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What’s the Deal? The VC Role in Biopharma

Posted By Administration, Friday, June 20, 2014
Originally posted on 11/21/2013

As the 2013 ASAP BioPharma Conference rolled on through the morning, a panel moderated by Vipula Tailor of Jubilant Life Sciences examined the role of venture capital and deal making in biopharma alliances today. And somewhat like those legendary blind men stationed at various spots around an elephant, the animal looks different depending on where you’re standing.

In “The View from the Dealmakers: Trends in Deal Structures,” Todd Foley, partner at MPM Capital, noted that while the VCs’ role is substantial, their participation in the biopharma and life sciences industry has been shrinking of late due to lower returns, so they’re “trying to figure out how to do more with less.” During times when the IPO window has not been open, they’ve been more reliant on M&A events and getting companies bought. But increasingly, they’re more involved in building companies, signing option deals, and finding ways to share risk between alliance partners.

Still, Foley said, “We have to be very selective in which companies to invest in and how to do that. Venture capital is not patient capital! We have to return money to our investors so they’ll invest in our next fund or we’ll go out of business. So we get very impatient.” Foley added that VCs don’t want to spend another two years waiting for a stalled drug to proceed or have to go back to drawing board. So there’s pressure to “swing for the fences” and try to push a project forward, which may not be best for the asset. This tendency, Foley explained, is not necessarily “VCs behaving badly, but just doing what they need to do.”

Bavani Shankar, from AstraZeneca’s neuroscience group business development and alliance management team, provided a Big Pharma perspective.

“A large part of what we’re doing has changed,” she said. “We don’t have the ‘not invented here’ syndrome anymore. We don’t have all the expertise in-house, and that changes how the deals are structured. Today we’re more collaborative, with VCs cofounding companies, collaborative agreements, option deals as opposed to licenses, working with academia and foundations that operate like biotech companies. Pharma has changed the way we operate. It adds a complexity to the deal structure. But the deal structure is the easy part—the alliance management is the hard part.”

Like other panelists, Steven Damon, founder and CEO of 4P Therapeutics, sought to shift the focus somewhat from the funding itself to how products are developed and how alliances are managed to get the work done. “There’s more than money involved here; we need expertise,” he said.

Even as a VC himself, Foley agreed that more than money is at stake and necessary for success. He cited a need for resources and “brainpower,” which requires “a change of mindset” by both small and large companies.

“For any alliance to be successful, there obviously has to be a cultural fit,” added Shankar. “One of the things we have learned is if there isn’t synergy in the way we think a program should be run, the ‘soft touch’ is important. You can have a technical success but a true failure on the alliance side. [In addition,] you always need a champion. It could be the best project, the best deal financially, but if you don’t have a champion, it’s not succeeding. You have to have momentum internally, all the way up to executive management. You have to manage a very different animal, a third party who may have very different ways of working than you do. So it may be good for the business development person to stay on as the alliance manager until you reach a steady state.”

This continuity of personnel and a focus on alignment of objectives were also cited as key to the success of such alliances. “The old-school model of continuous handoffs really doesn’t work that well,” Foley acknowledged.

Damon added that “large-company objectives may not be aligned with the success of the asset and moving it forward,” and Tailor as moderator noted that objectives for a particular asset are needed along with the higher-level objectives the companies have. “Sometimes a party’s focus is on closing the deal, not on what happens after the deal is done,” she said.

In the end, said Damon, whether you’re a VC, a small biotech, or a Big Pharma company, “you have to understand the motivations and structure of the deal and who’s running the show.”

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