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Paced by record growth in M&A activity, dealmaking has assumed a prominent role in the biopharmaceutical landscape. Partnering between capital-rich big Pharma players and biotech asset holders in promising therapeutic areas is now commonplace, with the basic objective to acquire or license products, technologies, or services to support or supplant internal R&D pipelines. However, declining pharmaceutical revenues and the mounting cost of late-stage research now demand more creative approaches to speed the transition to commercialization through novel financing and risk-sharing structures. While the technical pathways to evaluating business development opportunities are well-characterized, less attention has been paid to deriving practical lessons as the "art" of the deal adjusts to meet a new set of expectations among partners. The focus of this article is to showcase the "3S" framework—consisting of science, synergy, and survival— to harness the collaborative energies of each partner, in a way that maximizes the overall value of the transaction, for the long term.

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First, the science

The scientific value underlining a product or technology is the foundation for any collaboration. The bar continues to rise in terms of a desirable scientific value proposition and its ultimate ability to result in improved efficacy, safety, or other clinically meaningful differentiation. In their evaluation of the science, collaborators will consider the timing of development milestones and even market entry in relation to competitors. Targeted or "precision medicine" approaches using biomarkers to address subpopulations for accelerated development and improved safety and efficacy are becoming the new scientific standard. Recent approvals in oncology reinforce this phenomenon. Also, innovations in a drug's mode of administration may be meaningful as a source of value. Those venturing first into unknown areas of science are rewarded when successful, but the risks they face can be daunting, including failure to show significant Phase II/III benefit despite promising proof-of-concept data.

A product's scientific evaluation must integrate an assessment of its potential application in commerce. A holistic understanding of competitive products, ancillary services, and evolving standards of care is fundamental. Expected reimbursement based on a product's profile, competitive set, and clinical differentiation further guides decision-making. The key question transitions from "will it work?" to "will it be a good business investment that drives value to the buyer and healthcare payer?" Increasingly, therefore, utilization of integrated and networked market, payer, outcomes, and even real-world data need to be mobilized to support a clear value assessment. The relative importance of scientific inquiry to overall diligence depends on aligned factors. When the candidate represents a new target or clinical or regulatory path, the scientific rationale is more critical. When the clinical path is straightforward, the scientific rationale can be less important than other factors such as manufacturing or development efficiencies or successful branding.

3S deal value framework

» The practical lesson: An asset's safety and efficacy evaluation must be done in the context of the relevant disease state and the evolving environment of clinical practice. In R&D, diligence revolves around pre-clinical or clinical data and a thorough search for efficacy and safety signals. The risk-benefit profile of the associated disease state and how that might evolve over time informs this review. Efficacy demonstrations must show meaningful differentiation from current and future standards of care. Safety signals may be tolerated in areas of high unmet need such as rare disease or certain oncology indications, but there is an increasing regulatory conservatism in less morbid disease states. Importantly, potential collaborators are becoming more confident in embracing a product when there is demonstrated understanding of the positive relationship between the product and the overall scientific-commercial landscape.

Synergy

Deal synergy, whether financial or non-financial in nature, results when the output from an interaction is greater than the sum of the contributors' parts. Mergers and acquisitions commonly create synergies from more efficient resource deployment. In partnerships, it is ideal when one party augments or complements the other's core competencies. In many of the newer multi-discipline, multi-player exchanges, there is added hope that the confluence of previously siloed insights will drive innovation.

Synergy achievement strongly ties to deal participants, timing, and collaboration oversight. When approaching a potential collaborator, a company must reasonably describe a "story" of how its product or technology holds value to involved parties. A "pitch" may focus on potential aligned strategic fit in a given disease area or, in contrast, be described as a contrarian mechanism to diversify risk. A broad understanding of the business, as well as the specific needs of the buyer and seller, is vital to forging a successful collaboration, especially because in today's tough competitive climate participants often pursue different strategic goals.

Multiple factors contribute to deal timing, including a company growth cycle, relationship of the asset to others in pipeline, clinical path costs and risks, and the collaborators' strategic goals. Although there is no formula for timing a deal correctly, developers most often approach buyers after achievement of a strategic milestone or after financial or non-financial challenges are met that cannot be addressed alone. Those with unique assets are usually able to negotiate from a position of strength. Accordingly, entrepreneurs should consider traditional funding sources such as venture capital, equity financing, and series funding, as well as smaller scale opportunities to fuel development, such as foundation grants, support from patient advocacy groups, and crowdfunding.

Once a candidate transitions from a solo enterprise to one asset in a portfolio, prioritization comes into play. Most often, collaboration oversight or control is proportional to the investment associated with the interaction. In some instances, a partner deliberately cedes control as to not squash innovation or execution speed. The larger number of pre-competitive, multi-player collaborations necessitates a more flexible approach to the development paradigm and, in some cases, intellectual property. Establishing a joint governance and cross-functional collaboration team are key tactics to drive strategic alignment and synergy achievement.

» Practical lesson #1: Be succinct with the pitch—and use a tailored approach. Initial outreach to a potential partner should carefully outline a solid business proposition around value, preferably in a single paragraph or at most a one-sheet overview. This is in contrast to the lengthy scientific treatises that business development colleagues routinely receive, and which are really not effective or appropriate for an initial outreach. The pre-deal road show should be a brief slide deck of no more than 15 pages that outlines the key value drivers of the asset, including scientific/commercial opportunity, development stage, competitive distinction, and risk. It is advisable to utilize a tailored approach and be prescriptive of expectations, including development timelines. As possible, entrepreneurs should build relationships with business-development colleagues or groups over time rather than use a "shotgun" approach of anonymous outreach to multiple company contacts.

