Big Pharma Switch Pitch To Attract Cash-Rich Biotechs
Money Alone Will Not Swing The Deal
Executive Summary
With the biotech sector awash with public and private capital, companies can carry on longer without needing to link up with a bigger player. Big pharma C-suite leaders have been discussing how their firms sweeten potential deals at BIO Digital.
When the pharma flagships go trawling the biotech waters in search of innovative products for licensing or start-ups to acquire, it is no longer enough to wave handfuls of cash in front of smaller firms, according to business development (BD) heads at Merck & Co., Inc., Johnson & Johnson and Bayer AG.
That was the key message to come out of a session at BIO Digital which saw Kendra Rose, head of new BD at Bayer, Ben Thorner, head of BD and licensing at Merck Research Laboratories and Johan Verbeeck, vice president of Janssen immunology BD discuss 'the next big deal' and market outlook for 2021 and beyond. Rose claimed that biotechs "have more options than ever, they can stay independent longer, they have easier access to funding."
Start-ups are getting to the stage of initial public offerings much earlier, down to four-five years on average from eight to nine years, and she noted that the rise of special purpose acquisition corporations (SPACs) "makes it even easier to go public and raise capital. As the corporate buyer, we need to be more proactive, we need to build the relationships early and we also have to offer more than just capital."
Verbeeck agreed, saying: "When you talk to a biotech company, the third or the fourth sentence you're going to hear is, 'We have no lack of money, we're well funded. What else have you got it?' You have to really know what you're doing in the space where that biotech company is operating ... you have to be really good at what you're doing in that specific clinical area to help mature that asset. It's not just about money anymore."
Thorner concurred, noting that access to "free-flowing venture capital or free-flowing public market capital gives small companies the fuel to drive innovation, which we are all super excited about, but it also, frankly, gives them lots of alternatives for either an early-stage partnership or to take these molecules further and independently develop more data, which of course can be the driver for M&A deals or other types of partnerships."
In selling the company to prospective partners, Merck has been operating for over 100 years, "so we bring with us a legacy of learning and experience in development across an enormous range of areas," he said. In terms of commercial capabilities, "we know the payers and the physicians that are active in a particular area, or in the clinical development space, we run clinical trials in a speedier way and develop really excellent data sets so that when you finish the study, you can have a clear and unequivocal answer about what is the medical benefit of this molecule."
CMC Expertise
That expertise enhances the likelihood of approval "and after that, hopefully it will drive uptake of the molecule and payers' willingness to buy it because of the impact it can have on patients' lives," Thorner said. Further back in the pipeline, he added that it was important to remember "the chemistry, manufacturing and controls (CMC) part, and how difficult it is, especially with new modalities, whether they be cell therapies, biologics or nucleic acids. How you make those molecules? How you do the analytics? That stuff is super hard."
He noted that many rejections of new drug applications by regulators "are driven by concerns on the CMC side. If you have a hugely valuable medicine, and it can't get to patients because you can't demonstrate to the agency that you can make it reliably and generate the analytics to demonstrate what you've made, and that you're doing it consistently and at a very high level of quality, all of that effort is wasted.
Thorner added: "Sometimes these complete response letters hold up drug approvals by multiple years and that's another area where companies like Merck really bring a lot of a lot of value to the table."
Rose gave Bayer's acquisition of gene therapy pioneer Asklepios BioPharmaceutical, Inc. as a good example of the German group's approach to partnerships. In October last year, Bayer agreed to pay $2bn up front and potential success-based milestone payments of up to another $2bn to get hold of what it referred to as an industry-leading adeno-associated virus (AAV)-based gene therapy platform to its portfolio. (Also see "Bayer Boosts Gene Therapy Presence With AskBio Buy" - Scrip, 26 Oct, 2020.)
The deal "fits well within our cell and gene therapy strategy that we're trying to build and at the core of that, where we didn't have necessarily the expertise, is really the science and the people behind it," she said. "If you look at AskBio, [co-founder] Jude Samulski has been working in the area of AAV for almost 40 years, you can't just produce that on your own. He and [co-founder] Sheila Mikhail have built the organization and capabilities that would have been much more difficult to tap into and maximize longer term potential with just a licensing deal," Rose stated, noting that Bayer also secured the significant manufacturing expertise AskBio has by buying it outright. (Also see "AskBio Declares Independence After Bayer Acquisition" - Scrip, 26 Oct, 2020.)
She went on to say that "we try to offer flexible operating models, which we call arm's length models, where we act as a hub, we help propel the innovation, we connect our partners like AskBio to our resources within Bayer and the technologies and knowledge that we already have. We also have commercial capabilities that these companies do not."
Rose added that BlueRock Therapeutics, the cell therapy developer Bayer bought outright for $240m up front and up to $360m in milestone fees in August 2019, "continues to operate with this arm's length model as well and that really is to preserve what has made them so successful in the first place. These M&A approaches have been beyond just the capital."