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With today’s economy, it’s important to be upfront about upfront payments in biotech licensing. Since licensing deals allow big companies to fill their pipelines without the upfront work and provide small companies with the capital they crave, a win/win partnership is important.
Today, big pharma is driven by scientific data—often from late phase II clinical trials. And, sometimes one molecule can make or break a deal. For big pharma, it’s not the price that drives a deal; it’s the number of opportunities that may come out of the deal. These conglomerates are willing to pay it forward for hard data and new technologies—especially in areas with an unmet need.
According to both big pharma and small biotechs, strategic partnerships work best and partnerships built on a track record for delivery work even better.
For 2009, big pharma and small biotech executives are optimistic about licensing deals. While sellers might demand upfront cash because of the economy, there is plenty of solid data and attractive molecules to help move deals forward to reach fair market value.
Notes from David Thomas who is out in San Francisco at the BIO Investor Forum,
- Reverse mergers: It is difficult for a shell in this market climate to take on quality biotechs due to disagreements on valuation of the VCs vs. public company boards. Other issues with doing reverse mergers are disagreements with fitting the board with old shell vs new biotech board members. Public shells are looking for data driven catalysts that will move company valuation within two years.
- Big Pharma: The climate today is better than ever before in terms of Big Pharma’s willingness and interest in acquiring early stage biotechs. Cash available and strategic position at Big Pharma suggests further opportunities. New players, in particular Japanese pharma companies, are entering the M&A space.
- The tough public market climate, with no major biotech IPOs since October 2007, is shifting exit strategies toward acquisition. Furthermore, the data suggests that the return to VC investors on IPO exits is not always better than a return via acquisition. Investors are setting the deal price today, not the VCs.
- Capital restraints: As companies and investors conserve cash and pull back on risk, the losers will be the drugs that never get a shot on goal. Lack of funding will result in narrowing the breadth of indications for compounds making it less likely for serendipitous findings. Many companies will cease to exist due to the inability to consolidate or raise new capital.
- Suggestions for biotechs looking to be acquired: Stay focused on your internal expertise and not on external in-licensing or M&A. Selling off of assets to raise cash and return to your core focus is another option.
Speaking of award-worthy innovations, per the post below on The Scientist‘s new project to name the top 10 life science innovations of 2008, check out the Harvard Stem Cell Institute’s recent work. They have developed a way to transform “one type of fully developed adult cell directly into another inside a living animal, a startling advance that could lead to cures for a variety of illnesses and sidestep the political and ethical quagmires associated with embryonic stem cell research,” reports the Washington Post.
A few good quotes related to the new development:
Scientists and field researchers report being stunned from the new development:
Melton projects that studies involving diabetic patients could take shape within the year and that human trials could start within five. It is hoped that spinal cord injuries and Lou Gehrig’s disease, among others, may benefit from the new innovation as well.
Three cheers from the bioethicist, Go Biotech, Go Science, Way to Heal, Treat and Save the World Responsibly! (for further reading see www.bioethicsinternational.org)
BIO’s Daryl Pritchard talks about oncology and personalized medicine at the BIO Internation Convention.
The Group Room, a cancer talk radio show.
Listen to the show:
As promised here is the post on globalization, one of the three major trends driving the biotechnology industry to reinvent itself, according to Ernst and Young 2008 biotechnology report. Pharma and biotech companies are taking advantage of the ‘flattenning world,’ as described by Colin Powel in his keynote speech, and jumping into the globalization trend in the hopes of finding new opportunities for cutting costs and for increasing profits by selling to underserved markets.
In order to cut costs but not production, many Western biotechnology and pharma companies are laying off domestic workers, but also hiring new workers in emerging markets due to their willingness to work for significantly lower salaries without compromising education and/or productivity levels. The convention’s panel on the EO 2008 global biotechnology report highlights this hiring practice as a temporary solution for cost cutting and for the need to expand globally, predicting that the workers from current emerging markets will eventually raise their salaries as competition for their work increases.
From the perspective of the current emerging markets, the new hiring trend is also only a temporary fix for their desire and need to grow internationally. As new markets continue to emerge competition within the emerging markets will increase. The West will have an ever-growing pool of highly trained employees willing to work for potentially even lower salaries, making a relationship based solely on this factor somewhat unsustainable. In an effort to forge more sustainable relationships, emerging markets are moving beyond offering ‘cheaper labor’ and large bodies of “clinically naïve patient populations” to “acquiring assets from, or allying with, western companies.” Ultimately, this will then challenge and increase competition for western markets. It is worth noting that being tempted by ‘clinically naïve patient populations,’ may not be the most ethical of temptations, particularly since one of the big challenges in pharmaceutical R&D is obtaining a quality informed consent. Balancing the need and desire for innovation and for respecting individuals and communities is a continuous challenge. Even NASA struggles with finding the balance between its drive for scientific advancement and its responsibilities to its employees and communities.
A more sustainable and obvious approach regarding globalization for the biotechnology industry, involves western markets seeing emerging markets not solely as opportunities for ‘cheaper labor’ but as emerging consumer-bases, according to the report. Since these emerging consumer bases cannot yet afford to pay western prices for products, the report suggests that western companies “work collaboratively with innovative companies in emerging markets to develop products designed specifically for local conditions.”
As you can see the convention was filled with information and inspiration for professionals from all niches within the biotechnology field, from the scientists to the executive and the salesmen to a bioethicist. It was wonderful to see Vertex Pharmaceuticals taking the lead in creating awareness of the ethical challenges facing the biotech industry and courageously attempting to meet those challenges, by sponsoring the convention’s bioethics track! Thank you to Navigant Consulting, CRT-Tanaka and Nicole Ruediger at BIO for making my participation possible. The experience was fantastic and I am already looking forward to next year’s convention!
“For Vertex, this year’s BIO convention provided an excellent opportunity to
both network and establish new relationships with hundreds of biotech
leaders from around the globe. The convention is ‘the’ place where these
interactions can take place on such a large scale and San Diego was a great
location for these groups to convene.”
–Representative of Vertex Pharmaceuticals Incorporated