Tanner, Peter J. Solomon Co.: Companies are working hard to remove the internal organizational and cultural barriers to finding opportunities from external sources. The BU approach aims at the silos that traditionally divided development—the science—from commerce. In practice, it also means there is less reluctance from Big Pharma to do deals directly with each other on specific compounds or therapeutic areas. This is a historic change. Consolidation is one explanation—there are fewer opportunities to spread the seed—and getting costs in line is another.

Doug Giordano, Pfizer: Pfizer had a reputation of being too big, too bureaucratic, and impervious to outside input. Our BU structure is changing this. When we initiate discussions on a deal, a potential partner is going to know who is going to be making the decisions. Our BU managers now carry the responsibility for a compound's R&D development profile as well as commercializing it—all in one locus of responsibility. Hence there are no "black boxes"; the partner benefits from a direct line of visibility, spanning the pipeline to the market. And each partner is going to see that we listen more and look for ways to accommodate his specialized expertise. This has enhanced the effectiveness of the business-development function, allowing for faster timing in securing a deal and nimbler execution. It is also improving the content and quality of the transactions we negotiate.

Barbara Ryan, Deutsche Bank: One consequence of the old structure was that companies were unaware they were walking in the dark—the right foot did not know what the left foot was doing. I recall a comment from Judy Lewent, the former CFO of Merck, in which she said that companies were prepared to tolerate an enormous amount of risk internally but wanted zero risk in sealing the deal with an external partner. Clearly this approach is sub-optimal if you want to succeed in partnering today. Business development has to be a core competency and you have to balance the risks.

William Looney: It seems the fundamental issues here are transparency and predictability. Everyone wants a transaction where the elements are clearly defined and build toward a profitable outcome that benefits each party. Strong intellectual property [IP] protections helped drive some of that certainty in the past—is it still an important criteria for successful dealing?

Alex Scott, Eisai: Patent considerations remain critical to reaching a decision to license or acquire. It is all driven by expectations about the length of exclusivity in relation to the overall product cycle, which is eroding fast due to circumstances often beyond our control. If we aren't looking at a novel molecule in which the IP is well-scrubbed and very clear, then we have to walk away. At Eisai, we spend as much out-of-pocket on our IP investigations as we do on all other aspects of due diligence combined.

Wael Fayad, Forest Labs: IP is a major risk that leads us to decline interest in many opportunities. This is unfortunate, as many of these candidates are winners in other aspects, including having good clinical data and knowing that they could do well in the marketplace by filling an unmet medical need.

Jeff Brennan, Targacept: We devote an enormous amount of energy to understanding all aspects of IP. At the end of the day, we don't license molecules, we license the intellectual property on and around those molecules that provides exclusivity in the space and in the market.

William Looney: As a conclusion, can we summarize the most important drivers of success in the fast-changing climate for deals we have marked out today?

Jeff Brennan, Targacept: Data, data, and more data. Good data will increase your value to a dealmaker every time.

Barbara Ryan, Deutsche Bank: The right therapeutic niche and a case for differentiation against the competition is necessary in any deal, as it is the only way to counter the slow uptake of new medicines by empowered payers. And you need it to delay the long term threat posed by creeping therapeutic substitution, which in my view is more dangerous than challenges to the patent because markets are so unpredictable.

Dennis Purcell, Aisling Capital: One big positive is a likely increase in FDA approvals of high-profile large molecule biotech products, which will help expand the arena for good deals. The risk is decreased access to new funding for startups.

Wael Fayad, Forest Labs: Personal relationships around a shared commitment and understanding of your partner's business culture.

Alex Scott, Eisai: More clarity from the FDA on a number of pending issues, such as the pathway for follow-on biologics, will be vital to building confidence on the commercialization and financing side.


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