Noël Brown (00:15):
Hello, and welcome to another edition of Pathfinders, a podcast series from RBC Capital Markets that explores the fast moving world of biotech. I'm Noël Brown, head of US Biotechnology Investment Banking here at RBC. For decades, big pharma companies have been forming alliances with academic institutions, small biotechs, large biotechs, and even other pharma to increase R&D productivity, expand their geographic footprint and share commercialization costs.
Noël Brown (00:45):
Even with the significant size of large cap pharma R&D organizations, it's impossible for these companies to compete with the many hundreds of thousands of researchers at universities and research institutions around the world, and with researchers at thousands of biotech companies as well.
Noël Brown (01:01):
In this episode of Pathfinders, we'll be looking at what it takes to ensure a strategic partnership not only survives, but thrives. To help guide us through some of the best practices to follow and some of the pitfalls to avoid on a journey towards successful collaborations, I'm joined by my partner, Greg Wiederrecht, Managing Director in Global Healthcare investment banking here at RBC Capital Markets.
Noël Brown (01:23):
Before moving to the banking world in 2015, Greg was the Vice President and Head of External Scientific Affairs at Merck where he led a team focused on the identification and scientific assessment of all licensing collaboration, partnership and acquisition opportunities for Merck worldwide.
Noël Brown (01:40):
Greg's experience is unique on Wall Street and it positions him to provide clients with a valuable perspective on what it takes to create powerful partnerships in biopharma. Greg, welcome to Pathfinders. So why don't we just dive in, Greg, and start with the fundamentals? And I'd like to ask you, why are partnerships appealing to both biotech companies and big pharma companies alike?
Greg Wiederrecht (02:01):
Well, there's a few good reasons. Firstly, it's a matter of scale. Big pharma companies make decisions about what projects to work on. It is absolutely impossible for them to work on every possible scientific project at one time, so they make their choices given that they cannot compete on all fronts with the thousands of biotech companies that you referenced earlier, and the hundreds of thousands of researchers both in academia and in biotech.
Greg Wiederrecht (02:29):
So, it's important to recognize that biological breakthroughs and scientific understanding of medical issues does not increase linearly as if you were an industrial computer chip manufacturer. Biology is different than that. Instead, scientific understanding of biology tends to grow by leaps and bounds. A good example is the discovery of gene editing using CRISPR, which came out of academic labs who were studying, of all things, bacterial immune systems.
Greg Wiederrecht (03:00):
I'm reasonably certain that at the time that discovery was made, no big pharma companies were studying bacterial immune systems. And now the technology is being applied in both pharma, both as a research tool as well as a potential therapeutic to edit human genomes to correct genetic diseases.
Greg Wiederrecht (03:19):
Secondly, another good reason for partnering is that biologists and physicians are not very fungible as say synthetic organic chemists. It's really impossible, again, for a big pharma company to hire biologists and physicians to cover every single sub therapeutic area out there. Big pharma can only work on so many disease targets at once, whereas there are enough biotechs out there to specialize in vastly more diseases and afflictions. If one of them makes a discovery that satisfies a previous unmet medical need, large pharma can then pivot and form some type of relationship with that biotech.
Greg Wiederrecht (03:58):
Thirdly collaborations, licenses and acquisitions can jumpstart efforts within a big pharma who may not have been working in that area before to help it catch up with other large pharma competitors.
Noël Brown (04:12):
Maybe we can drill down even further and try and describe for folks what exactly does a partnership agreement entail?
Greg Wiederrecht (04:18):
Well, partnerships or relationships can take many forms. Pharma companies, in order to attract opportunities they are interested in, are very flexible these days. A relationship can take the form of something as minor as a feasibility study on a potential partner’s asset in which the potential partner might own the data, so it can shop it around. It can take the form of a patent license so that a big pharma may be infringing, to a certain extent, someone else's patents and may need a license to sell its own product.
Greg Wiederrecht (04:50):
It can take the form of a research collaboration where scientists at both pharma and biotech work together toward a common goal. It could take the form of a relationship where pharma funds the research at the biotech and does less internally. It can take the form of a Development Commercialization Agreement or an out and out acquisition. The acquisition may have started as a license or a collaboration, and it just went so well that the pharma wants to acquire the entire company. We've seen some examples of that recently.
Noël Brown (05:23):
So when we began this discussion, we were talking about the amount of work that's being done outside of large cap pharma companies and the amount of creativity and expertise in various niche areas conducted outside of pharma. So while I get the value of these partnerships to the large biopharma company, from the smaller company's perspective, why is a strategic partnership the best path forward?
