The New Reality Starts to Hit Home

We all know the mantra of the post-credit crunch pharma and biotech world – lean, mean and focused in the era where cost-effectiveness is king. The message is that we have learnt from our mistakes of the past, embracing now instead strategic flexibility and a global focus on delivery of healthcare to the individual. The industry has made lots of resolutions – but is it walking the walk as well as talking the talk?

If the evidence from the recent 17th Annual Euro-Biotech Forum in Paris in June is anything to go on, the biopharmaceutical sector is biting the bullet. The key messages were the focus on externalisation; lean models; razor-sharp therapeutic focus; cost-effectiveness; value realisation from individual assets; and innovation and flexibility in deal structures.

It’s all going on outside 

No longer seem as a sign of internal system failure, presentations showed an unprecedented level of openness and clarity about what external bodies could bring to the drug development table – and how badly companies need them to. GSK’s corporate venture fund (CVF), SR One, operates quite independently of its corporate parent, but both are tapping into the innovation that is going on elsewhere. For SR One, corporate venturing is a ‘key part of the trend towards R&D externalisation’. As well as being active in venture investment, the CVF is increasingly finding itself involved in value creation from GSK’s deprioritised assets and innovations as the company sharpens its therapeutic focus. Describing itself as a ‘dedicated resource for spin-out efforts’, SR One expects to BE increasingly involved in creating companies in this way. Given the quality of the assets that emanate from big pharma, this could bring a much-needed lease of life to the beleaguered European small cap pharma and biotech sector.

The ability of this approach to create valuable companies, products and healthy returns is exemplified by the very recent acquisition of Dutch company Movetis by Shire. Movetis, which was spun-out of J&J in 2006, raised almost €100m in a great IPO at the end of recession-dominated 2009. To be bought less than a year later for €428m ($566m), at a premium of over 70% (55% up from the IPO), is quite a feat.

The importance of partnering was quantified by Novartis, which noted that nearly 50% (six out of fourteen) of its recently launched brands were developed in collaboration.

Cash is king for the payers too

The FDA and the EMA are no longer the final gatekeepers – drug development’s newest nemesis is the payers. Budgets everywhere are constrained, and those for healthcare are no exception. This isn’t surprising, given that we’re in the untenable situation where the growth in healthcare costs is outstripping that of economies. As Jonathan Peacock, CFAO of Novartis Pharma (and soon to be CFO of Amgen) put it, ‘demand growth is driving tensions in affordability’.

Drugs now have got to be safe, effective and cost-effective in order to get to the ultimate consumer – the patient. The debate about how cost-effectiveness should be measured is of course heated and ongoing – and is expected to continue for some time. (In a recent meeting, a biotech company argued that a therapy for a rare genetic disease, while not appearing cost-effective on some measures, might look very different if the total cost, based on the very small patient population, was taken into account. The same company noted that six out of seven of its drugs which were recently approved for marketing were subsequently turned down by that country’s cost-effectiveness regulator.) Discussing the establishment of Novartis Molecular Diagnostics, Jonathan Peacock noted that the use of biomarkers and diagnostic tests to improve drug response rates and safety meant that premium prices could result from the enhanced patient benefit/cost-effectiveness – a ‘compelling picture’.

This focus showed itself in the presentations of the VCs as well as the pharma and biotech companies on show at the Euro-Biotech Forum. MPM Capital highlighted how it was looking for opportunities that brought ‘major medical value and/or major cost savings’ and products needed to have a clear idea of how reimbursement could be achieved. There was a focus on products that would be game-changing in a very significant way, with the underlying thought clearly that ‘me-too’ approaches stood very little chance of being reimbursed.

Bend it, shake it…

You’ve got to be flexible in your approach to deal making, or you might be left with nothing. Presenting its partnering strategy, Roche was very clear that this was how it approached collaborations, noting that it was open to ‘creative variations on known themes’ such as licensing, options and acquisition. The same theme was developed by Novartis, with Merck Serono adding that it has no fixed template as to how to do deals.

