October 15, 2008 (Vol. 28, No. 18)
Licensing and Business Development Experts Share Their Insights on M&A and Partnering
In the Wall Street Biobeat column of the September 1 issue of GEN, Robert Dellenbach wrote that significant changes in the global economy and venture capital activity have dramatically impacted the life sciences industry. Moreover, his article appeared even before last month’s near Wall Street meltdown. What’s a biotech company to do for money?
GEN recently held a roundtable discussion with several industry professionals to find out. We discovered that dealmaking with pharma firms was on a dramatic upswing, and not just due to a lack of VC funding. The entire roundtable event was recorded and can be heard by going to: Roundtable Discussion on Biotech/Pharma Deals.
GEN’s Editor in Chief, John Sterling, served as the host for the roundtable discussion. The participants included Martina Molsbergen, vp of business development at Crucell; Barbara Yanni, chief licensing officer at Merck & Co.; David Colpman, svp of business development at Shire Pharmaceuticals; and Joern-Peter Halle, head, early-stage licensing at Merck Serono, a division of Merck KGaA. All four participants will be featured delegates at the upcoming BIO-Europe 2008 partnering conference to be held November 17–19 in Mannheim/Heidelberg, Germany.
Molsbergen: Our main reason for partnering our technology is to maximize the value of our asset. Deals create value and drive our valuations. For our product pipelines, outlicensing is not necessarily a first option. But sometimes it becomes necessary for a biotech company to partner an asset. The company may be seeking funding for its other programs, or may not have the wherewithal or be able to raise money and build infrastructure to bring forward a drug candidate. It becomes a question of risk.
So we outlicense, even though it is not our first option. With the investment market being more risk averse and investment interest slowing down at the moment, profitability and shorter term payouts are essential. So outlicensing of drug candidates in a biotech pipeline is essential for cash. And unfortunately it’s a rough climate to raise money. It is difficult to find conventional financing, especially for startup companies right now.
Big pharmas are buying biotech companies because of product assets, not usually for technologies unless the technologies are novel and unique. It is a competitive environment in the pharma industry and a time of risk aversion. Big pharma’s hunger for later-stage products has not changed. And its need to feed its pipelines grows ever more. It is a poor investment climate for biotech companies. Biotech stocks have been punished this past year. With the investment market being risk averse to biotech, acquisitions seem perfectly in line at the moment to shareholders of biotech companies.
Yanni: There’s a very competitive atmosphere in the pharmaceutical industry and in the biotech industry as well. Our interest is in bringing forth novel products and working with the best science that we can. That’s why we are interested in doing deals with biotech and other companies outside of Merck. We can’t do all the biomedical research in the world so it is extremely important for us to reach out to companies wherever there are significant scientific advances being made.
Colpman: Shire conducts very little drug discovery so we’ve always been interested in deals. We are a $3 billion company now, and we’re looking for more deals to keep our growth going.
Another deal driver is the fact that pharma companies are still competing with each other to do biotech deals regardless of the funding climate and the market caps of some struggling biotech companies. I point to our recent acquisition of Jerini as an example. When we started looking at Jerini, its stock price was less than €2 a share and we ended up paying over €6 per share for the company. This reflected competition from a number of pharma companies that were also looking at Jerini. Essentially, Shire saw more synergies and value than the others.
Halle: At Merck Serono, the product comes first and then the deal. We ask “does a product we are interested in fit into our pipeline? Does it bring us forward?” If all those questions are answered with “yes”, and there are other interesting assets in the company, we most likely will consider an acquisition rather than in-license a specific single-asset product.
So the driver for us is the product. And, of course, we have a strategy that was established after the integration of Merck KGaA and Serono. This strategy dictates our ambitions and the dealmaking.
Halle: If the biotech company has an attractive product, and if there is competition between pharma companies to get access to that compound, a pharma company will consider acquiring a company to secure that asset. For example, if a biotech company’s product is within our strategic focus, we might invest a lot of money upfront to acquire the company rather than enter into a standard licensing deal.
Colpman: I agree with the earlier comment that you put the product at the center of consideration and the deal comes after, whether it’s M&A or licensing. To raise its profile, a biotech company needs to publish good journal articles. It also must show that it has a good product and great data and then target as many places, people, and companies, as it can. You just need to get the information out there and make as much noise as possible.
Molsbergen: When putting together a portfolio, ensure that your IP is solid. Big pharmas are still licensing based on the target mechanism of action for that target: the IP frontier, meaning the freedom to operate and exclusivity, how big is the market prediction, the competitive landscape for the indications, and evidence of activity in vivo for the drug candidate.
When outlicensing products it’s essential for your drug’s ability to create value in the future around that portfolio. If it’s not tangible, if it’s not something that is recognizable by future partners, or something better than what they already have in development, then I would say that your chances for getting attention are going to be a lot less. This is evidenced by some drugs that are in Phase III and not partnered out, mostly because no one wants to assume the risk.
Yanni: We have a different point of view. We want to make ourselves as available as possible. And so, in that regard, we have developed a simple point of entry to the outside world and we’ve worked hard internally at Merck to make the review process as seamless as possible.
We don’t want the person to have to figure out how this works at Merck in order to get the opportunity reviewed by the right people. So as long as somebody gets that package to a member of our licensing team, we will get it to the right experts and have them review it.
The most important thing to us is the scientific data and the IP, as Martina said, because we have these packages reviewed by the experts in the field. So they’re looking at it from the standpoint of scientists. Of course, for later-stage opportunities, we also involve marketing folks. We want to make it as simple as possible and as quick as possible so we can get back to people with a yes or no answer or even “no for now but we’d like to see more data when it becomes available.
