Partner or perish

It's often believed that when a biotech company signs on the dotted line with a big pharmaceutical company it means they have passed 'go', collected millions of dollars and won the game.

But a recent workshop in Sydney heard from a top local pharma executive that in an environment where over 50 per cent of alliances fail, it's the ability to see an alliance through which is the real key to success.

Michael Exton, R&D development manager at Eli Lilly, told the workshop - 'Creating a Biotechnology Pipeline for NSW', organised by the NSW Department of State and Regional Development and hosted by CSIRO -- that drugmakers face a rapidly approaching crisis as lucrative patents begin to expire. Alliances, he said, are just as important for big pharma as they are for biotech.

"Why? They bring in new molecules that we can take through to market, which can increase our cash flow and drives earning per share, which affects our stock price," Exton said. "Big pharma is not in the position of trying to prey on small biotechs and suck out what they can."

Citing a 2003 Ernst & Young report, 'Defining issues in the pharmaceutical industry', Exton pointed out that US$80 billion of drugs produced by big pharma will go off patent in 2005.

"As a consequence, big pharma needs to bring on average three molecules per year to market to sustain basic double digit growth, which is just about impossible," he said. "It's a symbiotic relationship [with biotech]. We need a full pipeline, enabling technologies which will improve the way we do things and see us reach market earlier, and horizon research. Smaller biotechs may have a much better capability [at these things] than we do internally."

Mind the gap

Exton said that the capricious nature of drug discovery meant that the needs of pharmaceutical companies were constantly changing. Failure of a lead candidate could open gaps in a pharmaceutical company's pipeline, creating opportunities for biotechs.

"Things fail. It's a risky business," he said. "This augurs well for biotech industry in terms of how big pharma approaches filling these gaps. The number of compounds [being developed internally by pharma] is rising, but it's estimated that the number of licensing deals will rise dramatically. Thirty per cent of new drugs come from alliances, and the total pharma alliance investment is US$3 billion.

"The targets and needs of big pharma are a changing situation -- it's a matter of making your opportunity the appropriate opportunity for the appropriate pharma at the right time."

Gary Phillips, commercial director of Sydney biotech Pharmaxis, also gave the workshop an insider's perspective on licensing into big pharma -- until last year, he was CEO of Novartis in Australia. Phillips said biotechs should also look at the big picture -- and get to know at which stages drug firms needed to feed projects into their pipelines. For example, "Schering-Plough is licensing late-stage, but GSK are looking for early stage," he said.

AstraZeneca's George Moore confirmed the importance of the gap-filling strategy. The company has a four-year-old collaboration with the CRC for Chronic Inflammatory Diseases aimed at developing novel anti-inflammatory therapeutics based on macrophage biology.

"The reason we went into this is that we didn't have any substantial macrophage biology in house," he said. "Anything found in this collaboration needs to be stacked up against targets coming from internal opportunities."

Putting your best foot forward

In partnering, persistence is key. If a first approach to a pharmaceutical company is greeted by rejection, insiders recommend making a revised pitch when more work has been done, or further result achieved.

"Make sure there is a stream of information. This is a dynamic target -- it may take a year or two before we start pursuing an opportunity," said Lilly's Mike Exton.

He recommends starting the dialogue with big pharma early -- acknowledging first that the project is early-stage -- and enabling it to be monitored by for a possible place within a company's portfolio.

Biotechs need to be philosophical and thick-skinned when it comes to the licensing game. "It's not a perfect machine," said Gary Phillips of Pharmaxis. "If you talk to any business development manager, they have a bottom drawer -- the deals that their company has said 'no' to, which have been picked up and have gone on to become successful products.

"One business development manager I knew had a bottom drawer that had an annual turnover of $6 billion."

Phillips related a fascinating -- if a little disheartening -- story from his days at Novartis, when he was brokering a $10 million licensing deal with a small Australian company. Having received the thumbs-up from regional Novartis management in Singapore, he successfully presented the deal to a business development and licensing committee in Switzerland.

But that wasn't the end of the saga. "It had to go to the executive committee of Novartis pharmaceuticals, which was a bit excessive for a $10 million deal."

After 2am telephone conferences with Novartis management in the US and a 50-slide PowerPoint presentation, Phillips eventually received a short email saying that the company didn't think the deal was a particularly good idea and didn't want to pursue that path for now. And just like that, it was over.

Filtering the opportunities

Lilly's Mike Exton stressed the need for biotechs to survey the licensing landscape from the perspective of the pharmaceutical companies.

"It's an extremely noisy biomedical landscape. There's great science everywhere," he said. "But how do we filter through the opportunities?

"In 2002 there were 200 worldwide biotech-pharma deals. There were 4000 biotech companies in 2002 -- so you're up against it. This may be an overly negative approach, but it is the reality of the difficulty you will face in doing a deal."

"Novartis has an R&D budget of $4 billion," said Gary Phillips of Pharmaxis. "They have over 400 alliances that they're trying to manage. You need to put yourself if their shoes. How do they manage all that information, and how do they channel it up?"