Asset-centric thinking

Another major theme at the conference was asset-centric approaches and the value they can generate. Given the quality of the assets that are generated but then not developed by a variety of different sources, from academia to big pharma, this is an approach that can be expected to flourish going forward. Asset-centric financing, as exemplified by the recent PanGenetics/ Abbott deal (in which the latter acquired global rights to the biotech’s Phase I antibody with an upfront payment of $170m), was compared with its other approach of platform exploitation in a presentation by Index Ventures.


Platform technology



portfolio derived from disruptive technology platform

semi-virtual company for product development with MoA expertise and back-ups

Investment in

the vision/company

the molecule

Cash to exit  €m



Syndicate size

3-5 VCs

1-2 VCs

Exit profile

Platform has generated a pipeline; M&A or IPO exit

1-2 molecules; result is an asset sale or buy-out

Management team

complete team

drug development/project managers, incentivised to go/no go point


often university spin-outs

assets found in academia or  industry

Source: Index Ventures


From these observations at the Euro-Biotech Forum, it looks like the industry is on an exciting and focused new track, with a strong dose of realism thrown in.


Related articles:

To be or not to be: The Pros and Cons of the Virtual Biotech Company


This article is written by Emma Palmer Foster. Emma is a healthcare consultant (EJ Palmer Consulting), with over 15 years experience in life sciences including investment banking, financial communications, investor relations, journalism and technology transfer. She is also a Principal at ATPBio.


2 thoughts on “The New Reality Starts to Hit Home

  1. This is an excellent summation of the response of big pharma to what is clearly the landscape of the next decade. One of the challenges that pharma firms face, as I noted in my recent book, Get to Market Now!, is how to adopt their development pipelines to a globalized economy wherein spending on healthcare is limited, competition is increased, and ultimately, regulatory health agencies such as FDA, EMA, Health Canada, and so on, may be the final word when it comes to drug safety, but are not the final arbiter of marketplace acceptance and profitability.
    The image we all hold in our minds of “big pharma” – shiny glass and steel campuses, multiple office, R&D, and factory buildings, and global teams of branded employees – is an image of the 20th century. Over the next decade, we will see more virtualization and more cross-collaboration. This may boost pipeline productivity, but it poses a powerfully complex challenge for traditional quality and regulatory affairs compliance teams. And since the capabilities and capacities of compliance enable the approval of new drugs and biologics, big pharma would be wise to ensure they do not forget the ability of their quality management and regulatory affairs departments to morph alongside the evolving business model.
    The fastest way for big pharma to fail will be to have 21st century development pipelines and 20th century compliance programs.

  2. Hi Raman,
    Reading Emma’s piece and the link to David Grainger’s article rang a few bells.
    I have felt for some time that VCs specialising in biosciences should be structured with some of these principles, ie they would largely consist of a number of project managers with real expertise in dealing with contractors, David’s “expert customers”. This expertise would be accumulated over a number of projects and would be available to all the investees.
    The investees would consist of only a very small core team and all the services needed (from accounting to specialised CROs) would be provided by the VCs. Some of these services might be in-house to the VC eg Company Secretarial, book-keeping, IP management, regulatory affairs,ITC, but most would be bought in from contractors whose expertise and performance would be closely managed by the project managers. The project managers would be responsible for building up extensive knowledge on the availability and effectiveness of the CROs and in managing their performance.
    The investees would not have their own offices but they would be accommodated at the VCs offices (maybe even a glass-fronted building on a gleaming modern science park) which would include a number of hot desks and hot meeting rooms for the investee companies to come to when they needed to interact with the project managers and maybe even with other investee companies.
    The end result should be considerably lower investment per investee; many more investees would be funded and the VC’s strike rate improved; the investees would not be distracted hiring and managing staff or hiring and managing contractors; there would be a real accumulation of knowledge by the project managers to apply to future investees, the VC could manage the investees much more effectively and the cost of failures would be much lower as cut-backs and pay-offs would be avoided.
    Perhaps some VCs are doing this already?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s