Things to Consider in Building Big Pharma Partnerships

23 Apr

By Shaoyu Chang, MD, MPH,  Senior Research Analyst, LSN

Shaoyu 10*10As the pharmaceutical industry is cutting back on R&D, more and more big corporations in the field are searching externally for innovative technologies to replenish their pipelines. For biotech start-ups, partnership with these big players not only offers a source of funding, but also helps them tap into a broader knowledge base of therapeutic sector expertise, drug development, regulatory submission, and commercialization.

Experienced, serial biotech entrepreneurs are well-versed in leveraging big pharma to create value for their ventures; however, many first-time entrepreneurs do not understand how to position themselves and communicate effectively with this segment, therefore they miss out on the opportunity to cultivate big pharma relationships.

  • “My company has to be impeccable before I can show it to big pharma.”

Often fundraisers hesitate to reach out to big pharma because a technical detail is under development, a certain test is not completed, or the technology is simply “not ready.” As my colleague Michael Quigley has advised[1], outreach should begin as early as a consistent branding and messaging package can be prepared, despite the fact that some data may be pending. The aim with this outreach should be to introduce your company and establish a relationship, rather than to make a direct solicitation for funds.

“Initiating dialogue with big pharma early gives you many advantages,” said a former director of external research at a major pharmaceutical corporation in a recent interview. “You will have a better understanding of what pharma wants and where their interests are. You will also gain insight on where your company stands within the competitive landscape.” With this information, an entrepreneur has a better chance of conducting the right studies that will create value for the company.

  • “If I am in conversation with one big pharma company, I should focus on that relationship. If they find out that I am speaking to other pharma groups, it may sour our relationship.”

Engaging in a dialogue with a big pharma company is a great milestone. However, upon reaching this point, many entrepreneurs wrap themselves in a false sense of security and stop contacting other potential partners. Compared with traditional VC funds, big pharmaceutical corporations generally take longer to review and reach a decision regarding investment, especially when it comes to preclinical assets. A company may risk running out of cash if their only dialogue does not reach fruition within a critical timeframe.

What is a comfortable number of big pharma groups to talk to simultaneously? “Somewhere between four to twelve,” said a veteran venture capitalist and MIT professor. Entrepreneurs should not worry about irritating potential pharma partners. Big pharma corporations know each other, and collaboration between them is common. Therefore, entrepreneurs should disclose to potential pharma partners that they are in conversation with other parties. Interest from other big pharma companies lends credit to an asset and offers the entrepreneur an opportunity to demonstrate their ability to maintain confidentiality in a professional manner. In some cases, a healthy sense of competition can lead to higher valuation and even a bigger deal size as big pharma corporations try to outbid each other on a hot technology.

  • “If a pharma does not invest in me, they are not interested. I should look elsewhere.”

You are advised to always do your homework first: figure out what a big pharma partner is looking for, how your technology can complement their existing pipeline, and how to get introduced to the key person who might be interested in your technology.

However, entrepreneurs must remember that making a connection with big pharma does not result from a “hit-or-miss” shot, but from a dialogue, which is an ongoing dance. Many decision makers at pharmaceutical corporations are scientists themselves who are genuinely interested in new technologies. However, they are also worried about risks when making an investment decision. If they think you are too risky for investment now, they can lay out the steps you need to take to make yourself investable in the eyes of the firm.

More and more frequently, big pharma corporations are choosing to enter some form of collaboration with early stage companies on high risk, preclinical technologies. “Instead of licensing, big pharma enters service-based agreements with a small biotech to test their technology by using big pharma’s facility, such as disease models or animal labs, at no cost,” said the former pharmaceutical corporation director interviewed. “In exchange, the biotech shares data with its pharma partner.” Such collaboration serves as an opportunity for a small biotech to gain early validation data and open doors to further cooperation in the future.

In 2014, big pharma struck 559 licensing deals, with an average total deal size of $280 million.[2] The same year also saw $234 billion in merger and acquisition (M&A) activity in the pharmaceutical sector.[3] For many entrepreneurs, collaboration with the right big pharma partners can provide invaluable access to technical guidance, market intelligence, and funding. You must be mindful as you proceed in your outreach, but it is never too early to start!

[1] Michael Quigley. “Four Reasons Why It Is Never Too Early to Build Relationships with Investors.” Next Phase: Life Science Nation Blog. Accessed from https://blog.lifesciencenation.com/2015/03/26/four-reasons-why-it-is-never-too-early-to-build-relationships-with-investors/

[2] The Boston Consulting Group. “2014 Biopharmaceutical Partnering Survey.” Page 6. Accessed from http://www.slideshare.net/TheBostonConsultingGroup/2014-biopharmaceutical-partnering-survey

[3] Steve Sapletal. “After A Blockbuster 2014, What Will 2015 Hold For Pharmaceutical M&A?” Benzinga. Accessed from http://www.benzinga.com/general/education/15/02/5220037/after-a-blockbuster-2014-what-will-2015-hold-for-pharmaceutical-m-a#ixzz3Y1AG7dNI

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