Greg Wiederrecht (05:46):
So partnership can be attractive to a biotech for any number of reasons. Biotech might have identified a novel target and have a patent position on that target. It may have developed the relevant assays, however it may be operating in a competitive space and may not have the boatloads of chemists that a big pharma can throw at a particular target or a project.
Greg Wiederrecht (06:12):
Having battleship loads of chemists improves the likelihood of developing a superior molecule, if you're in a competitive space. And also, large pharma has more resources to apply to help molecules get through what we call the "zone of chaos" in drug development, which is largely involved in solving ADME and toxicity issues that can lead to unwanted surprises in clinical development if they are not solved early on in the development process.
Greg Wiederrecht (06:43):
Secondly, another good reason to partner with big pharma is biotech is working on a project and indication afflicting hundreds of thousands of people. The clinical trial costs may be too much for a biotech to endure, and so they might make the decision to partner.
Greg Wiederrecht (07:01):
And thirdly, commercialization, particularly for a biotech and in larger indications, is something that pharma historically has excelled in. Plus, they have the established infrastructures in most countries around the world to sell the product.
Noël Brown (07:16):
As someone that led a team inside one of the largest pharma companies in the world, how at a basic level should a smaller biotech company think about initiating one of these partnership discussions? How do you get your foot in the door?
Greg Wiederrecht (07:31):
Probably one of the best ways in is if you know someone on the management team of the biotech who has a pre-existing relationship with a high-level person at a large pharma. The reason this is a good way in, is because our relationships between companies have a lot to do with trust. So if the trust has already been established, then it really greases the skids to doing a deal. Another way to get in is all of the big pharma these days have licensing portals. It is as simple as a biotech company contacting a big pharma through any one of those portals.
Greg Wiederrecht (08:06):
Thirdly, biotechs can meet up with pharma at any number of biotech conferences that are set up for partnering. Often big pharma will reach out to biotechs directly to initiate get-to-know-you discussions if they think you have a very interesting asset. Also, you can talk to bankers, such as us. We have a different vector of getting into big pharma, often a very high level vector, and that's a good way to establish contact.
Noël Brown (08:39):
From the big pharma perspective, what makes some biotech firms more interesting than others? What would you say are the criteria for those partnerships that are worth pursuing?
Greg Wiederrecht (08:48):
Well, it's hard to make a global assessment of that because beauty is really in the eye of the beholder. So a biotech may be uninteresting to one big pharma company, but very interesting to another. But in general, large pharma tend to prefer innovative, first in class assets in areas of unmet medical need. They're not interested in me-too assets unless it has some advantage over an asset that a competing pharma holds.
Greg Wiederrecht (09:19):
And, a biotech should be prepared to discuss the competition and what makes their molecule better. For oral drugs, pharma likes to see once per day dosing, that's their preference, of a tablet that is not the size of a horse pill. Twice per day is okay, but if you have to dose more frequently than that it tends to get a little unattractive. So try to get your formulations in shape.
Greg Wiederrecht (09:43):
Pharma likes to see a demonstration of a target engagement in many circumstances. Is there evidence that the molecule is actually hitting its target in vivo? Otherwise, it's difficult to prove or disprove a mechanistic hypothesis. Pharma likes Novel Chemical Entity composition of matter patent protection, in general, with a substantial patent protection runway. There are other patent strategies that can work and have been successful without having an NCE patent, and those need to be vetted with really competent patent attorneys to make sure you have an exclusivity runway.
Greg Wiederrecht (10:20):
Pharmas like deals where they get all the molecules that a biotech has directed against a particular target. Pharma likes to see backup molecules if the biotech has them, so that if the lead molecule fails there is a series of other molecules to fall back upon. Large pharma tends to prefer worldwide rights and they do not like indication splitting, that is licensing one indication for the molecule to one party and another indication for the very same molecule to another party.
Noël Brown (10:57):
So that's a great checklist for folks to think about, and it also ties in nicely with what we do here at RBC. Because, frankly, at the end of the day this list isn't short and the longer a company can fund itself so that it can continue to check off more of these boxes, I would assume, the greater the bargaining power they'll have when they enter into a discussion with pharma for a potential partnership.
Greg Wiederrecht (11:19):
That's correct.
Noël Brown (11:20):
So taking that in a slightly different direction, could you talk us through the front end of this whole partnership process and what's required to get it over the finish line?