» Practical lesson #2: Confidentiality represents a balancing act. Confidentiality may be a challenge with firms being hesitant to reveal asset details too early in negotiations. In practice, however, buyers will not sign a Confidentiality Disclosure Agreement (CDA) in the absence of key information such as strategic fit or potential for portfolio overlap. Staged approaches to sharing information are becoming the norm, where main pieces are shared upfront for key decision points, but more intensive data exchanges are reserved for diligence stages performed after acceptance of an agreeable term sheet. To preserve resources, initial site visits should follow the establishment of an electronic data room and, as possible, full on-site diligence should be saved for final negotiations.

» Practical lesson #3: Consider reversion terms in the final stages of agreements. Although naturally optimistic, collaborators shy from considering reversion terms; developing and documenting them upfront may in fact level and align parties. Planning for quick reversions in specific scenarios such as funding roadblocks due to prioritization or other events beyond the control of involved parties helps ensure that intellectual property or assets do not languish.

Survival

Biopharmaceutical dealmaking must proceed with an awareness that the majority of collaborations will ultimately end, often due to intrinsic failures of the asset itself. Collaborators' team composition, business model, liability views, and funding access have a further impact on the duration of the relationship. Robust and integrated collaboration planning, execution, and management are critical supports to ensuring a deal will survive to thrive. A focus on traditional business design elements provides a good foundation for planning (see table).

Business design elements

Providing solid answers to a number of nuanced questions will help give some welcome structure to the partnering process:

» Among people within the collaboration networks, where does the critical talent exist and how is it accessed? Talent is often the "make or break" characteristic of effective collaborations. Even in those instances where there is a robustly described and developed science or technology, the value of subject matter expert (SME) commitment to and involvement in the go-forward collaboration may not be underestimated. Involving legacy talent is a robust risk management tactic for knowledge management failures.

» How is the supplier network leveraged? Sometimes a buyer will overlook or de-prioritize a collaborator's external partnerships or supplier relationships. However, these very interactions may provide the greatest insights into scientific or operational practices of competitive value. Concurrently, they are also a potential source of risk that must be proactively addressed both at the product and enterprise level.

» Who are the deal "champions?" A discussion of how to ensure a deal survives to obtain its potential is incomplete without mention of the critical importance of champions to sponsor, advocate-for, fund, or drive ongoing interactions and achievements. Beyond the asset or technology itself, champions are often the lifeblood of the partnership. Anticipating turnover in the ranks is essential and any risk mitigation strategy should address this scenario.

As collaborations increase in number, size, and complexity, companies that win in the marketplace will be those that can most effectively drive and derive value from the interactions. As noted, this depends heavily on proactive management and sensible execution. Although there are significant number of integrated resource and portfolio management tools, alliance management efforts remain less standardized and integrated. Some industry players and consultants use playbooks or toolkits, but these generally need to be appropriately tailored. The standardization and systematization of collaboration management tools will likely increase over time, as will an emphasis on end-to-end return on investment and delivery monitoring. Disciplined benchmarking, continuous learning, and risk and relationship management are linked competencies that collaborators must strive to perfect, if only due to the rising competition for the best assets or technology and the need to be seen as a "partner of choice" to have the best shot at securing the assets.

Practical lesson #1: Data and information exchange requires a technology foundation and a personal touch. Despite an increasingly global, networked, and virtual biopharmaceutical development paradigm, establishing robust mechanisms to support collaborator interaction and knowledge management, both physical and virtual, enhances innovation and creativity potential. In-person interactions support development of relationships, exchange of ideas, and reinforce project commitment. Although small teams generally launch deals, maximizing colleague exchanges as the collaboration matures is valuable. Tools for rapid information exchange such as web portals or databases are often as critical to collaboration survival as the asset itself.

Practical lesson #2: Focus on early collaboration successes. Although the end-to-end R&D cycle is long, collaborators should plan for and execute around early markers of collaboration success. This helps mitigate the impact of external environment changes and turnover among your champion supporters. This may require creation of new metrics or performance indicators, particularly when the science is relatively immature. A razor-like focus on execution is paramount given that the effectiveness of collaboration in its first year is often an important clue to its longevity.

Getting real about deals

The biopharmaceutical R&D productivity challenge requires insights, innovations, and contributions from multiple stakeholders, old and new. Merger and acquisition activity is a hallmark mechanism to bolster pipelines and associated revenues, but the key driver behind these transactions today is in enhancing interactions and access among the partners to the deal. Emerging biotechnology hubs, scientific corridors, and larger and more integrated academic-pharma partnerships showcase this trend. Also, the industry is experimenting with more "open" tactics to harness the power of scale and networking for both scientific development and funding. While the vision for collaboration is often noble, involved participants must employ specific strategies and best practices to ensure they obtain the best value from these exchanges. The "3S" framework outlined in this article is one way to help realize the promise from every deal.

Rebecca Ashkenazy, MD, Global Established Pharma, Pfizer Inc. She can be reached at Rebecca.Ashkenazy@pfizer.com. Alex Chang, PhD, Global Licensing & Business Development, Glenmark Pharmaceuticals. He can be reached at Alex.Chang@glenmarkpharma.com. Cyndi Green, PhD, MBA, Worldwide Business Development, Pfizer Inc. She can be reached at Cyndi.green@pfizer.com. Ted Miller, PhD, Corporate Strategy and Business Development, Reify Corporation. He can be reached at ted@reifycorp.com. Christine de los Reyes, PhD, MBA, Strategy & Business Development, Alopexx Enterprises LLC. She can be reached at christine@btpsolutions.com.