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So, we are more than half way through the year and 2008 continues to be a year of significant changes; job cuts and cost constraints persist as the credit crunch continues unabated. During this time, there seems to have been a shift in business development activity from the normal pace of doing the usual business deals to a feeding frenzy of acquisitions.
Many of the acquisitions are in the biotech stocks, for example with Protherics but it also extends into the mid tier with King Pharmaceuticals showing a very positive - $1.4 billion – interest in Alpharma. In addition, the majors are in some cases extending their slightly unwelcome interests in companies where they hold a stake, for example in Roche / Genentech and BMS / ImClone. The generic companies have also joined t he fray. Mylan bought Merck Generics and following the successful acquisition of Barr for $7.46 billion, Teva are rumoured to be interested in Stada.
The reasons given for the acquisitions are many and varied. Needless to say the term “strategic” is overplayed by all the buyers!! Biotech companies merge to conserve cash. Big Pharma buys a company when the cost of a licensing deal is not much less than the company price especially where a platform technology is competing to see who can be the largest company in the world. Whether that will improve efficiency and make them the lowest cost producer remains to be seen.
The increasing consolidation ultimately diminishes the pool of available product and technology opportunities; it is most unhelpful when working on an in-licensing project and the discussions seem to slow, move to a temporary silence followed by the press release, “company X has been acquired by…”
This “landgrab” approach to buying in pipeline – the currently critical measure of a company’s future achievements is not a guaranteed route to success. In buying the asset, the liabilities are also acquired as is the inherent risk. The phrase caveat emptor remains very relevant!
Sharon Finch
Editor
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Venture Capital and Not for Profit Interaction in Medical Innovation: Establishing an Equitable Solution?
Irina Serbidova, Axensus Limited, Marie-Paule Kieny and Jonathan Freeman Baxter Healthcare S.A.
Funding and innovation in pharmaceutical research and development is undergoing a quiet change resulting in the appearance of an increase in the number of well funded and managed, product-focused Not-For-Profit (NFP) organisations. This change has the potential to introduce a new and interesting dynamic into the existing pharmaceutical and venture capital (VC) communities and could have ramifications in the way in which both industries interact in the future. In addition to the classical industrial and investor-base in the area of life sciences, there has been a large increase in the depth and breadth of investment potential from the NFP arena. For example, in 2006 the Bill and Melinda Gates Foundation (BMGF) endowment totaled $33.7 billion, disbursing a minimum of around $1.5 billion annually which recently doubled as a result of Warren Buffet’s $30 billion structured annuity contribution. In addition to these funds, numerous similar financial developments from both governmental and private sources have contributed to an increase in the number of well funded NFP entities and initiatives. In 2006 the investment in R&D by the top five pharmaceutical firms ranged from $7.5 billion (Pfizer) to $3.5 billion (GSK). The total investment in life sciences by venture capital (VC) was $7.2 billion. In short, an NFP organisation such as the BMGF alone has the effective potential R&D spend of one of the world’s top pharmaceutical companies, or the effective investment capacity of a quarter of the entire life science VC industry.
Over the years, pharmaceutical companies have developed several ways of interacting with NFPs for mutual benefit. By contrast, interactions of NFP with VC remain largely unexplored. With their increased financial strength and product-focused mandates, NFPs have the potential to play, in if not revolutionise, the existing market place. The sometimes-uneasy current relationship between the VC and pharma industries as partners in each other’s portfolio development has the potential for a new player: the NFP acting as competitor, buyer or seller.
The Changing Face of R&D in the future of Pharmaceutical Landscape
Terri Cooper Deloittes
Today’s pharmaceutical industry is maturing. There is a resistance to change, a similarity in corporate strategy and structure, an intense focus on internal efficiencies and productivity, and a continued decline in innovation.
At the same time, technological change is disrupting this mature status quo. Genotyping, biomarkers, and a deeper understanding of diseases are fragmenting the industry’s traditional mass markets, and forcing the redefinition of diseases. With this industry disruption, some existing players will fade away, some will change and adapt, and some new entrants will rise to dominant positions.
Lessons form other disrupted industries highlight both the stark fact and choice facing existing players in the pharmaceutical industry. First, such disruptions are unstoppable. Second, the choice is theirs. Existing players can rapidly adapt to the new environment and influence the emerging competitive arena or let new entrants determine their future. New Entrants – the “NewPharmaCo’s” – are the critical threat. In their self interest, they will accelerate the pace of distribution, further marginalizing existing players too slow to change. They will aggressively drive the transition towards personalised medicine and will likely be welcomed with open arms by the healthcare community.
Research and Development will continue to be the industry’s core value generator. However, R&D will be configured for developing targeted treatments for smaller genotyped market segments. In addition, the focus will be on the entire patient-disease life cycle and companies will forge new relationships with the other entities in the health care network, including competitors and collaborators. It will be a virtual R&D process in a network of disease specific organisations and patient groups.
Adapting to the new landscape will not be easy for existing pharmaceutical companies. They are large organisations with massive internal asset bases, staffed by individuals with a vested interest in preserving the status quo, even if such preservation leads to extinction. However, changing to compete in the new landscape is a survival necessity not an option. Companies that have financial success as the current business archetype evolves will be those that define the emerging paradigm. Those that merely follow the trend can still survive, but only with some luck. Those that hesitate, or ignore the gathering storm, will most likely be lost.
Negotiating Clinical Trails: The Process of Building and Sustaining Trust or How do Cats Share the Milk?
Andrew Gottschalk, Group AG
Clinical trials are a critical milestone in the transition from innovative research and development to clinical and commercial success. Their significance is recognised by pharmaceutical business developers but a literature search shows it is very difficult to find a systematic description of the negotiations. This article will, I hoe, prompt others, with more specific experience, to emerge from the shadows and describe both their experiences and strategies for managing multiparty negotiations where ideology, personal values, the life sciences and the market place interact. In all probability an increase in our knowledge of, and insight into this process, would generate benefits for all the parties involved in this key interaction.
The Art of War Gaming
Neil Rogers, Stratagem 37
Based on the ancient Chinese principle of “know thy enemy”, and redefined by military strategists, and more recently by a number of leading academics, the art of War Gaming can be a hugely rewarding and beneficial experience for the company and product teams within the company.
“War Games” have been described and taught as a technique, a tool, to support top-level “boardroom” type strategic activities – corporate strategy, mergers and acquisitions or major territorial conquests. While they are undoubtedly hugely useful, and frequently used, in this application, this view has often constrained their use in more prosaic, more tactical, decision-making.
War Games are an essential decision making tool that can, and should, be used in any number of points along the company decision tree. This paper will attempt to explain the principles and format of a War Game, differentiate it from other interactive strategic support events, and demonstrate one simple, but robust, technique and how it could be used.
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