Understanding potential partners and shaping a marketing message can involve gathering industry intelligence from analysts' reports, annual reports, conferences and -- of course -- any personal contacts in the company.

"You have a responsibility to present [your projects] in the best way possible," said Phillips. "Have a marketing plan to approach potential partners."

The question of when to partner a product should often be determined by the nature of the product, said AstraZeneca's George Moore.

"If you're going into a global market in a very competitive arena where you will up against other products with large sales forces, it is better to partner early," he said. "You really want to make sure you've got a development plan to access the global market."

Phillips said biotechs should examine which companies have a compatible strategy, and are likely to be interested in their intellectual property.

The clever companies, he said, will have done their pre-marketing before attending a conference -- including mailing potential partners with details of presentations.

The key people for a deal may be only a few degrees of separation away, and Phillips recommends accessing them through scientific and technical networks, or using other contacts such as venture capitalists. "And if all else fails," he said, "use Google."

Another trick is to use allies in the local branch of a big pharmaceutical company to help to present a project to decision-makers overseas. "These companies are huge and often rely on personal networks," said Phillips.

Even more persuasive for an executive is a whisper in the ear from a trusted scientific consultant. "Find out who is on their scientific advisory board and approach them," said Phillips. "Often management will believe a consultant but won't believe one of their own staff."

Media can also be a direct line to decision-makers. "Big companies pick up media all the time," said Phillips.

But getting a meeting may actually be the easy part. Research shouldn't stop with the company, but should extend to the people who you will be meeting with.

Phillips said biotech management should find out to whom they will be presenting and tailor their information accordingly. "Unless you grab their attention in the first paragraph you may lose people," he said.

Phillips said a biotech should be able to understand -- and communicate -- exactly how the pharmaceutical company will use the product it is presenting, and the risks involved in its development.

"I think there is a great reluctance to deal with the question of what happens if it all goes wrong. Think about the impact of contingencies. How would we manage these and how do we evaluate contract dynamics - the split of royalties, and so on," said Phillips.

On the flipside, a biotech should be aware of the information it is presenting to the world, and make sure that it is consistent with the story they are telling. "Don't believe that the only information they will get on their product is what you'll give them," said Phillips.

The question of who will attend an initial meeting is also a critical one. Phillips advocates commercial management with a marketing focus at the beginning, with a scientific follow-up later. "Very often scientific people aren't the best the first time around because the message can get lost," he said.

There are also some unseen barriers capable of tripping up even the most street-smart Australian biotechs. "You need to understand the corporate culture of the partner," said Exton. "There is a huge cultural difference between Americans and Australians. Australians are pretty up-front -- they tell it like it is. Americans are more round-about."

Going the distance

For many biotechs, a licensing deal with big pharma is the ideal consummation of years of R&D. But Lilly's Exton warned that thinking of licensing as a 100-metre sprint, where the finish line was doing the deal, is dangerous. A healthy alliance needs stamina and honesty.

"You do the deal, that's tough enough. But once you've done it [if both partners don't] achieve what they are expected to achieve -- that is damning," he said.

And it's not just the science that can fail to live up to expectations. Manageable, controllable factors such as differences in culture, changes in senior management, weak commitment to alliance, poor alliance leadership and poor communication can be invidious culprits.

"The people who sign the deal are in business development, but the people who have to make the deal work are scientists who may have to give up some of their own projects to focus on the alliance," said Exton.

AstraZeneca's George Moore agreed. "It's very important that you get the scientists involved in the partnership to move things forward," he said.

Death spiral

From the point of view of a drugmaker, finding the right research project, and jostling for the rights with competitors from other pharmas, are only the first part of alliance management.

Avoiding the death spiral, as Exton puts it, is just as important. "Taking the pulse of a relationship involves looking at how well the companies working together operationally, culturally and strategically.

'There may be an obvious disconnect between the partners which needs to be addressed," he said.

"Issues will always come up in an alliance. What you can do is prepare for them. You need to avoid the death spiral. When the first problem comes up don't let that be the death of your alliance. At the end of the day, it's the quality of the science which will be judged and the patent position which will be important."

Lilly's ventures in VC

Eli Lilly is also playing venture capitalist, with three specialist funds under the management of its Lilly Ventures arm.

The US$75M Lilly BioVenture Fund -- which invests in early-stage biotechnology companies -- has been operating in Australia for only five months. It was founded in 2001, and remains a predominantly US-driven fund. It has made investments in Western Europe and Israel, but none in Australia.

On its shopping list are of core platform technologies which can improve drug discovery and development and novel therapies that lie beyond the current boundaries of the biopharmaceutical industry.

"We're looking for horizon research," said Lilly's Exton, "new developments which will provide a quantum leap in the way we do drug discovery."

The other two funds manage US$50 million each: the e-Lilly Venture Fund -- founded in early 2001 -- invests in pharmaceutical network technologies, and the Lilly MedTech Venture Fund, which began in January this year.