BioAsia 2009 in Tokyo: alliance opportunities exist but right approach needed

With the environment for IPOs set to remain challenging to non-existent for the remainder of this year, and venture capital having shrivelled up alarmingly, pharma and biotech ventures could be forgiven for feeling depressed about their prospects.

But companies looking for new funding should take some comfort from the fact that the valuation of technology and product licensing deals is not likely to change that much, given big pharma's continued appetite for innovative projects to restock dwindling pipelines.

Such was the consensus view of speakers and panellists at the Biotechnology Industry Organization's BioAsia partnering conference in Tokyo. In an era of falling stock and asset prices and cost cuts, the stark conclusion of business consultant Dr Richard Hammel was that "cash is king", and would be a key consideration in any deal.

He predicted that some $27 billion in pharma/biotech venture capital would become available in the US this year, a 10% drop from 2008. B and C financing rounds were likely to become much smaller, he forecast, accompanied by a possible drop off in merger and acquisition activity.

George Montgomery, managing director at Montgomery, Marshall Healthcare Partners, was more upbeat on M&A, predicting that deals and good valuations would continue. The meeting heard that the Japanese pharma sector alone had done $16 billion worth of M&A deals over the past two years, with much of this cross-border in order to increase companies' global presence.

But in the view of Dr Nobuo Kato, vice-president and chief operating officer of the Japanese ventureY's Therapeutics, some of these deals and the mergers between big Japanese firms were just to catch up with changes elsewhere. "These alliances came around five years after the wave of pharma consolidation in the west, meaning that Japan's industry lost many chances," he observed.

partnering approaches

A panel session on the outlook for partnering may have provided welcome reassurance to the many Asian and western biotechs at the meeting over the value of their R&D. Despite all the problems, it was clear that big pharma remained hungry for promising small molecules and biologics.

"Deal pricing has become more realistic but good technology remains hard to come by, making it a very competitive market for late-stage assets," observed Alex Fowkes, head of R&D business development in Asia for Pfizer. Astellas Pharma's business development vice-president Masaki Doi concurred, stating: "We want access to good science, not cheap deals."

BioCentury Publications president and CEO David Flores suggested that Japanese licensing deals could become even more important in the current downturn. From the other side, there are increased pressures on Japanese firms to seek late-stage deals because of looming major patent expiries, noted Dr Axel Wellbrock of AstraZenecain Japan.

But western biotechs seeking deals in Japan need to take the right approach. Well-tailored and focused pitches to potential partners are essential, with an emphasis on scientific and clinical data. "The days when you could just come here with a begging bowl in hand and receive something are over," one participant told Scrip.

Kyle Murphy, a Japan veteran and managing director of the local consultancy KMG Japan, noted that smaller Japanese firms remained risk averse. But larger companies were now often looking for rights beyond Japan, due to the continuing regulatory delays in their home market.

Mr Doi of Astellas confirmed that his firm preferred global deals where possible to maximise returns, and several panellists noted that the amount of effort involved in a regional or global deal was actually very similar. Mr Murphy advised: "Don't discuss money too early – focus on the science first."

Affymax president and CEO Arlene Morris also suggested that licensors should consider shared R&D funding as an attractive option, and not just seek big up-front payments.

Advice given in a luncheon address by Takeda president Yasuchika Hasegawa added further weight to the importance of good data in Japanese deals. Close to a third of Takeda's licensing alliances were struck at the Phase II stage, he told delegates.

While his company had no problems doing deals with partners outside Japan, "we would like to have more alliances with Japanese firms," he said. Although the Japanese government had taken steps to encourage the domestic biotech sector, there were still hurdles and not as many ventures as there should be, he observed.