BIO Convention Part 2

OK it’s time for part 2 of the BIO convention blog.  In this next section, I’ll give you some specifics in business development trends. Hope you enjoy the read.

Part 2: Business development specifics

Unfortunately, the news is not all that rosy right now for small biotech firms looking to sell to larger companies. The IPO option is still closed for the vast majority of firms and M&A exits have more strings attached than ever before. Many pharma companies are delaying cash payment to smaller biotechs, and full exit value is contingent upon achieving future milestones.  This contingency is the dreaded earn-out clause that VC’s hate as it delays repayment of their investment and lowers the IRR’s for their investors.  And if the drug performs less than expected, the sale value will likely be renegotiated downward.

The new financing environment for biotechs is even less pretty, with early stage VC’s going out of business left and right and no one really there to pick up the torch.  While big pharma is stepping in more and more with strategic alliance financing, they are using options to limit the exit value of the firm/program and staging their investment more like a VC would. With all this pressure on developmental biotech firms, it’s hard to tell whether innovation will suffer or whether it might be more efficient. Time will tell.

With all the emphasis on partnering now, alliance management has taken a main stage in business development.  There seems to be much more of a collaborative spirit than ever before, especially when the technology is still very early in development, but really in all stages.  And, of course both companies have to be very understanding of the goals and incentives of the other and bring a high level of emotional intelligence to the table.  Only then do these partnerships become a win-win for everyone involved.

It is clear that alliances are definitely the way of the future, both for the financing and development of the drug.  Yet, the path to an alliance is not at all clear since big pharma is still very bureaucratic.  As always, you have to be creative to get traction. Shawn Grady, VP of BD from Astrazeneca, had these words of advice. “You have to be tentacular in your approach,” meaning that you have to have multiple touch points in the large pharma organization. You never know who your internal champion will be, so the more connections you have, the better your chances are as well. I think this holds true when dealing with any large organization, but is even more important when there are many stakeholders involved.

I know that all this seems a bit daunting for the small biotech firm who just wants to get their baby to market. While it’s a bit rough right now, there are still lots of opportunities for a disruptive product or technology.  In fact, big pharma is doing many preclinical deals with clinical stage valuations with companies who are using novel chemistry or have a diversified, risk-reducing system for drug development (notice I didn’t say platform technology – you shouldn’t either if you want funding right now).  And, any large company will take a serious look at a product company if it has passed the “new” proof of concept benchmark which is a phase IIB clinical trial.

In summary, drug development has always been risky.  And in the current environment, everyone is doing what they can to make the process less risky, take less money, and be more efficient in general. The challenge now is innovation – not only in product development, but with business models, supply chain management, and finance. The development of a differentiated product with a high customer value has been the central dogma in business for years.  It’s just taken pharma this long to catch up to the rest of the business world.  So, the future looks bright.  We’re going to have better medications that have a much higher probability of success than ever before. Lets just hope that we can solve the current financing crunch before all the innovation goes out the window.

Author: Josh Bueller

Let the blog posts roll

Hello All,

I want to officially re-launch our blog here at the CU Biotech Club. I think that this blog can be a great outlet for our members to reach a broader audience and share their thoughts on Biotech, Healthcare, and anything else on their minds. I hope that it can serve as a great representation of the members we have here in the club and their depth and breadth of understanding of Biotech. I'm currently looking for any and all members who would like to contribute content. Please reach out to me Jeff.Schreier@colorado.edu if your interested.

For our first post we've got some insight into the themes and topics that were prevalent at the recent BIO convention which our former president Josh Bueller was fortunate enough to attend. Check back weekly for more posts.

Enjoy!

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BIO Conference
June 27-30 

Hi my fellow Bio business enthusiasts! 

It’s been a while since I’ve written a blog post so I thought I might get things rolling again.  Jeff Schreier assures me that he will continue the blogging as well so keep checking in. 

What a week it’s been here in Washington D.C at the 2011 Bio International Convention.  For those of you that are not familiar with this convention, it’s the foremost international conference for biotechnology and pharmaceuticals. There were even biofuel companies exhibiting this year. No devices though. 

I’m going to try to give you a recap of what I saw.  I followed mainly the business development track of sessions which provided an overview of M&A activity, strategic alliance tips, current valuations, and general trends in the market. There were also a host of other session tracks including personalized medicine, diagnostics, regulatory, finance, health care reform, etc… but I didn’t attend many of those. I’m going to do this blog in 2 parts, so stay tuned for the rest. 

Part 1: General themes 
It was pretty much agreed by all the experts that we are in the midst of a fundamental shift in drug development.  For years, the lowest-hanging fruit for drug makers has been to develop therapeutics to combat the most prevalent diseases and basically treat everyone the same – the same drug for everyone.  Now, we are definitely getting more personal. As captured in the 2011 Ernst & Young Beyond borders: global biotechnology report, the FDA is subscribing to a “Prove-it or lose-it” philosophy, stating that a new drug will need to be much more effective with fewer side-effects or the FDA will not approve it.  Me-too drugs are simply gone and it’s all about proving a comparative advantage over standard of care medicine.  

This policy means that pharma companies will be looking to develop drugs for niche diseases now so that there will be less chance for competition in the specific indication market in the future.  In addition, companion diagnostics are becoming more and more important in the quest to reduce side effects and boost efficacy for select groups of patients belonging to any specific disease group.  Now, we’re still a long way off from individual drugs being made for a specific person, but this is a huge step in the right direction. 

Secondly, biotechnology companies have to be accustomed to doing more with less.  If you’ve read the Wall-Street Journal recently, you’ve noticed that we’ve regained our pre-2008 crash GDP, but we’re doing it with 7,000,000 fewer jobs.  The biotech industry is no different.  Interestingly, big pharma has not only been laying-off sales and marketing people, but have reduced R&D jobs as well.  They are really starting to embrace the open-innovation philosophy to fill their late-stage pipeline.  This results in two major shifts in work force: 1) They rely on outside firms to fill their late stage pipelines (less internal R&D folks) and 2) some companies will kill internal mid-stage programs if they feel that an outside firm has a better drug than they do.  So, for all you scientists out there, small biotech firms may be a much better place to work than large firms – at least right now. 

Much of the development work that was previously done within the walls of pharma companies in the US and Europe is now being outsourced to China, India, and Brazil.  Companies in these regions have the capacity and know-how to be a major participant in the development and manufacturing of any drug. And, while they are still a ways from being good at the discovery phase, it will not be long until they can discover, produce, and sell new pharmaceuticals on the same level as Europe and the US. In addition, these emerging markets represent an enormous revenue potential for drug makers as more people in these countries become able to pay for western medications.