Greg Wiederrecht (11:29):
You can often set up initial meetings at some of the conference venues that happen throughout the year, those meetings tend to be short. But generally, large pharma will receive a non-confidential written dossier from a biotech, and that dossier is often pre-screened by someone in the search and evaluation group. And if the dossier is deemed credible, then it might be passed on to a scientist or a clinician at that pharma for a little deeper dive.
Greg Wiederrecht (12:00):
Now, if you get a no answer from pharma it's important to recognize that it does not mean no forever. Typically, the pharma should explain to you why they said no, giving you an opportunity to address those concerns so you can come back in six months to nine months or whatever it takes after you've addressed those concerns, and it can completely change the opinion of the large pharma.
Greg Wiederrecht (12:26):
So after you've reviewed the nonconfidential dossier, if the pharma wants more information, typically a nondisclosure agreement would be signed at which time the biotech sends a confidential dossier, and/or there might be a face-to-face meeting that includes pharma subject matter experts who will meet with you at the pharma company for a longer meeting - an hour-and-a-half to two hours. Or, the pharma company reviews the confidential dossier within its walls.
Greg Wiederrecht (12:55):
If the opportunity is still interesting, often pharma will want to test the biotech's molecule, and so you'll execute a Material Transfer Agreement so that the molecule can be tested in some of pharma's internal assays. Then there might be one or two internal meetings at pharma with key executives to make decisions about whether to proceed to next steps toward inking some type of a relationship. Transaction managers from corporate development and the biotech company, as well as the company lawyers get involved to exchange term sheets with a biotech company, agree on terms before starting toward drafting an actual agreement.
Greg Wiederrecht (13:35):
During this time, formal scientific, legal, and patent and manufacturing due diligence, if appropriate, is conducted by the pharma company. Then, after the agreement is signed you'll have a kickoff meeting so that everybody can meet their counterparts and begin working together. At most pharma there's a substantial alliance management department and the company is assigned an alliance manager to make sure that any concerns that the biotech has are quickly addressed.
Noël Brown (14:08):
So let's say you've gotten your response, there's an expression of interest to continue the dialogue and so from signing the NDA to getting a signature on an agreement, if you were to ballpark that timeframe, just so people can think about it the right way, how would you estimate that?
Greg Wiederrecht (14:25):
That's very difficult to ballpark because I've seen agreements get executed in a hurry, in as little as a couple of months, but others might've taken significantly longer. I would say I would ballpark it at around four or five months.
Noël Brown (14:41):
How are the dynamics of strategic partnerships changing in today's market?
Greg Wiederrecht (14:46):
It's really changed over the last 20 years, for reasons that I've enunciated. Namely, that there's so many biotechs out there with really great scientists in them now. So the expertise in these biotechs is just simply incredible, and the credibility of the science is extremely high. Another change is that more recently, many biotechs are really awash in funds. There's a whole ecosystem out there with lots of investors willing to fund biotechs.
Greg Wiederrecht (15:19):
At one time, they were probably a little more dependent upon big pharma to get funding via research collaborations and licensing. Nowadays, the good companies have enough money to develop molecules on their own all the way if they wanted to. Secondly, the research tools and expertise that were once the exclusive domain of large pharma have largely been democratized.
Greg Wiederrecht (15:45):
Furthermore, there's many more contract research and development organizations out there. So you see a lot of virtual biotech companies who have contract research organizations doing a lot of the assays for them. And thirdly, the entire ecosystem has changed. Biotechs have taken over much of the discovery, preclinical and early development work compared to the way it was a decade or two ago. And some pharma are turning more and more into late stage development and commercialization houses as their fields of expertise.
Noël Brown (16:18):
So, it's interesting, I've been doing this for over 20 years and we speak to these changes, this evolution of partnership agreements, and the evolution of the relationship between the innovators and commercializers of these therapeutics. How would you describe the value that we can bring to that strategic partnership process in our role as bankers?
Greg Wiederrecht (16:37):
We can give advice on how to position yourself, and we can advise you on which assets from your portfolio you might want to partner versus which ones you might not want to partner. Simplistically I would say that, in the best of all possible worlds if you're a biotech, if you can keep your lead asset for yourself, that would be most attractive to investors and potential acquirers. But if you partnered an earlier stage asset that may be using some of the same platform technology and you partnered that with a big pharma, you would get that extra validation.
Greg Wiederrecht (17:11):
We have extensive contacts with big pharma, and we also know what they are looking for and what they're not looking for. And we have connections into what they're actually thinking about, from a growth perspective, themselves. So we add a lot of non-scientific financial expertise.
