As Valentine’s Day approaches the occasion begs the question: what does it take for two companies in the biopharmaceutical industry to merge? Of all the things that could come between them, how do a biotech startup and suitable partner find each other in this crazy, mixed up world?
Like any good marriage, the reasons that bring a couple together span of a good merger is more than meets the eye. The companies involved share similar goals and work hard to ensure the union endures. But there are all sorts of things That was the gist of an insightful panel discussion at the BIO CEO conference in New York. Among the panelists were: Michael Margolis, a managing director with ROTH Capital Partners, Effie Toshav, partner with Fenwick & West H.Thomas Watkins, former president and CEO of Human Genome Sciences until it was acquired by GlaxoSmithKline, Michael Gilman, a senior vice president at Biogen Idec and Corrine Epperly, the director of strategy, alliances and transactions at Bristol Myers-Squibb (NYSE: BMS)
Start thinking about commercialization early If companies are interested in licensing your company’s lead product at the early stage, you have to be able to explain the commercial strategy. How early? Before you get to the clinic early. As one panelist observed, it’s not enough to be excited about the science anymore. It’s a critical to think how you can build value for shareholders and what you need to accomplish that.
To license or not to license When a big company is eyeing your technology, you need to be careful how much you give away. If you give a partner too much, you risk taking value out of the company and making it less attractive for an acquisition.
The value of a partner It can be more than simply getting capital. A partner, particularly if they are a large public company, can give you valuable insights and guidance to build value and strengthen your business. A good partnership can evolve into an acquisition, but it could also help move a company towards a different acquisition partner. Bristol Myers-Squibb had a significant stake in Human Genome Science, but the company was ultimately acquired by GSK. The amount of time it takes for a partnerhship to work should not be underestimated. These three things can help:
- Have a contract that makes sense.
- Preserve your ability to raise capital.
- Preserve your options.
It’s not you, it’s me There can be a significant downside if your partner decides that your asset isn’t a priority anymore. One reason why companies want a partner in the first place is to get validation for their product. Does a partner walking away sound the death knell? Not necessarily. It makes it more difficult if you’re a small public company, the panelists acknowledged. Even though the decision may be informed by nothing more than a change in the company’s strategic priorities, if the Street reads it as a rejection of the product, there could be trouble. Still, it needn’t be the end all be all, Margolis noted.
“Companies drop programs all the time,” said Margolis. “Just because they dropped the programs doesn’t mean they’re damaged.” Are we in a period where it’s acceptable to have a dropped program? Epperly said it depends on the data. Good data is key and strong data speaks volumes. As long as your product is generating good data it can attract capital and help you outlast any unforeseen partner breakups. Without it, the product’s future is in jeopardy, not to mention the company.
But Gilman offered some insights from his own experience. He was the founder and CEO of Stromedix, a company that developed therapeutics to combat fibrosis and organ failure. Biogen had initially partnered with Gilman’s company to help advance its treatments but later walked away only to return sometime later to acquire the company. “We were a partnership that turned into an M&A,” he said.
[Photo from Flickr user Eduardo Deboni]