Diane Seimetz - Principal Consultant, Biopharma Excellence
Dr. Jörg Schneider - Associate Principal Consultant, Biopharma Excellence
Planning for partnering, mergers and acquisitions must be done carefully, particularly if you need to prepare scientific, technical and regulatory information about complex therapeutic products. Generating such information may be the duty of the seller, but it is the buyer’s job to assess the opportunities. For biotech companies and academic developers, assessing a partnership or licensing the potential of an agreement is best thought of as scientific due diligence. Effectively, due diligence should ensure that both parties get what they thought they were getting.
Any biotech company that is considering an M&A or partnering agreement, or licensing products or technology platforms, should be ready to present its assets to potential partners and equity providers.
An Invaluable Resource
Academic researchers focus on creating scientific knowledge from their research, but translating this knowledge into commercial biopharmaceutical products is not their core skillset.
For growing biotech companies and academic developers, the experience and resources of larger pharmaceutical companies are invaluable in late-stage drug development and the authorization and commercialization process. Small companies that launch their first product on their own often face issues when it comes to product uptake and launch value. A McKinsey report found that the median first-time launcher reaches just 63 percent of expectations, compared with 93 percent for the experienced equivalent.
Partnerships have been shown to drive up the success rate of EMA marketing authorization applications, with whole company acquisitions having a higher success rate than product acquisitions or partial license agreements. It is clear that collaboration with larger companies may be a more effective strategy for smaller companies to bring new products to market.
Never Too Early
Deals are increasingly being made, which means there is an increased need for due diligence, and both academics and early-stage biotech companies need to be prepared for this. For smaller biotech companies, the time will come when they need to consider a merger, acquisition or partnership – or the next investment round. So, it is never too early to plan ahead and prepare a convincing case for new and existing investors.
Compared with biotech startups, academics have a very different culture. In the academic world the focus is on scientific kudos and being published in order to maintain grant funding. There is less emphasis on readiness for due diligence and documentation relating to partnerships or funding. Most universities have technology transfer offices that can offer some support. But often they don't have the time or depth of knowledge to prepare a comprehensive scientific due diligence package to prepare the asset for partnering.
Particularly on the seller side, underestimating the significant effort that it takes to prepare for due diligence is common. Naturally, small companies tend to focus on day-to-day operations. Sometimes not enough time is set aside to prepare for due diligence properly.
Nor is due diligence just a one-time event. For the completion of one deal, a seller may need to undergo up to 10 due diligences by interested parties, so research and development plans, including reports, should be prepared for due diligence readiness. Raw data should be ready for assessment by external parties. As part of translation from academic research to biopharmaceutical drug development, programs also need to comply with GxP requirements. Smart start-up companies address these requirements during set-up of their governance and operational systems.
What to Do – And What Not to Do
When seeking a partnership, academic programs and early-phase biotechs should ready themselves to provide full and accurate scientific, technical and regulatory information relating to their business and products. Prospective partners and investors will need a complete and transparent picture of assets, so clear and accurate data presentation and documentation is essential to ensure that both sides get what they are expecting. There are a few critical criteria to achieve optimum scientific due diligence outcomes for the seller and buyer side to build successful business partnerships. These include:
Before you begin
Make sure that the key rights on technology and/or products belong to the party who seeks to outlicense or is the target of the projected share purchase: Intellectual Property (IP) is key for any biopharmaceutical business. Ensure that ownership rights are communicated in a transparent manner. Maintain current intelligence on the competitive landscape – including potential infringers.
Create a target profile of your ideal partner. If you are a seller, you should think about what a potential partner wants to see and prepare for scientific due diligence every day. Know your plans and data and be prepared to explain them. Set up a good quality data room structured by disciplines comprising all important plans and results.
Consider, if you are a buyer, having a top-level asset screening before progressing to full due diligence and identify red flags early on to save valuable resources.
When you begin discussions
Check for strategic fit early on. For co-development projects, it is essential that the product development teams of the seller and the buyer meet during the process to align on key development goals that should be part of a licensing agreement.
Maintain ongoing collaboration and communication with the interested party – and with internal stakeholders. Be open and honest in your questions and answers. Ensure commitment from both parties to the process. Face-to-face meetings help to foster mutual understanding of data, resolve potential issues and agree on mitigation strategies.
Have appropriate internal resources available for the due diligence activity, including a gatekeeper for the Q&A process.
Ensure that issues are not obscured. Lack of transparency or hidden critical issues will sooner or later surface and can have potential legal consequences.
As partnership conversations progress
Limit the number of Q&A rounds. Too many unnecessarily consume the resources of both buyer and seller. In addition, if the process is non-exclusive, a competing buyer might move in.
Consider on-site visits. Though optional, these are incredibly useful to discuss initial findings and potential solutions and can reduce the number of time-consuming Q&A rounds. In addition, this is a good opportunity to assess the cultural fit of the teams, who might work together after the deal closes.
Review the raw data as appropriate. The EU has recognized reproducibility as a major issue for the funding of biomedical research. Even data from peer reviewed papers is not necessarily a quality mark for data integrity and raw data should be included in the review.
Ensure that the process of scientific due diligence is extended to all relevant functions needed for a full due diligence process. It is important to define the roles and responsibilities of all the stakeholders that will be needed right through to the end of the process.
Check that everyone remembers what was agreed – don’t make assumptions. Document what is decided as you go along. As time passes, people on both sides may leave jobs and roles and responsibilities may change. Incorporate important cornerstones into the contractual framework.
And lastly, get help where it’s required. Even in the best-prepared proposals, scientific due diligence activity is a drain on resources. Small biotechs and academic developers often lack the resources or knowledge to tackle the process alone, especially if they are encountering the due diligence process for the first time. Consider seeking out external help and advice to support the scientific assessment, explain the structures, and to facilitate the process. That way, partnerships have the best chances of success.
Diane Seimetz is Principal Consultant, at Biopharma Excellence. She applies breakthrough thinking and passion to make crazy ideas become breakthrough innovations.
Dr. Jörg Schneider is Associate Principal Consultant at Biopharma Excellence. He has more than 20 years’ experience in biotech environments and helps clients to position and differentiate their projects in a competitive landscape.
For guidance on best practice, please see: A guide to scientific due diligence: How to set up an efficient process Part 1 - Biopharma Excellence (biopharma-excellence.com)
www.biopharma-excellence.com
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