Biotech and Big Phar­ma: A blue­print for a suc­cess­ful part­ner­ship

Strate­gic part­ner­ships have long been an im­por­tant con­trib­u­tor to how drugs are dis­cov­ered and de­vel­oped. For decades, big phar­ma com­pa­nies have been form­ing al­liances with biotech in­no­va­tors to in­crease R&D pro­duc­tiv­i­ty, ex­pand ge­o­graph­i­cal reach and bet­ter man­age late-stage com­mer­cial­iza­tion costs.

Noël Brown, Man­ag­ing Di­rec­tor and Head of Biotech­nol­o­gy In­vest­ment Bank­ing, and Greg Wieder­recht, Ph.D., Man­ag­ing Di­rec­tor in the Glob­al Health­care In­vest­ment Bank­ing Group at RBC Cap­i­tal Mar­kets, are no strangers to the im­por­tance of these tie-ups. Noël has over 20 years of in­vest­ment bank­ing ex­pe­ri­ence in the in­dus­try. Be­fore mov­ing to the bank­ing world in 2015, Greg was the Vice Pres­i­dent and Head of Ex­ter­nal Sci­en­tif­ic Af­fairs (ESA) at Mer­ck, where he was re­spon­si­ble for the sci­en­tif­ic as­sess­ment of strate­gic part­ner­ship op­por­tu­ni­ties world­wide.

In the fol­low­ing Q&A, Greg shares his unique per­spec­tive on why part­ner­ships are vi­tal for both biotech and big phar­ma com­pa­nies.

Noël Brown: Why are strate­gic part­ner­ships ap­peal­ing to both biotech and big phar­ma com­pa­nies alike?

Greg Wieder­recht: “It’s a mat­ter of scale. It’s im­pos­si­ble for large phar­ma com­pa­nies to work in every sin­gle sub-ther­a­peu­tic area out there. In to­day’s mar­kets, the vast ma­jor­i­ty of ap­proved drugs are as­so­ci­at­ed with some type of li­cens­ing part­ner­ship or ac­qui­si­tion com­po­nent. Even the largest com­pa­nies can on­ly work on so many tar­gets at once, where­as there are hun­dreds of thou­sands of re­searchers in acad­e­mia and biotechs out there who can spe­cial­ize in vast­ly more dis­eases. If one of them makes a dis­cov­ery that sat­is­fies an un­met med­ical need, then large phar­ma can form a strate­gic part­ner­ship to pro­vide a jump start on their com­peti­tors.”

NB: What ex­act­ly does a strate­gic part­ner­ship en­tail?

GW: “It can be some­thing as mi­nor as a fea­si­bil­i­ty study, or more sig­nif­i­cant like a patent li­cense, de­vel­op­ment com­mer­cial­iza­tion agree­ment, or even an ac­qui­si­tion. In fact, many ac­qui­si­tions be­gin with a col­lab­o­ra­tion that went so well the phar­ma wants to ac­quire the biotech.”

NB: From a biotech com­pa­ny per­spec­tive, when is a strate­gic part­ner­ship the best path for­ward?

GW: “Strate­gic part­ner­ships can be es­sen­tial to a biotech for sev­er­al rea­sons. A biotech may have a patent po­si­tion on a nov­el tar­get. How­ev­er, it may not have the vol­ume of pre­clin­i­cal de­vel­op­ment ex­perts to get through what we call the ‘zone of chaos’ in drug de­vel­op­ment, which in­volves solv­ing tox­i­c­i­ty is­sues that can lead to un­want­ed sur­pris­es in clin­i­cal de­vel­op­ment.”

“Al­so, if a biotech is work­ing on a project in a large-scale in­di­ca­tion that af­flicts hun­dreds of thou­sands of peo­ple, the clin­i­cal tri­al costs may be too much for them. Com­mer­cial­iza­tion – par­tic­u­lar­ly for those larg­er in­di­ca­tions – is some­thing big phar­ma ex­cels in. They have in­fra­struc­tures in most coun­tries world­wide to sell the prod­uct.”

NB: With al­liances in­creas­ing, what is it that makes some part­ner­ships more in­ter­est­ing than oth­ers?

