The choice to partner with big pharma must be considered carefully.
Early stage biotech research and development is increasingly performed by startups rather than large companies. Due to the lack of resources and experience, it can be difficult for these startups to take their products further than early clinical trials. To overcome these hurdles, small biotech companies can pursue partnerships with big pharma. Big pharma benefits from these partnerships because startups de-risk technologies, increasing the chance that the large company will get a return on its investment.
The choice to partner with big pharma must be considered carefully. Once a startup decides that this is the best path for them, the approach requires strategic thinking. Then they must negotiate the agreement and manage the ongoing relationship. These aspects of partnering with big pharma require skills and knowledge that startups may not have yet had an opportunity to develop. Read on to learn what startups can do to prepare for and successfully execute partnerships with big pharma.
Partnering with big pharma can seem like an obvious win for a startup, given the opportunity. However, there are factors that startups should consider that could make partnering the wrong choice for them.
One such factor is that in general, the larger the company, the slower they make decisions. Thus, for a startup that needs support quickly, big pharma’s timelines may be too long. Big pharma companies do not live and die by the speed of their choices in the way that startups can. Instead, large companies are more drastically affected by whether their choices end up generating a return on the investment they put in. This is an important point for startups to be aware of during the process of deciding whether or not to partner.
Additionally, partnering with big pharma can require much more time and money invested from the startup side than initially expected. Due diligence on which pharma company to partner with requires a significant time investment. Making sure the contract that the large company’s legal team has written to benefit them does not harm the startup means the startup must pay their own lawyer(s) to go through it and make revisions where necessary. And then during the partnership the big pharma company may want progress updates in the form of time consuming meetings or specific report formats.
The decision whether or not to partner also depends greatly on where the startup is in its product development. A startup may decide to wait until reaching a certain milestone before pursuing partnerships in order to maximize the payout. However, the longer the startup waits, the more risk it is bearing since further research and development may reveal that the technology is not viable. By partnering early the startup reduces its own risk, but limits its potential gain. Thus, the timing of partnering is a balance between risk and reward.
These factors are not deal breakers when it comes to startups partnering with big pharma. They are just points that startups must consider beforehand so they can make the best decision for their company.
It is a waste of time for a startup to pursue partnering discussions with companies that have no interest in their technology. Therefore, researching what big pharma companies are interested in funding is an important first step in the partnering process. In general, big pharma looks to partner with companies that they may eventually want to acquire. The companies they acquire, especially small ones, most often align with the areas in which they already develop products and treatments. The big pharma company already has a team of experts in that area, so they have the knowledge to be able to evaluate and work with these startups.
Big pharmaceutical companies make it easy to find out what areas they are interested in. An online search for a big pharma company’s name and the word, “partnering,” pretty much always leads to a dedicated web page for partnering or business development. Sanofi, for example, even publishes a yearly partnering brochure to make sure it’s easy to understand what they are looking for.
The ideal scenario for a startup interested in partnering would be for a big pharma company to approach them. This scenario can indeed come to fruition if the startup takes appropriate steps before they are planning to partner. One such step is to present at conferences that large companies are likely to attend. By making their technology known to a wide audience in an environment that confers credibility, startups can hope to be noticed by big pharma. This could be partnering/business development professionals, or it could be that a research and development team finds the technology interesting enough to bring to their partnering department’s attention.
Conferences also provide an opportunity for startups to speak with big pharma prior to initiating partnering discussions. This can be a valuable way to gain insight into what the company may be most interested in that might not have come across on their website or in their brochure.
Biotechnology industry organizations, incubators, and accelerators will sometimes host big pharma partnering/business development teams to meet with local startups in a series of one-on-one meetings. These events are sometimes called “partnering days” and allow startups to interact directly with big pharma representatives that are based in different cities, states, or countries. These meetings are less high-stakes than if the startup were to contact the partnering team directly, so they are a good opportunity for young companies that think they may soon be ready for partnering discussions.
