Shifting the Balance

Biotechs are Levelling the Playing Field in Biopartnering

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By Kristine Archer

In an age where the drug-development landscape is becoming more and more crowded, the key to success may lie in successful biopartnering –– and many biotechnology companies are choosing to pass over large pharmaceutical corporations in favour of teaming up with one of their own.

A recent report issued by IBM Global Services (Somers, NY), Learning the Biopartnering Game, cites statistics from BioPartnering 2004, an industry survey conducted by IBM’s Institute for Business Value, designed to gauge how biotech companies perceive alliance management.

The survey shows that biotech-biotech partnerships are becoming the rule rather than the exception. In fact, these deals more than doubled from 1996 to 2003, while the number of pharma-biotech collaborations only increased slightly –– and are expected to decline.

So why have pharmas fallen behind in the race to partner, when, according to IBM analysts, biopartnering is a $6.5-billion-US-per-year business? The report cited some major trends in biopartnering that contribute to its current biotech-biotech slant.

Fourty-seven per cent of survey respondents said capital and market access were the most common reasons for partnering. Until recently, large multinational pharmaceutical companies were a biotech’s best bet.

But survey results suggest that pharma’s traditional position is now being filled by some of the larger biotech companies that survived the financial ups and downs of the early ’90s.

Big Biotechs Share the Wealth

“A number of the biotech companies are now relatively sophisticated in their own right and relatively large in their own right,” says IBM’s Sarah King, European leader, Pharma/Life Sciences R&D. “They are now exceeding the size of some of the smaller pharma companies, so they’re almost taking the role of the pharma companies, if you will.”

There are numerous advantages, real or perceived, to a biotech teaming up with another biotech, King says. For instance, differences in corporate cultures –– more likely to occur in traditional pharma-biotech relationships –– were cited as a major contributor to alliance failure.

“I think there is a kind of human nature thing that says if I’m going to partner with somebody and I’m an organization of 40 people, I actually feel more comfortable partnering with another organization of 40 people than I do with an organization that numbers hundreds of thousands of people,” King says.

Another aspect of this culture clash lies in each party’s approach to biopartnering in general. In King’s opinion, pharmaceutical companies are still hoping to cover all the bases.

“I think fundamentally, at the heart of many big pharmas, there is still a desire that sort of says, ‘Wouldn’t it be fantastic if we could do all of this ourselves?’

“Biotechs know they’re never going to do that,” she adds. “I think they’re coming at it from a different place in the first place.”

Biotechs are also more aggressive in pursuing alliances, having initiated contact 60 per cent of the time, as opposed to pharma, which took the lead 30 per cent of the time. King says that this aggressiveness is largely born out of necessity.

“The smaller biotech organizations all recognize that they need each other more, so they will probably be much more proactive in going out and looking for those partnerships.”

The State of Pharma

In another recent IBM study, Pharma 2010: The Threshold of Innovation, IBM points out several issues facing the pharmaceutical industry that could affect its approach to biopartnering.

A major concern is a lack of potential blockbuster drugs. King says that IBM “did quite an extensive analysis of reports in the pipeline” that suggests pharmas will produce very few blockbuster drugs in the near future. Only 14 are anticipated between 2003 and 2008, none of which are expected to outperform current billion-dollar drugs.

The report also notes that 35 drugs, with global sales of more than $73 billion US, will, or have already, come off patent protection between 2002 and 2007.

Experience has shown that patent expiry has a marked effect on drug sales. For example, sales of the popular anti-depressant Prozac® fell 22 per cent after coming off patent in August 2001.

King says the increased knowledge of disease indicates a future trend towards targeted treatment solutions, causing pharma companies to change their approach to drug development.

Partnering with biotechs could facilitate that change. The Pharma 2010 study cites statistics that indicate nearly one-fifth of all pharma R&D is already performed by biotech and genomics companies. That percentage is set to double within the next decade.

Shifting focus from new chemical entities (NCEs) to genetic and biologic compounds is a much more reliable route, according to the Pharma 2010 report. Statistics show that between 1996 and 1998, eight per cent of NCEs that entered clinical development reached market, as opposed to 34 per cent of biotech and gene treatments.

