Biopharmaceutical notes from San Francisco
Stuart Wren writes on the growing importance and the changing face of alliances - from discussions of industry leaders at the San Francisco Business Times event, September 2005.
In order to maximize the chances of success in an increasingly competitive market the modern day business development executive must understand the challenges faced by the pharmaceutical industry and the impact they are having on the structure of alliances.
The increasing pressure to find new products is driving alliances to be viewed by the large and traditional pharmaceutical companies (big pharma) as core strategy, rather than an adjunct to internal R&D. The larger biopharmaceutical companies (big biopharma), such as Genentech and Amgen were built on this strategy and they continue to employ it to great effect.
With the convergence of the needs of big pharma with those of big biopharma, there is increasing competition to form alliances with the smaller entrepreneurial biotech companies. This is good news for the smaller companies and the competitive pressure is leading to the formation of enhanced value alliances at an earlier stage of development. Consequently, companies which are used to waiting for proof of concept before committing to an alliance will today usually be beaten to the deal by a better organised more entrepreneurial organisation. In this regard it is interesting to note that in each year Genentech evaluates about 1200 opportunities, conducts due diligence on 300 and concludes deals on about 50. The resultant deals show increased sophistication and complexity in order to satisfy the needs of both parties.
The once typical licensing deal, with big pharma paying upfront, milestone and royalty payments to virtually acquire a product from its smaller partner is becoming much less the norm. Depending on its stage of corporate development, the smaller partner can demand not only increased liquidity from the deal but also non-cash assets, such as enabling technology or marketing and sales expertise. While big biopharma has long recognised that collaborative deals should be company building for both parties, big pharma has been slow to change. However, now there is growing recognition within big pharma that they need to enhance their partnering capability and recognise the needs of their partners. Improving quality performance in these areas is vital if companies are to remain competitive in what is rapidly becoming core strategy for the more enlightened companies in the industry.
The author endorses the views expressed at this meeting and recipients of this note are recommended to consider whether they and their company are sufficiently organised and have adequate resources in the areas of opportunity evaluation and partnering skills to be competitive in the formation and management of alliances.
Please contact Wren International if you have any questions or would like to discuss the issues raised here.