Top 10 Pitfalls Of Life Sciences Partnering: Part 2

By Wayne Koberstein, Executive Editor, Life Science Leader
Follow Me On Twitter @WayneKoberstein

This two-part series (see part 1 here) presents the top 10 partnering pitfalls for life science companies — actions, distractions, and missteps that can ruin a company’s chances for a successful partnership — plus some expert  advice for avoiding them. This month, part two contains the remaining five pitfalls in the top 10. The viewpoint is of small, entrepreneurial life science companies, from the early stages of searching for large-company partners through partnership selection, deal negotiation, and operational implementation. But, the list should be equally valuable as insights for the large companies most often on the other, more dominant side of the deal. Some of the best practices offered may seem obvious but are often overlooked. Experts with a range of small- and large-company experience as well as supporting backgrounds in partnering, contributed suggestions, observations, and advice.

6. Hidden Assets — miscalculating the need for visibility and communications before and after signing the deal.
Public companies have an obligation to announce all material events publicly. But the mostly private, entrepreneurial, scientist-founded companies in the life sciences seem of two opposite minds on external communications — one preferring a “dark” identity and the other, an open face to the outside world. It is difficult to see how the gone-dark companies expect to reach prospective partners, clinical investigators, and opinion leaders to win support for their research.

Small companies can help their partner-seeking efforts through well-targeted media relations, publishing strategies, and opinion-leader management. “It is important to communicate what we do because it is a new science,” says Sudhir Agrawal, chairman of Idera Pharmaceuticals, which is developing compounds targeting toll-like receptors (TLRs). “But while we share this story with our investor base and with others in the academic world, our target audience is Big Pharma executives looking for licensing, partnering, and acquisition opportunities — people whom we can influence via multiple-targeted efforts to get interest in the program and interest in the company.”

After landing a partner, a company will need to coordinate those efforts closely, so the ground rules should be written into the deal, starting with visibility around the deal announcement. “Big Pharma does not want many of these business partnerships to appear material, while for innovative life-science companies, visibility equals validation of science and deal-value economics,” notes Gil Bashe, Health Practice Director at Makovsky + Company. “Not discussing the implications of news flow early at the deal signing creates unnecessary conflict later in the relationship.”

But Shaun Grady, head of business development at AstraZeneca (AZ), says his company prefers to leave the financial terms of its deals entirely private. “Obviously partners want to convey to their shareholders the maximum potential from the deal, and we are sensitive to that. It’s just about being measured in the information we provide to our shareholders and the shareholders of the company that we’re doing the deal with.” Whether AZ is leading a new trend by Big Pharma toward nondisclosure of financial terms remains to be seen.

7. Alliance Overreliance — assuming the partnership will be permanent, will not fail, and will fully support your company.
Many companies assume the deal was the hard part. It’s not. Making the deal perform so that the product gets to market successfully is always a monumental challenge, requiring resources that must be planned for, budgeted, acquired, and managed internally.

Partnerships usually fail during the product development process for many reasons, not least among these that drugs usually fail during development. Most deals with Big Pharma or Big Biotech have unilateral cancellation rights for the big player. Make sure there are “outs” in the deal terms to allow recovery of IP, data, materials, processes, and all the other elements required to go forward and survive when, not if, the partnership fails. Those are hard points for negotiation, but a serious potential partner, and their attorneys, will understand. Also, raise additional money on the “high” of a successful deal, not later when the deal has vaporized and cash is low.

8. Inactive Exchange — failing to maintain close communication and trust with your partner.
“Whether it be the internal decision-making process of the respective organization, timely and complete data sharing, progress updates, or discussion related to program challenges, a lack of openness between the parties can quickly sour a relationship and ultimately result in an absence of trust,” says Mary Lynne Hedley, Ph.D., president, chief scientific officer, and cofounder of Tesaro, a biopharma company that is developing licensed-in oncology drugs.

“It takes time to build trust, so begin immediately and keep at it,” adds Erin Brubaker, VP, worldwide business development alliance management (AM) and head of the AM Centre of Excellence, GlaxoSmithKline. “Start by communicating frequently and transparently with your alliance partner. Be authentic, consistent, and credible, ‘walk-the-talk’ — the fastest way to break trust is to not follow through on a commitment.”

Being a pest is far superior to losing the partnership due to poor or too-infrequent communication. Particularly when the partners are wildly different in size, the smaller entity has to be extremely careful, diligent, and organized in ensuring that all the stakeholders on both sides are connected, and in keeping the connections live.