Noël Brown (17:30):
What are the things that can improve the odds of successful collaborations and what are the factors that can throw those discussions off course?
Greg Wiederrecht (17:37):
Well, in any collaborations it's important the big pharma recognize that the biotech is much, much smaller than they are. And when big pharma is getting an asset from a biotech, those biotech executives and scientists have worked very hard on that asset, and many times almost exclusively on that asset. So it's very important that biotechs set up the agreement to ensure that pharma is applying the appropriate diligence in moving their precious molecule forward.
Greg Wiederrecht (18:04):
Pharma will often put a phrase into the contract trying to address this issue, they may state that they are going to apply the same diligence to the biotech's molecule that they would apply to their own. However, you need to recognize that pharma often puts its own molecules on the shelf for long periods of time when things aren't working out and they move on to something else.
Greg Wiederrecht (18:26):
And so if they're applying the same level of diligence to your molecule that they're applying to their molecule, that could involve having your molecule placed on the shelf for longer than you might want. So you need to be mindful of that and there needs to be language that allows you to call back your asset if it becomes really obvious that pharma is not applying the appropriate resources to your crown jewel.
Noël Brown (18:54):
Greg, you've got very unique experience which gives you a very unique perspective. From all of that experience, what lessons can be learned? What are the key takeaways?
Greg Wiederrecht (19:03):
I would say that, when you're acquiring a company, for example, the assets that you valued the company on may not be the assets that prove most valuable later on. One of my favorite examples is what happened with Merck's acquisition of Schering-Plough. The valuation of Schering-Plough was based upon their cholesterol absorption inhibitor, at the time, as well as on a thrombin inhibitor they had.
Greg Wiederrecht (19:27):
But it turned out the most valuable asset and was something that barely registered when we were doing the acquisition, and that was the PD-1 inhibitor that was way in the background. It actually came from a little lab that Organon had set up in Boston or in Cambridge, Massachusetts. And they had made a monoclonal antibody against PD-1. And then of course, Organon was acquired by Schering-Plough, and Schering-Plough was acquired by Merck.
Greg Wiederrecht (19:54):
And Bristol Myers, in the meantime, was developing what became Opdivo. We learned of some very interesting results that we're getting in their clinical trials and our head of research said, "Hey, don't we have one of those?" And we certainly did, and that became Keytruda.
Greg Wiederrecht (20:11):
So the point is, when I'm talking to big pharma about acquisitions, particularly of companies that have numerous assets or compounds that they've made over the years that are lying fallow, I always advise them to put some valuation on all of these other assets. Because, you really never can tell.
Noël Brown (20:28):
What about trying to get assets out of pharma? What if there's something on the shelf gathering dust that's of interest to you as the smaller biotech innovator and you want to try and get access to that because they're not doing anything with it?
Greg Wiederrecht (20:41):
So those are harder to get, and let me explain why. Most big pharma want their licensing groups, their transaction managers, their search and evaluation people spending their time bringing in molecules. If they're out-licensing something, it takes just as much time. The acquirer is going to want to perform due diligence, and big pharma really don't want their scientists and clinicians spending time having to honor due diligence requests. But nonetheless, there are many nice assets that come out of big pharma, and I find that most of those come out through connections. You really need to know someone at a pretty high level who's going to pay attention to you and can move things to get an asset you wanted.
Noël Brown (21:25):
What are the partnering trends and patterns that you think industry leaders should be paying attention to right now? How do you think the strategic partnership landscape will evolve in the years to come?
Greg Wiederrecht (21:35):
I see it continuing to evolve where biotechs do a lot of the discovery and preclinical development, and maybe even the early development work, and the quality of the science is getting better and better all the time. And, pharma kind of evolving to a more late stage development and commercialization houses. There are data out there showing that, of the recent molecules that many of the big pharma have launched over the past five years, that upwards of 75%, sometimes 90% of launches of selected big pharma are coming from the outside or have a very significant component that came from the outside, such as that they could not have launched the molecule.
Noël Brown (22:18):
That's a great closing thought. Greg, thank you for all of your insights today. So what does 2021 have in store for the biotech industry? We'll be tracking it right here on Pathfinders. Until our next episode, thank you all for joining us. And if there are any areas that we discussed that you'd like more information on, please don't hesitate to contact us directly for a more in-depth discussion, or visit our website for further insights.
Speaker 3 (22:46):
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