GW: “Big phar­ma tends to pre­fer first-in-class or best-in-class as­sets in ar­eas of un­met med­ical need. They like to see a demon­stra­tion of tar­get en­gage­ment in vi­vo. Phar­ma al­so likes nov­el chem­i­cal en­ti­ty com­po­si­tion of mat­ter patent pro­tec­tion, with a sub­stan­tial patent pro­tec­tion run­way.”

“They al­so like to see back-up mol­e­cules, so if the lead mol­e­cule fails, there’s a se­ries of oth­er mol­e­cules to fall back up­on. Al­so, large phar­ma tends to pre­fer world­wide rights. And they don’t like in­di­ca­tion split­ting – that is li­cens­ing one in­di­ca­tion for the mol­e­cule to one par­ty and an­oth­er in­di­ca­tion for the same mol­e­cule to an­oth­er par­ty.”

NB: What does the ac­tu­al strate­gic part­ner­ship process look like?

GW: “Gen­er­al­ly, af­ter an ini­tial meet­ing with a biotech, large phar­ma will re­ceive a non-con­fi­den­tial writ­ten dossier. That dossier is then pre-screened by some­one in the eval­u­a­tion group and, if deemed cred­i­ble, passed on to a clin­i­cian for a deep­er dive. Af­ter they’ve re­viewed the dossier, a non-dis­clo­sure agree­ment will be signed, at which time the biotech sends a con­fi­den­tial dossier, fol­lowed by a face-to-face meet­ing with phar­ma sub­ject mat­ter ex­perts.”

“If the op­por­tu­ni­ty is in­ter­est­ing, phar­ma will want to test the mol­e­cule, so you’ll ex­e­cute a ma­te­r­i­al trans­fer agree­ment for in­ter­nal as­says. Then there will be in­ter­nal meet­ings with key ex­ec­u­tives to make de­ci­sions about whether to pro­ceed to some type of a re­la­tion­ship.”

NB: With more and more biotech and large phar­ma com­pa­nies work­ing col­lab­o­ra­tive­ly, how have the dy­nam­ics of strate­gic part­ner­ships changed over the last 10 years?

GW: “Many biotechs are much bet­ter fi­nanced than they were pre­vi­ous­ly. There’s a whole new in­vestor ecosys­tem out there look­ing to fund biotechs, so they’re no longer as des­per­ate for fi­nanc­ing as they once were. Al­so, the re­search tools that were once the do­main of large phar­ma have large­ly been de­moc­ra­tized.”

NB: What fac­tors can im­prove the odds of a suc­cess­ful col­lab­o­ra­tion?

GW: “It’s im­por­tant that big phar­ma rec­og­nizes the biotech is much small­er than they are. When a big phar­ma gets an as­set from a biotech, the biotech ex­ec­u­tives will all have worked very hard – maybe ex­clu­sive­ly – on that as­set. So, it’s im­por­tant the biotech sets up an agree­ment to en­sure the phar­ma moves their mol­e­cule for­ward.”

“Phar­ma will of­ten put a phrase in­to the con­tract to state that they are go­ing to ap­ply the same dili­gence to a biotech’s mol­e­cule that they would ap­ply to their own. How­ev­er, big phar­ma of­ten puts its own mol­e­cules on the shelf when things aren’t work­ing out. If it be­comes re­al­ly ob­vi­ous that phar­ma is not ap­ply­ing the ap­pro­pri­ate re­sources to your as­set, you’ll want to be able to get your mol­e­cule back.”

NB: Giv­en the chang­ing dy­nam­ics in to­day’s in­dus­try, how will the strate­gic part­ner­ship land­scape evolve in the years to come?

GW: “I see it con­tin­u­ing to evolve where biotechs do a lot of the dis­cov­ery and pre-clin­i­cal de­vel­op­ment, with the qual­i­ty of the sci­ence get­ting bet­ter all the time,”

“Big phar­ma is al­ready evolv­ing to be more fo­cused on late-stage de­vel­op­ment and com­mer­cial­iza­tion. Of the re­cent mol­e­cules big phar­ma com­pa­nies have launched over the past five years, around 90% of them have a sig­nif­i­cant com­po­nent that came from the out­side. It’s a strong dy­nam­ic for the fu­ture.”

Gain per­spec­tives from the cut­ting edge of biotech to help you lead to­day and de­fine to­mor­row. Ex­plore RBC’s Pathfind­ers in Bio­phar­ma se­ries.


Noël Brown

Managing Director and Head of US Biotechnology Investment Banking