How platform companies should partner with pharma
January 31st, 2019
Anima Biotech named U.S. deal of the year winner at LifestarsTM Life Science Awards
Over the years, as Anima was still developing its technology platform, I attended many conferences in which I was selling our vision to pharma. I always received these responses; "this is so novel," "this platform has huge potential," but also heard "this is very early," "what results do you have to validate your technology?"
I remember one event in particular when I was on a panel about "platform companies partnering with pharma." One of the panel members was the CEO of a platform company that recently completed a deal with a big pharma company. The moderator gave him a long time to describe his deal, which consisted of minimal funding to support research with an option for far away milestones near $80M at the end of their research program.
I listened to this story that was acknowledged as victory by everyone in the audience. And then it occurred to me that because it is so hard to partner with pharma when you are just starting, almost any deal you can make, whatever the terms are, would be considered a "victory."
A few months later I read that this same emerging company had another deal with the same structure. Big pharma liked their platform, but the terms of the initial deal were now repeated, with their technology priced low again. Unfortunately, they were now stuck repeating this business model, doing small deals with all the risk on their end, with their partner barely covering their R&D costs. This model does not provide resources to support the growth of their company. The hope is that over time, they will be able to secure more favorable terms, but this is an uphill battle after several partners have essentially priced the technology so low.
It then occurred to me what the basic dilemma is. The industry operates with a "penalty for novelty" concept driving deals with early stage companies and technology. As a platform company, big pharma partners know you need validation through deals and they take advantage of that by negotiating deals that are not financially rewarding for your company. Essentially, you need "credibility" for your "novelty," so you end up selling it at "penalty".
Why should novelty be subject to penalty? It seems unfair but that's the way most of the initial deals are done today.
I was thinking that this company did not really understand the value of what it brings to the table. They had a unique technology that enabled those partners to go after some really hard targets. Looking deeper into the deal I saw that they even provided their pharma partner with complete exclusivity for their targets.
It then occurred to me that the right way to structure a deal that is a win-win for both partners is not by having penalty for novelty. Instead, emerging companies need to change the way they look at the situation. The pharma partner needs your novelty, which is why they are doing the deal in the first place. But what they really want, the thing that is most important to them, is a “differentiated outcome” - they want a competitive advantage coming out of this partnership. They want to be the first to develop drugs against those targets.
As an emerging company with a novel platform and technology, you can give partners this competitive advantage by carefully structuring exclusivity around their targets as the driver of the deal.
Looking at most deals, you can see that CEOs are completely overlooking the power of exclusivity. They give exclusivity away for free, included as part of the deal while still allowing the financial penalty for being an early stage platform company, lacking that critical validation and credibility.
But really, the way to structure a win-win deal is to place significant value on, and sell that exclusivity, not to give it away. If your platform is the only way to go after their targets, exclusivity is the holy grail for your partner and they will be willing to go a long way to get it.
Our deal with Lilly demonstrates this concept. We have a unique platform that is currently the only technology for discovering molecules that specifically control the translation of mRNA. That’s a new strategy against many diseases. It enables our partners to go after hard and undruggable targets. It opens the way to specifically decrease or increase the production of almost any protein. And it can do all this with small molecules. The potential is clearly huge but the “penalty for novelty” was an issue for us just like anybody else.
However, we came to the negotiating table with the understanding that we are not giving exclusivity away. We are selling the visionary potential of a platform that is not a commodity asset. We are looking for a win-win partnering model. In our terms, we gave our partner exclusivity for their targets, the deal was for a limited number of targets, our partner received their competitive advantage and we received validation and credibility but more importantly – we received very substantial funding to continue and build our business.
Our deal with Lilly is not the result of any exceptional financial engineering. It is a true win-win deal between a small biotech and a big pharma that simply reflects the true value that pharma partners assign to exclusivity.
When partnering your platform, it is not about what you have but about what can the partner achieve with your technology. Yes, your novelty needs credibility and validation, but you should never accept the idea of penalty. Price the exclusivity you provide with your unique technology and build a win-win model between you and your partner.