Startups still need to research the large company to see if there is any potential for partnering so as not to waste anyone’s time, but the goal can be simply to make the partnering team aware of the startup’s technology, even if they are not ready to partner.
Before beginning discussions a startup needs to make sure that they are prepared with the basic information that most big pharma companies are going to want to know. Some of these items are similar to what venture capital firms look for in a pitch deck, so the startup may have those answers ready.
Additionally, startups need to be aware of the methods for ensuring a smooth partnership negotiation. These "tactics" are designed to help both sides of the partnership get what they need for the relationship to be successful.
Differentiation is what makes a product different, not just from other products in the same sector, but from other solutions to the same problem. This requires a startup having a broad understanding of their market and both what solutions are currently available and what may soon become available. From the University of Cambridge’s Entrepreneurship Centre Blog, “Pharma is interested in technologies that offer differentiation from their competitors, so highlighting this and doing the extra ground work and research to be able to demonstrate differentiation really adds value.”
Real world efficacy is the difference between a treatment that works in the lab and a treatment that works in a patient. Big pharma companies want to see data showing that not only does the technology work in a highly controlled setting, but also in tests that are more representative of physiological conditions. They want to know that the startup has considered that this technology has to be developed into a useful product and has taken steps to see if it’s possible.
The information expected here will vary greatly depending on how far the product has been developed and the type of technology it is. In general, partnering teams will want to see that the product has been developed with thought given to the regulatory pathways that are available, practicality of treatment administration, clinical trial design, and other factors that affect whether it will make it to approval.
Similar to when interviewing candidates for a job, partnering teams look for startups that they think will be easy to work with. One key factor in that is good communication skills. Communicating early and often will help to make sure that the startup’s needs and expectations can either be met or modified. As big pharma companies work with numerous startups, they understand the types of difficulties that young companies encounter. Therefore, startups should not feel required to pretend they have money when really that’s one of the things they need. Clear communication will help make partnering with big pharma go smoothly both during negotiations and during the partnership.
Startups usually don’t have an entire legal team at their disposal and legal fees may be frustrating for a cash-strapped young company, but partnering contracts need to be fully examined from the beginning. Big pharma companies won’t usually try to take advantage of the startups they want to partner with, but they may not understand the factors that make a big difference to a particular company. Therefore, examining the contract structure early and making changes as needed is essential, as the contract is the written record of the basic expectations of the partnership. While it may be tempting for the startup to delay spending the money on legal fees for as long as possible, that’s a good way to waste time if there are hidden aspects of the contract that are both non-negotiable, and not workable.
In these partnerships a startup may end up working closely with a big pharma company’s teams. Therefore, it behooves the startup to get an understanding of the larger group’s culture ahead of time and to see if they can work with it. For example, one company might expect email responses on weekends while the other has a strict working-hours-only rule for checking email. Or meetings may be conducted on a more or less formal level by one of the groups. Ideally both partners will either have company cultures that are already similar, or be willing to reach a compromise when working together. The startup is likely to be expected to make concessions as some aspects of company culture are written into the employee handbooks at large corporations.
A big pharma partnership is its own project, and projects require management. One important step in simplifying management is for the startup to assign a point person to talk to the team at the big pharma company. This reduces the chances that a message will be overlooked because it was sent to the wrong person. The time and effort that partnerships require to manage means that a startup may need to allocate most or all of the point person’s time to this project.
Partnering with big pharma is continuing to be a main avenue for startups to move their technologies into the market. Big pharma is benefitting from this and responding. CNBC reports that, “Increasingly, these big players are setting up venture capital funds and investing in start-ups and licensing technology to fuel their own drug pipelines. Many are also outsourcing R&D, while reducing product development efforts internally.”
This outsourcing via partnering with and acquiring startups is predicated on the idea that startups are better at R&D than large companies. An article from Bay Bridge Bio underlines this assumption: “Otherwise, pharma is just transferring R&D spend from its income statement to balance sheet, which isn't sustainable.”
Thus, as long as partnering with startups continues to produce return on investment for big pharma, it will be a viable method for startups to move their products forward.
Revised 11/19/2020
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