Poor preparation during scientific due diligence can scupper mergers, acquisitions and partnership agreements in the biopharma sector. Here, Diane Seimetz, Principal Consultant at Biopharma Excellence and Jörg Schneider, Associate Principal Consultant at Biopharma Excellence examine how you can ensure a smooth and successful business partnership.
You need careful planning when undertaking a partnership, merger or acquisition, particularly when it comes to preparing scientific, technical and regulatory information about complex therapeutic products. While the generation of such information is the seller’s duty, assessing the opportunities is the buyer’s remit. For biotech companies and academic developers, the process of assessing the potential for a partnership or licensing agreement is best understood as scientific due diligence. In a nutshell, due diligence is making sure that you get what you expect.
Whether a biotech company is considering a merger and acquisition or partnering agreement, licensing products or technology platforms, it should be ready to present its assets to potential partners and equity providers.
Partnerships are worth the effort
The focus of academic researchers is to create scientific knowledge from their research and for publication. But translating this knowledge into commercial biopharmaceutical products requires additional skills.
For growing biotech companies and academic developers, the experience and resources of larger pharmaceutical companies are invaluable in late-stage drug development and the authorisation and commercialisation process. Small companies that launch their first product on their own often face issues when it comes to product uptake and launch value. A McKinsey report1 found that the median first-time launcher reaches just 63% of expectations, compared with 93% for the experienced equivalent.
Partnerships have been shown to drive up the success rate2 of EMA marketing authorisation applications, with whole company acquisitions having a higher success rate than product acquisitions or partial licence agreements. It is clear that collaboration with larger companies may be a more effective strategy for smaller companies to bring new products to market.
As more deals are being made every day, there is an increased need for due diligence, and academics and early-stage biotech companies need to prepare for it. Small biotech companies will reach a stage where they need to consider seriously the prospect of a merger, acquisition or partnership – or the next investment round. It is never too early to plan ahead and prepare to convince new and existing investors that more funding is important for value generation.
Compared with biotech start-ups, academics have a very different culture. In the academic world the focus is on scientific kudos and publications to maintain grant funding. There is less emphasis on readiness for due diligence and documentation relating to partnerships or funding. Most universities have technology transfer offices that can offer some support. But often they don’t have the time or depth of knowledge to prepare a comprehensive scientific due diligence package to prepare the asset for partnering.
Particularly on the seller side, underestimating the significant effort that it takes to prepare for due diligence is common. Naturally, small companies tend to focus on day-to-day operations and sometimes not enough time is set aside to prepare for due diligence properly.
Nor is due diligence just a one-time event. For the completion of one deal, a seller may need to undergo up to 10 due diligences by interested parties, so research and development plans, including reports, should be prepared for due diligence readiness. Raw data should be ready for assessment by external parties. As part of translation from academic research to biopharmaceutical drug development, programs also need to comply with GxP requirements. Smart start-up companies address these requirements during set-up of their governance and operational systems.
Do’s and don’ts
Academic programs and early-phase biotechs seeking partnerships must be ready to provide full and accurate scientific, technical and regulatory information relating to their business and products. Clear and accurate data presentation and documentation is essential. This will give prospective partners and investors a complete and transparent picture of assets and makes sure that both sides get what they expect. There are a few critical do’s and don’ts to achieve optimum scientific due diligence outcomes for both seller and buyer to build successful business partnerships. These include:
Before you begin
DO have a target profile of your ideal partner in mind. If you are a seller, you should think about what a potential partner wants to see, and prepare for scientific due diligence every day. Know your plans and data and be prepared to explain them. Set up a good quality data room structured by disciplines comprising all important plans and results. Don’t hold information in a scattered and disorganised manner.
DO make sure that key rights on technology and/or products belong to the party who seeks to out license or is the target of the projected share purchase: intellectual property (IP) is key for any biopharmaceutical business. Ensure that ownership rights are communicated in a transparent manner. Maintain current intelligence on the competitive landscape – including potential infringers.
As a buyer, DO consider a top-level asset screen before progressing to full due diligence and identify red flags early on to save valuable resources.
Once the process begins
DO check for strategic fit early on. In large companies, the due diligence team may not be the one that will develop the product later on. Post-sale, that can create challenges due to lack of championship on the buyer side. For co-development projects, it is essential that the product development teams of the seller and the buyer meet during the process to align on key development goals that should be part of a licensing agreement.
DO maintain ongoing collaboration and communication with the interested party – and with internal stakeholders. Be open and honest in your questions and answers. Ensure commitment from both parties to the process. Face-to-face meetings help to foster mutual understanding of data, resolve potential issues and agree on mitigation strategies.
DO have appropriate internal resources available for the due diligence activity, including a gatekeeper for the Q&A process.
DON’T obscure issues. Lack of transparency or hidden critical issues will sooner or later surface and can have potential legal consequences.
Further food for thought
DO limit the number of Q&A rounds. Too many rounds consume the resources of both buyer and seller. In addition, if the process is non-exclusive, a competing buyer might move in.
DO consider on-site visits. Though optional, these are incredibly useful to discuss initial findings and potential solutions and can reduce the number of time-consuming Q&A rounds. In addition, this is a good opportunity to assess the cultural fit of the teams who might work together after the deal closes.
DO review the raw data as appropriate. The EU has recognised reproducibility as a major issue3 for the funding of biomedical research. Even data from peer reviewed papers is not necessarily a quality mark for data integrity and raw data should be included in the review.
DON’T neglect to extend the process of scientific due diligence to all relevant functions needed for a full due diligence process. It is important to define the roles and responsibilities of all the stakeholders that will be needed right through to the end of the process.
DON’T assume that everyone will remember what was agreed; document what is decided as you go along. As time passes, people on both sides may leave jobs and roles and responsibilities may change. DO incorporate important cornerstones into the contractual framework.
Finally, when it comes to due diligence, DO seek help. Even with the best ongoing preparation, when scientific due diligence activity begins, it will be a drain on resources. Consider seeking out external help and advice to support the scientific assessment, explain the structures, and to facilitate the process. That way, partnerships will deliver the hoped-for benefits to all parties.
Go to www.biopharma-excellence.com to find out more.