Virtual Pharma Partners: Guiding Assets to Commercialization

23 Jul

By Lucy Parkinson, Research Manager, LSN

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There are many investment models used in the therapeutics sector, including the partnership model used by the innovative, hands-on, asset-centric Virtual Pharma groups. These investors, otherwise known as pharmaceutical management companies or pharmaceutical development companies, partner with small biotechs with the goal of building a portfolio of therapeutic assets and efficiently developing them for an exit opportunity. But how do virtual pharmas operate, and why might it make sense to partner with one?

The research team at LSN keeps in contact with virtual pharma groups because, quite simply, they are investors in early stage biotech. Rather than investing directly in companies, virtual pharmas invest in assets (in most cases, by in-licensing and then funding the asset’s development; in a few cases, by acquiring assets completely, often with the original rights owner maintaining a royalty share). Some virtual pharmas have been spun out by an investment firm, such as CMEA‘s Velocity Pharmaceutical Development or NEA‘s Tesaro Bio; others raise their funds independently. In many cases, the virtual pharma firm spins off each asset into a separate company. With their focus on a single asset, these new companies are more streamlined for the purpose of attracting other investors or making later-stage strategic deals.

There are some obvious tactical benefits to considering a virtual pharma partner.

Expertise. For scientist-entrepreneurs with deep research experience but who are new to the world of commercial drug development, it makes sense to partner with a company that specializes in getting drugs to market. Some of the virtual pharmas we’ve contacted specialize in a particular field, such as oncology or dermatology, and they are experts at the regulatory and market issues in that field. Others specialize in a particular part of the development process, such as Phase III trials, and are experts in managing those stages.

Strategic assistance. Virtual pharmas tend to have a very strong awareness of their space, and as one virtual pharma executive told me recently, “We don’t invest in assets that aren’t going to get later-stage funding.” In addition to knowing how to market the asset to investors, virtual pharmas also often have good relationships with CROs and big pharma corporations that can be harnessed to bring the asset through to an exit.

Focus. A virtual pharma director told me that his group generally works with biotech companies that have multiple promising assets. The virtual pharma takes over management of one asset and spins off that asset into a new company with staff focused solely on its development. This allows the biotech company to focus on developing the rest of its pipeline.

Monetization. Although the structure of these partnerships varies (much as big pharma partnerships do), many will involve up-front payments that can be used to finance the development of other programs.

Although the strategies of virtual pharmas are highly varied, there’s one consistent value they all share: it’s all about the asset. Make-or-break factors for other investors, such as where your company is located or whether it’s a privately held or publicly traded company, generally don’t apply. If you’re making a pitch to a virtual pharma investor, you should bear this in mind and keep the focus entirely on what’s unique about your asset, how the research data demonstrates its value, and how a partnership on this asset will make sense for both sides.

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