Aggressive Biotechs Succeed: Selecting the Right Pharmaceutical Partner. A White Paper by Nick Palmer and John Kim

Transcription

1 Aggressive Biotechs Succeed: Selecting the Right Pharmaceutical Partner A White Paper by Nick Palmer and John Kim

2 2002 by Vantage Partners, LLC. All rights reserved.

3 For most biotechs, finding the right partners is crucial. Pharmaceutical partners bring needed capabilities product development, clinical trials management, manufacturing, marketing, and sales. These partners can also provide capital to fund research and development activities. As many biotechs seek to build and grow these capabilities themselves, partners can help them to learn quickly. Mistakes in partner selection, however, can be fatal. The risks are asymmetric between small biotechs and their larger partners the downside for smaller firms is often huge. Bad choices can be very difficult to undo, causing delays, consuming scarce management time, and negatively impacting the bottom line. How can biotechs select the right partners, and establish appropriate terms and expectations with them? By asking a more comprehensive set of questions and aggressively managing their interactions with potential partners, biotechs can increase their likelihood of establishing successful partnerships. Effective due diligence allows executives to select the best partners. It also enables them to structure alliances to increase the likelihood of success. Ensure Comprehensive Due Diligence Almost all biotechs perform due diligence on potential partners. Their processes generally emphasize technical evaluation and reputation. Such an approach is not sufficient a more effective process should include a broader assessment integrating strategic, operational, and relationship issues. Strategic Assessment Biotechs must assess the degree to which a potential partner will view the collaboration as top priority. Companies looking to close a deal will say all the right things. Unfortunately many biotechs see their company s priority plummet after the deal is signed. The place to start is by assessing the pharma s position in the therapeutic area. A company that views a particular therapeutic area as core and that needs a biotech s product to fill a gap in its portfolio is more likely to continue making necessary investments. Product range, sales history, and market share are effective indicators. If the company is a leading player in the area, it probably hopes to strengthen (or at least maintain) its current position. The biotech must understand the larger firm s strategy, and the role of its contribution in that strategy. If the pharma is a relatively small player in a disease area but hopes to strengthen its position, the biotech must assess its credibility and ability to execute the strategy. If the collaboration is on a drug critical to the strategy, the pharma partner is likely to consider the alliance a high priority. Understanding the fit of the biotech s compound or technology within the pharma company s existing portfolio is vital. The biotech may find its project competing for resources with related products. On the other hand, if the biotech s product fills a gap for the pharma, it may attract more support. A biotech should be aware of the pharma s targets, compounds, and projects in the same therapeutic area. When capability development is important for the biotech, it must assess a potential partner s ability and willingness to teach. Due diligence should identify the company s learning-based alliances and detail the specific ways that the larger firm contributed to a partner s capability development. Did it allow small partners to co-locate staff to help them to learn? Operational Assessment Most biotechs focus excessively on technical and scientific details, to the exclusion of other areas. They must ensure a broad-based operational review. This should encompass business processes, technology, and financial issues. Biotechs must look beyond their immediate needs to consider needs that could arise over time. Are the potential partner s manufacturing facilities and processes adequate for meeting likely demand? How has the company fared in past marketing campaigns with similar products? Does the pharma s sales force have the reach and relationships to market the product effectively? Almost always, biotechs assess the pharma s experience and knowledge in development and commercialization. They should also consider a potential partner s access to specific technologies and key academic partners, and look for other complementary relationships the company may have. Does the company co-publish studies and articles? These can boost a biotech s credibility and stock price. In financial due diligence, biotechs should go beyond merely evaluating the pharma s ability to fund the drug all the way to market. They should understand its budgeting process how it sets funding priorities and 1

