Pathfinders Podcast | Investment Banking

Biotech and Big Pharma: Blueprint for Successful Partnership

As biotech firms and large pharma companies find new synergies to bring new treatments to market together, RBC Capital Markets’ Noël Brown interviews pharma industry veteran Greg Wiederrecht – now RBC’s Biopharma Managing Director - on what it takes to ensure a strategic partnership not only survives but thrives.

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By Noël Brown and Greg Wiederrecht, Ph.D.
Published October 5, 2021 | 5 min read
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Key Points

  • A mutually beneficial exchange underpins every strategic partnership in today’s industry, matching biotech’s breakthrough innovation with the resources of a larger pharma or biotech.
  • The impact and importance of these alliances cannot be overstated – the vast majority of approved drugs were partnered or acquired.
  • The dynamics of strategic partnerships and alliances have changed dramatically over the last decade, with increased access to capital in biotech shifting the balance of power.
  • Research tools and expertise that were once the domain of large pharma have largely been democratized. However, the complementary relationship between biotech and large pharma continues to be a win-win for the industry.

Strategic partnerships have long been an important contributor to how drugs are discovered. For decades, big pharma companies have been forming alliances with smaller biotech innovators to increase R&D productivity. From the biotech’s perspective pharma expands the geographical reach of a drug and aids in better managing late-stage development and commercialization costs.  

Greg Wiederrecht, Ph.D., Managing Director in the Global Healthcare Investment Banking Group at RBC Capital Markets, is no stranger to the importance of these deals. Before moving to the banking world in 2015, Wiederrecht was the Vice President and Head of External Scientific Affairs (ESA) at Merck, where his group of 85 physicians and scientists was responsible for the identification and scientific assessment of all licensing, collaboration, partnership, and acquisition opportunities for Merck worldwide.

Wiederrecht’s experience gives him a unique perspective on why partnerships are vital for both biotech and big pharma companies.

A question of scale

“It’s impossible for large pharma companies to work in every single sub-therapeutic area out there,” explains Wiederrecht. “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 and afflictions. If one of them makes a discovery that satisfies an unmet medical need, then large pharma can form some type of strategic partnership or collaboration to provide a jump start on their competitors.”

The path to innovation

So, what exactly does a strategic partnership entail? According to Wiederrecht, partnerships can take many forms. “It can be something as minor as a feasibility study on a potential partner's asset, or something more significant like a research collaboration, 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 entire biotech. We've certainly seen some examples of that recently.”

Evaluating potential

Clearly, big pharma is dependent on collaborative alliances. But from a biotech perspective, when is a strategic partnership the best path forward?

“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 chemists and preclinical development experts that a big pharma can muster to get through what we call the ‘zone of chaos’ in drug development, which largely 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 to endure”, continues Wiederrecht. “Commercialization – particularly for those larger indications – is something big pharma excels in. They have established infrastructures in most countries around the world to sell the product.”

"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."

Greg Wiederrecht, Managing Director, Global Healthcare Investment Banking, RBC Capital Markets


Measuring the return

With alliances between the biotech sector and large pharma increasing, what is it that makes some partnerships more interesting than others? If you’re a large pharma company, what’s the criteria for the opportunities that are worth pursuing?

“In general, big pharma tends to prefer innovative, first-in-class or best-in-class assets in areas of unmet medical need,” says Wiederrecht. “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 that 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 very same molecule to another party.”

The steps to success

Underpinning these partnerships is a mutually beneficial exchange: breakthrough innovations from biotechs in return for big pharma’s scale and reach. But what does the actual strategic partnership process look like? What steps are required to get it over the finish line?

“Generally, after an initial meeting with a biotech, large pharma will receive a non-confidential written dossier,” explains Wiederrecht. “That dossier is then pre-screened by someone in the search and evaluation group and, if deemed credible, passed on to a scientist or clinician for a deeper dive. After they’ve reviewed the non-confidential 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 still interesting, pharma will want to test the molecule, so you'll execute a material transfer agreement so the molecule can be tested in internal assays,” continues Wiederrecht. “Then there will be internal meetings with key executives to make decisions about whether to proceed to inking some type of a relationship.”

"The research tools and expertise that were once the exclusive domain of large pharma have largely been democratized."

Greg Wiederrecht, Managing Director, Global Healthcare Investment Banking, RBC Capital Markets


A changing landscape

With more and more small biotech and large pharma companies working collaboratively to bring new treatments to market, how have the dynamics of strategic partnerships changed over the last 10 years?

“It's really changed a lot,” affirms Wiederrecht. “There are so many more biotechs out there with really great scientists in them now. The credibility of the science is extremely high today. Another key change is that 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 and expertise that were once the exclusive domain of large pharma have largely been democratized.”

The pitfalls to avoid

Despite these changes, the symbiotic relationship between small biotech and big pharma continues to be a win-win for the industry. However, not all partnerships work smoothly. What are the things that can improve the odds of a successful collaboration – and what are the factors that can throw an alliance off course?

“With any collaboration, it’s important that big pharma recognizes the biotech is much, much smaller than they are,” says Wiederrecht. “When a big pharma gets an asset from a biotech, the biotech executives and scientists 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 is applying the appropriate diligence to move 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 for long periods of time when things aren't working out. So that could involve your molecule being shelved for longer than you might want.”

“Biotechs need to be mindful of that,” continues Wiederrecht. “If it becomes really obvious that pharma is not applying the appropriate resources to your asset, or if it's taken an inordinate amount of time to complete pre-clinical studies for no good reason, you’ll want to be able to get your molecule back.”

Shaping the future

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

“I see it continuing to evolve where biotechs do a lot of the discovery and pre-clinical development, and maybe even the early development work, with the quality of the science getting better and better all the time,” predicts Wiederrecht.

“Big pharma is already starting to evolve to being more focused on late-stage development and commercialization. There’s data out there showing that of the recent molecules many big pharma companies launched over the past five years, often around 90% of them have a very significant component that came from the outside. It’s a strong dynamic for the future.”

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