Eric de La Fortelle, CEO of therapeutic-antibody developer Delenex Therapeutics AG and a former global head of technology partnering at F. Hoffmann-La Roche, also warns against the David vs. Goliath syndrome between partners. “Biotech may consider the pharma partner as a sluggish cash cow to be milked. Pharma may consider biotech as a corner-cutting group of cowboys that cannot be trusted for solid project management. This is toxic to a partnership. An unemotional review of the facts shows that the pharma department you did the deal with and the biotech are usually evenly matched in scientific skills, scale of operational budgets, and staffing and industry experience, which leads to a convergence in culture. The two sides need each other and can talk on an equal footing.”

The most essential communication from innovator to pharma partners is the delivery of bad news, adds de La Fortelle, “The worst-case is that the Big Pharma partner finds out once the alliance is ongoing about unsavory data the biotech would rather not disclose. This lends an unfair advantage to the pharma partner, who is then able to negotiate much better conditions under the threat of exiting the contract for breach, or worse, legal action.”

9. Divergent Actions — failing to keep all stakeholders’ interests aligned.
After the deal is signed, make an intense effort to be sure that the interests, objectives, and work plans of all players stay fully aligned and free of conflict. Institute mechanisms to check and maintain that alignment on a regular basis.

“In many cases, a small company is partnering its key asset, and relies on its partner to enhance the value of that asset,” notes Hedley. “Once in the hands of the larger company, the asset must compete for resources and may become deprioritized under new leadership or a change in strategy. A different risk tolerance profile may exist between the organizations, and if new data suggests a change in risk, a partner may no longer be willing to move forward or may need to reassess the program and essentially rethink its commitment. The innovative, quick-paced small company can be challenged to understand the length of time it takes for a larger organization to progress an asset or to move through the process of decision making.”

When one partner is a Big Pharma and the other is primarily a research organization, there is always a problem in becoming accustomed to doing things that serve each other’s needs and requirements. Big Pharma has some almost absolute principles and processes that are quite foreign to a pure research environment. Examples include regulatory requirements prohibiting any discussion of clinical studies by anyone in public, heavy restrictions on publications and presentations prior to full IP review and patent filings, need for creative IP to strengthen and lengthen the commercial runway for the product, need for biomarkers to couple with the product for the new environment of patient selection, therapy monitoring and prognosis; and need for re-justification of the project and partnership on an annual basis by corporate finance and strategy groups. Learn the needs; accommodate them; don’t complain about them; and be very diligent in getting them met.

But don’t oversimplify the dichotomy. “It’s still common to hear ‘pharma thinks’ or ‘biotech thinks.’ Both are utter nonsense,” de La Fortelle says. “But both sides have interest groups that clash internally. Pharma increasingly faces, for each partnership project, a fixed-sum game that eventually forces out an internal project for each one brought from outside. The decision-making process can be more or less smooth depending on how business development people and management ‘sell’ the opportunity to operational R&D groups, and how much they involve the experts in the data-gathering and decision-making. Secondary interest groups include accounting, the tax department, portfolio management, and corporate communications, which may need news flow regardless of the value of the opportunity.

“In Biotech, the tension is simpler but potentially more intense, between the board and management for whom non-dilutive capital gives a little more independence from VC money. Transparency is almost always better. The more these various stakeholders can be mapped out in prepartnership discussions, and a joint plan be put together to smooth the decision process, the less unpleasant surprises will derail the path to signature.”

10. Blind Development — failing to envision your asset’s ultimate  use, potential patient needs, and engineering issues, including manufacturing.
“Many times companies think ‘market driven’ means marketing driven. And it’s not that. It’s listening to the customers and finding the unmet needs. And you have to understand the science and technology and combine those two things together,” says John McDonough, CEO of T2 Biosystems, originator of a novel “direct detection” diagnostic platform. Generally, he observes, an innovator company starts out by explaining and discussing its technology with clinicians and potential partners. Later, as data accumulates, the discussion turns to an actual product. “Once you have data, you don’t have to worry as much about explaining the science.”

Jason Rhodes, chief business officer of Epizyme, which is developing a platform of small molecule histone methyltransferase inhibitors and screening technology, describes “market modeling” as a key part of the research and development process. “We make a product profile as soon as we pick a target and begin doing research on it. By then, we have genetically defined our patients, and we work to understand possible indications and how our treatment might fit into the clinical practice currently and a few years down the road. First, you have to design the right clinical trials and enroll the right patients, for regulatory approval but also for opinion leader and clinical adoption.”

Inevitably, even before a partnership turns the innovator’s asset into a real product, manufacturing — producing the physical compound, device, or even prototype for testing proof-of-concept in patients — will likely become the responsibility of the small company. All the small companies represented by contributors to this article have made production a key concern. Some have already built or hired enough capacity for commercial supply, and made commercial use of their own unique manufacturing platform. In every case, their executives said figuring out the challenging details of making their novel products proved to be an advantage in seeking and keeping their larger partners.