There is a soft side of partnering where opportunities are discovered through networking, handshakes and trading information. Eventually there comes the hard part, due diligence, where potential partners assess and validate claims and representations.
At BIO-Europe Spring® in Turin, a panel of business development executives hardened by negotiations shared their experiences for ensuring a successful due diligence process. Moderator Ben Bonifant with Triangle Insights Group worked the group through an early discussion of the process, progressively teasing out tactics for success. Key points included the delicate dance around setting a value for a program and critical elements of deal terms.
The head of Business Operations for AstraZeneca Business Development, John Easton served as the voice of big pharma on the panel, describing what he called a cookie-cutter approach to the process that aims to find a balance between an initial assessment of the potential value and the expected risks with the goal of determining how the risk can be accepted or mitigated in the deal terms.
John Easton, AstraZeneca
The electronic data room becomes central to this process, yet interactions with the potential partner are of even greater importance.
“Data rooms will help efficiently assess the project, but what can be lost is the richness you get from meeting and interacting with the individuals you are going to be working with. Relationships are about people and not bits of paper or a process,” he said.
Christian Pangratz from Activaero agreed, saying, “If someone is interested in working with us, we insist on a face-to-face meeting to kick off the due diligence process. If that is not possible, we have to doubt the seriousness behind the interest.”
People can get lost in the details, he said. Instead, a seller should cut to the chase and lead with information that will give a perspective on the expected valuation. Meeting ahead of opening the data room also “gives us an opportunity to deal with the risks that will be identified, to get them out in the open sooner rather than later. A potential partner is going to find the risks whether you like it or not. Dealing with them upfront saves a lot of time. It gives you the opportunity face-to-face to explain those risks, how you plan to deal with these risks, how you plan to share these risks.”
Jette Asboe Lassen, Director for Business Development at Symphogen, said companies go through a transition as they become experienced in presenting their project. “At first the presentation is scientifically driven, and then it is the product that becomes important. Companies need to become more commercially adept, emphasizing the opportunities first with the headlines of the story, and then to move to technical details at the end.”
When it comes to setting a valuation for a product, “nothing beats having multiple bidders,” she said. Boldly suggesting a number to a buyer at the start of the due diligence process is not a good idea.
Due diligence panel at BIO-Europe Spring 2014
“I’m not sure we have a number going in. We benchmark indication area we will know where we sit in a range of deal values and may set an expectation that we expect to be in the higher end of that valuation and we will substantiate that,” she said, being sure to highlight the differentiation for the product.
Leading Corporate Finance and Development at MorphoSys, Sascha Alilovic said it is important that a seller at least suggests a structure for the term sheet but that it is not a good idea to share in full internal valuations.
“This guidance at the beginning, and an assessment of the market becomes valuable toward the end of the process,” he said.
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