“Basically if you have a good understanding at the molecular, biological level of disease, then actually intervening with some kind of biological compound becomes much more straightforward,” King says.

“So what we’re suggesting is that perhaps the intellectual property, the sort of real ownership, will come much more around the understanding of the disease model.”

These factors –– both financial and scientific –– are slowly helping to change pharma’s attitude towards partnership, King says.

“You hear pharmas talking about becoming a ‘partner of choice’ because they do recognize that it’s important. They’ve got to be good at partnering because that’s where their future lies,” she says.

Five to 10 years ago “pharmas could pick and choose who they partnered with. Now it’s the other way around,” King adds, noting that the pharma industry still has problems to overcome.

“It’s one thing to recognize that you need to be good at partnering, and it’s another thing to actually get to that stage,” she adds.

Pharma’s increasing willingness to actively pursue deals may help improve another trend identified in the BioPartnering survey –– unnecessarily long time-to-deal periods. While time-to-deal is declining overall, there are steps that could be taken to reduce it even further.

“I think there is probably a lot that could be done to improve the due diligence processes –– the go-around making these deals,” King says.

“I think basically the pharma industry, generally, is not good at paying attention to the business processes,” King adds. “It’s now that all of these things are beginning to matter much more.”

The Making of a Good Partner

According to the BioPartnering study, less than half of respondents reported a successful partnership. Better alliance management could salvage 85 per cent of the $2.7 billion US in lost value from these failed endeavours –– only 15 per cent of alliance failures were attributed to reasons beyond management’s control.

Two key factors contribute to the success of an alliance more than any others. One element that works in favour of the biotech-biotech trend is a need for consistency in management. Managerial continuity has been a problem for pharmaceutical companies, where mergers and acquisitions have been quite common in recent years.

The study also suggests that certain alliance types are more successful than others. Statistics show that the most common type of partnership is a strategic alliance, where partners retain their own corporate structure. The most successful alliance, however, is the joint venture, where a separate entity is established between the two companies.

Choosing an alliance type depends on what the partners are looking for and what each brings to the table. The popularity of strategic alliances could be tied to the increased number of biotech-biotech deals given the inherent risks of a joint venture.

“If you make that kind of commitment that you need to make in a joint venture, it’s probably going to work. But can you afford to and do you want to take the risk of doing that every single time?” King says.

“If I’m a small biotech, I can’t set up joint ventures here, there and everywhere,” she adds, noting there are advantages and disadvantages to a rigid partnership.

“I may get some security from making the alliance as tight as possible. Equally, I may feel nervous that I’m going to be controlled by this very big company,” King adds.

Peaceful Co-existence?

If biotech-biotech partnerships are the trend, will there be room for both pharma and biotech in the future?

“I don’t think it’s as simple as saying biotech will be successful or pharma will be successful,” King says. “The companies that will be successful going forward are the ones that have a full and productive product line –– that is the bottom line –– and the means by which they get there will vary.”

As the biotech industry continues to grow, King says the lines that divide the two industries will blur.

“I think one of the things that we always struggle with, actually, is how do we define what is a biotech and what is a pharma,” she says, noting that the BioPartnering survey used year established to define a given company –– any organization formed since the late 1980s was classified a biotech, as opposed to a pharma.

King notes that a company’s size, used in the past as a measurement to differentiate biotechs and pharmas, isn’t a reliable gauge anymore, given the growth of the biotech industry.

“I think the point is that whatever definition we use, there are going to be some flaws in it –– it’s not that pure,” she adds, pointing out that many large pharmaceutical companies, like GlaxoSmithKline (Middlesex, U.K.), have biotech business segments.

As for the Canadian market, the biotech-biotech trend could be a blessing, as small and medium-size biotechs –– prevalent in Canada –– are getting more involved in biopartnering.

“Partnerships are involving more of the smaller organizations,” King says. “Things are increasing –– not rapidly, but they are increasing.”