4 how alliance partners are involved in the process. Is the process sufficiently transparent so that the biotech will feel assured of fair treatment? How have previous partners fared? Relationship Assessment An inability to manage working relationships effectively is a significant contributor to pharmaceutical-biotech alliance failure. Biotechs must be aware of relationship challenges and a pharmaceutical firm s ability to work with alliance partners. Such challenges do not necessarily stem from either company s faults. Often they arise from a mismatch between two companies. The first concern is cultural fit. Companies typically take a superficial approach to assessing cultural fit, if they consider it at all. Using systematic assessment observation, interviews, literature searches a biotech should develop a picture of a potential partner s culture. It should then compare this to an objective assessment of its own culture. What are areas of concern? Where is conflict likely? How could culture-clash issues be minimized? Relationship Fit Degree of cultural alignment and/or ability to deal with differences Strong track record of working with other partners Openness to learning Decision-making and communication processes Metrics and reward system supportive of collaborative behavior The traditional view is that relationship management is soft stuff. This view lies at the root of many failures. Relationship can be a concrete concept. It has three distinct elements: governance, working protocols, and alignment. Alliance partners must manage these elements systematically. Biotechs should also evaluate the pharma s alliance management capability its organizational ability to manage alliances. This is manifest at both the strategic and operational levels. There are two clear indicators of capability: track record as a partner and tangible commitment to alliance management. A biotech should learn about a potential partner s successes and failures. What lessons do can be drawn? In pharmaceutical alliances, defining success is difficult, and understanding root causes of failure is even more challenging. Biotechs should dig deep to understand what worked and what did not. They can learn about the company as a partner by talking to previous and current partners, to VC firms, and to former employees. Consider too, the pharma s commitment to building alliance management capability. Has it invested, dedicated resources, and built infrastructure? Try to understand not only how much was spent but how it was spent (e.g. on training, retention, infrastructure). Are there dedicated resources, formal alliance managers, and an alliance management function? Does the company have standard, proven processes, tools, and methods in place to manage alliances? Create a Two-way Conversation Getting due diligence right requires getting the right information and managing interactions well. This necessitates a two-way discussion with the potential partner. Often the best way to encourage a potential partner to share information is to share first. Initial conversations create lasting impressions. Properly done, they can build a strong foundation for working together. Do Not Oversell Too often biotech executives approach potential partners in sell mode. They see the pharmaceutical company as evaluating them unilaterally. Biotechs strapped for cash can feel an even greater sense of urgency. Biotech executives must avoid this trap. It impairs the ability to ask hard questions and to conduct a full due diligence. While biotechs may be hesitant to raise certain issues, the failure to do so early on may set the stage for later failure. Exploration:A Bilateral Process Early interactions set expectations. The evaluation process is an important opportunity to learn about each another, to anticipate challenges, and to lay the groundwork for a strong relationship. Potential partners should agree on objectives and an approach. This allows both sides to be better prepared with the relevant information. When companies understand each other s interests and assumptions, they are less likely to come to loggerheads. Such understanding builds trust and credibility. 2

5 Biotechs must, of course, be aware of boundaries. Alliances are not like marriages they involve enlightened self-interest. Be clear and honest, even if this means giving a courteous refusal. Accept the same from potential partners. In addition, effective two-way evaluation involves both planning the kind of relationship the two partners want, and setting goals and expectations for day-to-day working interactions. Companies should describe past challenges and measures taken to address those challenges. Such explicit discussions enable companies to learn much more about prospective partners and to help them brainstorm how to overcome challenges jointly. In our experience, such good beginnings can lead to more creative, highervalue outcomes for both partners. Conclusions Biotechs serious about finding the right pharma partners must manage both the substance and the process of due diligence. They need to understand potential partners fit with their needs strategic, operational, and relationship. By doing this well, not only will the biotech attract better partners but it will lay the foundation for more successful, longer-term collaborations. 3

6 4

7 About Vantage Partners, LLC Vantage Partners helps leading organizations around the world more effectively manage their most valuable and important relationships with customers, suppliers, and alliance partners, and within the organization, across divisions, functions and geographies. We help our clients build the necessary systems and structures, tools, skills, and mindset, to consistently and on an on-going basis, create and capture value through collaboration. Please contact us for more information on how Vantage Partners might assist you with improving your alliance relationship management capacity or other relationship management issues. Brighton Landing West 10 Guest Street Boston, MA T F Nick Palmer is a Senior Advisor of Vantage Partners npalmer@vantagepartners.com John Kim is an Associate of Vantage Partners jkim@vantagepartners.com

8 Strategic Relationship Management