10 Common Biotech Partnering Myths, Exposed

15 January, 2015

Biotech companies know that it’s essential to align with strategic partners to advance their drug candidates to market. But for the small biotech company the partnering process can sometimes be daunting. To help make the process easier, we’ve put together a list of the ten most common partnering myths. Avoid the mistakes based on these myths, and you’ll be well on your way to those hot licensing deals.

Myth #1: Later is Always Better

It would be logical to assume that the farther your drug is along the development path the more value you will get in a deal. But for the last five years both upfront payments and total deal values have been larger for deals done during Phase II than for deals done during Phase III.

Investors and partners typically do not determine value based on the stage of development as much as the answers to key efficacy questions, such as:

  • Does it work in animal models?
  • Is it safe?
  • Does it work in humans?
  • Is it differentiated from the competition?

So partnering is not out of the question even in the earlier stages of drug development.

Myth #2: You Can’t Partner at Pre-Clinical

Okay, we just said that deals done during Phase II typically see the largest numbers, but that doesn’t mean partnering earlier isn’t feasible. Many deals these days are done early. In fact, roughly fifty to sixty percent of deals done in recent years were done at pre-clinical or discovery stages.

Recently RQx Pharmaceuticals entered into a partnership with Genentech for the discovery and development of novel drug compounds for an undisclosed target. In that deal, RQx received an up-front payment and was eligible to receive research and development milestone payments totaling $111 million. In addition, RQx was eligible to receive royalties on sales of products resulting from the collaboration. At the time, the company was only two years old.

Myth #3: Novelty is Crucial

Novelty is great, but it comes with challenges. If your drug is truly novel, communicating your story becomes more difficult. A partner needs to understand a lot of the biology before they invest in the development of your drug. If your drug is truly novel, it becomes necessary to create your narrative from scratch rather than refer to existing literature or competitor’s data. A partner will want to know:

  • The connection of the target to the disease
  • The specificity of the drug for the target
  • The drug’s effect on disease models
  • That the target is responsible for the drug efficacy
  • The solubility, stability and pk of the drug
  • The drug’s safety
  • That there is a clear path to market
  • Which patients you will be treating
  • How you will select those patients.

Again, novelty can certainly be an advantage, but it comes with greater challenges in constructing your narrative. How you will deliver value to the healthcare system and the payers needs to be clearly communicated.

Myth #4: Good Science Speaks for Itself

Yes, strong science can speak for itself, but often being able to appreciate the implications of that science is difficult. As a young company, you need to clearly tell your story in a way that is compelling and resonates with potential partners. This story must be powerfully conveyed from the very first point of contact.

The first thing to communicate is “Why this drug?” What’s special about your opportunity? What unmet medical need will it address? If the uniqueness of your opportunity is not clearly conveyed right from the very beginning, a partner might not dig any deeper, and might never appreciate the value you’re bringing to the table.

Remember, your partner is trying to learn in weeks everything that it took you years to create. They might not always get it right, so it may be necessary to guide them through the learning curve.

Myth #5: Rejection is Always Bad

It hurts to be rejected. You’ve worked hard on your asset, and it’s disappointing to be told that someone isn’t interested in it. But the truth is, you need to evaluate the fit of a partner just as a partner needs to evaluate the fit of your opportunity. Due diligence is a very resource intensive process for parties on both sides of the deal. Don’t make the mistake of going down that path when the fit isn’t there. Sometimes it’s better to hear a “No” before getting to diligence than hearing it after diligence has been performed.

Myth #6: Get to Talking Dollars Fast

Negotiations begin the moment you start talking. And, although moving quickly is almost always advantageous, it’s a mistake to start talking dollars before you know the scope of the deal and how the partnership will be structured. Due diligence is the process that leads to a partner’s understanding of the value proposition. If terms are exchanged before diligence, the due diligence process will inevitably reveal issues, which can result in a reduction of terms. Generally, it’s best to let the due diligence process play out before talking financials.

Myth #7: Ask For Everything

Sometimes small companies, knowing there will be compromises, will start by asking for the moon. This can be a good way to lose credibility and cause the other side to walk away before they’ve even had the opportunity to understand your asset. Be sensible. Yes, ask for more than you expect to get, but don’t go crazy.

Define your needs and wants for the deal, and write them down. If you know what you want, and prioritize, you have a better chance of clearly communicating your expectations to a partner and getting the things that are most important to you.

Myth #8: If We Lower the Price We Can Get a Deal

There is some point where no matter how cheap an opportunity becomes, it’s still not perceived as attractive due to too much uncertainty or risk. The industry is remarkably price insensitive for opportunities it wants, and generally a lower price won’t drive deals. A smaller partner may be more price sensitive, but big companies are driven more by data and the expense they’ll incur for development than they are by the price of the deal.

Myth #9: We Already Know the Best Partner

Having a pre-conceived notion of the perfect partner for your opportunity can be a mistake. Think broadly and you could be surprised. An attractive partner could be one that you never would have considered as a possibility. Corporate strategies change and companies can get excited by a therapeutic area they’re not currently in.

So, don’t limit your options, especially at the beginning. This is what the exploration and discussion phase is all about—it’s about casting a broad net to see if there’s a partner out there who turns out to be the perfect match.

Myth #10: If We Could Just Talk to the CEO

Talking to the CEO might be effective if you have a relationship with that person. Otherwise, you risk being perceived as a nuisance and getting funneled off to the Business Development person who would have handled it in the first place.

If you have a real connection, by all means take advantage of it, but don’t pester people you don’t know and remember that there is a process. Even if the CEO says, “This looks interesting,” it’s still going to go through the process.

Based on the white paper by Linda M. Pullan, Ph.D., "How to Win at the Partnering Game"

Download the White Paper, "How to Win at the Partnering Game"