McDermott Will & Emery partner Krist Werling
McDermott Will & Emery partner Kristian Werling is co-chair of the firm’s robust Life Sciences practice. According to Krist, McDermott’s Life Sciences group has “all the tools in the toolkit to help life science entrepreneurs, growth-stage companies and large global companies achieve their patient-centered mission. Hearing patients, helping heal patients and everything in between.” About 75 percent of his practice is spent counseling large health and life science clients on M&A transactions. The balance of his time is “spent with my partners and our colleagues trying to form teams of collaborative lawyers that are positioned to help our mission-driven clients succeed.” Recently, Krist sat down with MedCity News at the INVEST conference and shared his insights into the implications of consolidation in the life sciences industry, the role of PBMs, how his experience as an in-house counsel informs his perspective, as well as other matters.
On how his practice has evolved in recent years.
One of the key things that has changed about my practice is that there used to be a really firm line between healthcare services and life sciences. There also was another firm line between those two areas and payers. A convergence between payers, providers, life sciences and technology players is now slowly starting to progress.
Previously there were strict definitions. Life sciences? That’s pharma, medtech and biotech. Healthcare services? That’s hospitals and physicians. Payers? That’s health insurance providers. I used to spend a lot of time just in the life sciences, supporting the buying and selling of medical products for large pharma or device companies.
Now, a lot of our pharma, biotech and medical device clients are moving into that provider side –whether that’s driven by a desire to access data necessary to develop new therapies, or driven by a business plan that involves offering a full service spectrum of care to patients in a disease state.
On the implications of consolidation in the life sciences industries.
If you look back on the last 15 or 20 years, there have been different waves of consolidation where there have been large pharma mega mergers, and a lot of biotech acquisitions. The wave that took place about five years ago was partially driven by patent expirations. I believe that the coming wave, which we are just starting to see develop, is driven by consolidation in other areas of healthcare.
Payers and PBMs are consolidating, and the more powerful of these entities are now starting to push life sciences, manufacturers, pharma/biotech and medical products limitations towards getting bigger themselves. The fact is, the three largest PBMs control 80 percent of the drug spend in America.
You can’t then be the drug company that just sells two of the eight solutions for a particular disease. You won’t have enough to say, “Oh you need my products” when someone else has the larger market share. Drug companies want to have a full suite of products for a particular disease state so that they can then go to a payer and communicate that the higher value they deliver through that full line of products is worth the pricing the drug manufacturer believes is fair.
On how his time as in-house counsel affects his role as outside counsel.
Seeing the pharmaceutical and medical device industry from the inside allows a lawyer like myself to focus on delivering practical solutions to clients. You understand that when you suggest an idea it’s got to be run through the finance department, the purchasing department, sales, and marketing. Just understanding what all those different roles are in a large pharma company is a valuable skill. It then allows me to realize, in advance, that certain solutions won’t work for my client, because – for example – of the way their accounting group is going to think about the revenue recognition for a particular product.
On the need for emerging life sciences companies to make choices.
I’ve seen a lot of emerging life science companies that have platform technologies which could be used in a variety of different ways. Those emerging life science companies with that platform-like technology love to talk about all of the amazing things the platform can do. That makes it difficult to connect with a specific investor.
Investors have very focused areas that they are looking at for investment or acquisition. Even with a platform technology that can do a lot of things, people in this day and age really focus on the specific area or specific benefit that the buyer/investor will take away from the acquisition or the investment.
For example, there’s extensive innovation in the immunotherapy space in oncology. In my experience, that has led to a kind of scattershot approach: “Here are the 400 cancer types for which this new immunotherapy could be used,” versus taking a really deep dive into the specific applications and potential areas with the highest effective rate. A more effective approach might be: “This segment of oncology is where there is a delivery issue, and our product can deliver the immunotherapy best in that segment.”
When the deals I see are really successful at high valuations, they have that element of focus. Investors don’t build a model and say “We are going to get revenue off of this, and it’s also got that, and also it’s got these five other things.” The focus is usually very short term: where in the next three to five years are they most likely to generate revenue? That means you focus on the one segment that is most likely to succeed.
