Biopharma conference confirms partnering trends

At a recent BioPharma conference organized by the Association of Strategic Alliance Professionals (A.S.A.P.) in Boston, impressive examples of strategic alliances and advanced partnering solutions were put forth and discussed by professionals in the industry.

Life Sciences has been one of the earliest and most innovative sectors in implementing alliance strategies.  Many of the strategic partnerships illustrated during the two-day summit have been working well for decades.  ‘Alliances’ in this context means any formal agreement to work together (Research & Development, Manufacturing & Distribution, Sales & Marketing…) prior to and outside of a majority acquisition ownership stake by one firm in another firm.

Beyond the longevity of the business partnerships is the deeper and more important trend which was highlighted by some of the industry leaders:  partnerships and alliances in all forms and manners are the new normal for upstream research, mid-stream drug production and down-stream sales & distribution.

Strategic alliances, commercial partnerships and ecosystem development (advanced collaborative networks) are rapidly becoming the way the biopharma industry is organized and structured to do research, product development and commercialization.  The level of sophistication the partnerships have achieved is impressive but the alliance road maps often remain “muddied.”

Some firms, for example, have added partners over the years but still have no real formal process to evaluate, propose, integrate and optimize the partnership.  ‘Business development’ brings the alliance deal to the table and then the ‘alliance department’ manages it.  The result has often been dozens (sometimes hundreds) of scientific and business collaborative solutions which have been inked over the years that have not yet created maximum value for the partner firms.

The number of alliance agreements within the industry has risen exponentially over the past five years to turn alliance management into a core competency within biopharma companies.  New roles & responsibilities have been established and a new breed of alliance managers are creating the profession.

The biopharma conference and A.S.A.P. have confirmed these partnering trends.  The partnering is global in nature and spans the value chain.  Size is less important than relevance.  Public-Private Partnerships are common in the life sciences industry.  Academic institutions, foundations and other non-profits are key partners with public policy makers and private companies.

The large life sciences corporations (“Big Pharma”) are looking to reduce costs and infuse highly energetic and innovative practices into their organizations, particularly from the smaller biotech firms.  Some of the largest and most exciting alliances have ended up as acquisitions over the past five years, for example Medimmune by Astra Zenica, Genentech by Roche, Genzyme by Sanofi, just to name a few.

These mega deals involving huge financial transactions of $20B + (to bolster declining balance sheets?) are becoming less prevalent.  Smaller and more modest acquisitions are still underway and as the M&A trend in Life Sciences levels out, we are now seeing the largest independent biotech firms doing most of the acquisitions of start-ups within their sub-sector.

The top biotech companies have been growing at a much faster pace than the established pharmaceutical firms, and they have a long-term advantage in the longer arc of patent protection available for biologics.  The infamous ‘patent cliff’ or loss of exclusivity (LoE) has created major restructuring within the Research & Development departments of Big Pharma firms.  The day of the billion dollar drug financing all the other activities is past its prime.

The run up over the past thirty years has been impressive, and the high risk / high reward stakes in drug development – and sales – has made Life Sciences one of the most exciting industries for innovation.

Lipitor, the drug well-known to the general public as a cholesterol medicine, has totaled a remarkable $125B in sales over the past fifteen years.  But the billion dollar / quarter drugs are declining and the costs for discovery are mounting which makes the traditional business model unsustainable going forward.

The story of the drug itself (as with most of the blockbuster drugs) is fascinating and makes for compelling reading, like a biography of a famous person.  The short version is that Warner-Lambert partnered with Pfizer to help fund the late-stage testing (always the most expensive phase in the $1B process to create and gain approval of new molecules to fight disease), and then to promote Lipitor after it was launched.  Later, Pfizer bought out Warner-Lambert to block two other companies trying to acquire it and get control of Lipitor.  I was fortunate to have a front row seat as a member of the Life Sciences Center of Excellence for a major global consulting firm and the show was worth the ticket.

Pfizer also benefited from some lucky timing: Lipitor went on sale in 1997, the year the Food and Drug Administration first allowed drug ads targeting consumers.  So Pfizer spent tens of millions on ads, including on the popular drama “ER,” first urging patients to ‘Know Your Numbers’ and then showing patients discussing how Lipitor helped them get their cholesterol numbers below guideline goals.

The value chain from drug makers (‘scientists’) selling to doctors (‘experts’) who then distributed to patients (‘consumers’) began to erode around that time as well.  Patients began to become more informed and internet research led to a spontaneous form of crowd-sourcing:  groups of individuals asking each other questions and comparing data points, sometimes to the delight and sometimes to the disdain of the expert medical community.

Additionally, generic competition at home and abroad have created pricing pressures resulting in a flattening of revenues and profits.  The biopharma industry is undergoing a profound transformation as the huge R&D departments are being downsized and replaced by smaller teams of scientists tied directly to individual profit and loss business units.

Therefore, the partnering trends, without the frenzy of acquiring the firms outright, are back in vogue.

Areas of application include:

  • Research & Development – In-Licensing to mitigate risks and share rising costs of scientific research is a common practice for everyone.  Resources and sometimes capital are pooled into a common project, involving complex collaboration agreements.  C.R.O.s (contract research organizations) provide support to the biopharma and medical device industries in the form of outsourced and co-sourced research services.all_globe_rgb
  • Manufacturing – Alliance agreements and global supply chain partnering frameworks are allowing drug production of large and small molecules, often off-shored to emerging countries to further reduce cost of production.  This is especially true for the the production of small, chemically manufactured molecules (SMOLs), but also for the newer large protein molecules, also known as biologics.
  • Sales & Distribution – Co-marketing and shared sales forces have become standard in the industry.  During the conference, several well-known companies spoke openly about their partnerships.  The key theme is to find the right balance, design the right ecosystem, to provide the most efficient and profitable go-to-market strategies.  And then leverage each others’ respective channels as per geography and professional staff to create quicker and stronger global sales capabilities.

In-licensing is a partnership agreement between two (or more) companies that have shared intentions, goals or fields of interest.  But there are other forms of alliance contracts as well, and multiparty alliances, a sort of scientific or business club – a community of experts who share a common interest and independent governance are also growing rapidly in the life sciences sector.

Capital and facilities, resource sharing of means and scientists, joint marketing and sales teams are all now common practices among the leaders in the industry.

Strategic alliances take a variety of forms, ranging from arm’s-length contract to joint venture. The core of a strategic alliance is an inter-firm co-operative relationship that enhances the effectiveness of the competitive strategies.  We often speak of co-opetition – competitor and colleague – within the same relationship.  For anyone who has been married over ten years, this is a concept you understand instinctively.

The more complex alliances for instance may involve some combination of licensing, distribution and an equity injection.  But equity investment is not necessary or even desirable in many cases.

Ecosystem development – strategic alliances, research and commercial partnerships – are creating great value for the firms who are clever about developing this skill set.