Glenn H. Snyder, principal, Life Sciences & Health Care, and Matthew K. Hudes, U.S. managing principal, Biotechnology, Deloitte Consulting LLP, discussed events that can have a major impact on the very survival of a biotechnology company.
More pharma and biotech pharma companies are coming together in alliances. What’s behind this trend?
Snyder: Pharmaceutical companies have had an increasing dryness in their pipelines. As a result, they are looking for new and different ways to feed those pipelines, both through internal development as well as by reaching out to acquire or license other products to meet growth expectations of Wall Street and shareholders.
Our research shows that the convergence of traditional markets and technological platforms is forcing big pharma and biopharma companies to compete in forming alliances with small biotech companies that now account for a growing share of new drugs in clinical trials. In many cases, alliances are placing bets in longer-term plays. And in our view, companies need to have a balanced approach to long-term and short-term bets.
Given this momentum, are you suggesting the robust alliance environment will prevail for the next few years?
Hudes: Biotech/biotech alliances are exceeding pharma/biotech alliances. A study we conducted showed that the number of alliances in 1990–180–jumped to 1,250 in 2004, and while such moves are viewed as “opportunistic” rather than “core” strategy, they continue to show strength. I think biotech companies are inherently stronger at alliance formation because they go through it early in their existence, and they either survive it or they don’t.
What’s the picture like for merger-and-acquisition (M&A) activity?
Snyder: Mergers and acquisitions continue to gain steam. In 2004, there were about 80 biotech M&As. Synergies are often less important than top-line enhancements. Among the key questions decision-makers must ask include:
Should we acquire or be acquired? At what price?
How will such an event deliver appropriate shareholder value?
Can we deliver the promised synergy?
What processes need to be implemented to achieve the desired execution of the deal?
What can be done to maximize the tax benefit of the acquisition (if pharma to biotech)?
Is this the right cultural fit with our partner?
A number of life events can test a biotech company’s mettle. What’s your take on major setbacks?
Hudes: At one time or another every biotechnology company has a setback. Sometimes it’s purely on a scientific basis: The drug doesn’t work. So they are mentally prepared to deal with that, but sometimes their plans aren’t in place. They might find themselves asking: What do we do, for example, if it’s not a complete failure but more work is required to prove that it works?
Increasingly, there are other factors coming in play, too. Glenn hit on this in regard to commercialization. A product not only must prove to be efficacious and safe but also reimbursable. If it doesn’t come in as superior to products that already exist, it may not be reimbursable and therefore may be regarded as unsuccessful.
Snyder: One thing many companies in the sector suffer from is that they’re growing so rapidly that most of the management team is spending time with rapidly occurring discovery, development and regulatory issues and trying to make multiple decisions. What we provide clients is an opportunity to make such decisions in an informed manner, particularly as it involves anything that concerns significant capital commitments or regulatory implications. In the case of the major events, these are decisions and preparations that they have to do proactively–very difficult when one is a fast-growing company.
