The opening plenary session at BIO-Europe Spring® in Turin will turn around the question, “Are big biotechs the better dealmakers?” Moderator Barclay James Kamb from Cooley’s Life Sciences Transactions team will be joined by David Colpman, the Head of Global Business Development at Shire, John McDonald, VP for Business Development/M&A at Biogen Idec, and James Sabry, Senior VP and Global Head of Partnering for Genentech.
The CEO at OncoMed Pharmaceuticals, Paul Hastings regrets he cannot join the panel discussion as planned. Instead, he agreed to serves as a virtual panelist in an interview, teasing out the topic for BIO-Europe Spring participants in a run-up to the meeting.
Paul Hastings, CEO, OncoMed Pharmaceuticals
partneringNEWS (pN): Let’s get right to the question : “Are big biotechs the better dealmakers?”
Paul Hastings (PH): There are a lot of reasons why a big biotech may be more attractive as a partner than big pharma. When a biotech grows to a size where they have the capital to begin partnering in programs, they often can remember what it was like to be a small company. They tend to be more empathetic on the financing side, and on what it takes inside a small company to move things. They also tend to be much more willing to do co-development and co-commercialization because they have been there and have tried to do that. Even if they aren’t offering the best deal, a big biotech could make a better fit for the smaller company. They can be more independent-minded when it comes to a small company moving its technology forward. They tend to understand that the smaller company, because it is small, because it has fewer employees, is able to make decisions more quickly. And they like that.
pN: What should they be talking about on this panel?
PH: Look at recent deals and ask: Who creates the most value for a disruptive company when they do a deal? Those are the best dealmakers. These are the companies that recognize the importance for the emerging company to retain rights in development, some rights in commercialization. No matter how early stage the technology may be. Celgene recognized this upfront with OncoMed, with Agios, with Epizyme, with Acceleron, with bluebird.
What is important to the emerging company is to be able to continue to disrupt while at the same time owning in a partnership at least 50% of the development and commercialization of their compound. What did it cost Celgene? Nothing. They allowed these emerging companies the possibility to become a mid-cap company that Celgene became. That’s what you’re looking for in a partner, not someone who sits back and says I can never give you co-marketing rights when you’re just a 20-person biotech because you don’t have a sales force. By the time the partnership reaches that point of co-marketing, there will have been so much success that the biotech will be able to build that sales organization. When a big organization allows you to do that alongside their work, they are enabling you to synergize them with a smaller size sales force.
pN: If you grow to become a big biotech, what are the lessons you hope to remember?
PH: What I’ve learned is to stay lean and focused. And to take care of people and not dilute employees. To maintain the disruptive culture of small company. And a capability to make decisions. In our case, the other thing is that while it is important to advance products into late-stage clinical development, it is equally important to keep a discovery engine. Some companies make a mistake, I believe, when they discover good things and develop those things but give up on the discovery efforts. To later go back and dial up the discovery efforts is virtually impossible. If you abandoned the people who discovered that original technology, they are not going to come back and help you. The best thing to do is to keep a small, lean organization where discovery and development work together to continue to build a pipeline. You can always use discovery people to do things that you would hire development people to do, like file the IND, write the massive documents needed for the FDA, whatever.
pN: Having been invited to this panel, presumably you are a better dealmaker. What lessons can you share?
PH: Every deal is going to be different, individual. Rather than telling people how they should do deals, I can say why we did the deals that we did. We created a profitable discovery company that by most people’s standards is relatively early stage. We have done very well because through the GSK, Bayer and Celgene deals we were able to create a company that is cash-flow positive, that can keep its programs moving forward without the need for additional outside capital. Why did we do these deals? A lot of people say deals are dilutive and you give away your unencumbered assets.
We started in 2004 with a USD 17 million Series A financing. In 2006 when we embarked on our Series B, when there were 40 employees in the company, we were given a mandate to make multiple shots on goal by taking several candidates to the clinic. To do that we could either raise more capital which would have been highly dilutive, or we could strike a deal with Phase II economics while the compounds were still preclinical. And that is what we did with GSK.
Because we were able to do the GSK collaboration, we had refreshed our cash with USD 35 million upfront. They also paid half of development costs. This enabled us to either pay back the investment in our first two years of operations, or to pay forward our share of the GSK development costs, so that they would opt-in at Phase II at 100%. It also allowed us to leverage the people in the company to come up with new things.
With the GSK deal, we validated what we were doing. It gave us cash, and the ability to raise more cash in a Series B. In 2007 we went from a USD 85 million Series B to a USD 135 million round with the addition of GSK and two new investors.
It also allowed us to develop a new pathway. We went back out to the universe of companies that are interested in cancer stem cell antibodies, and after a competition Bayer came in and gave us USD 40 million upfront and USD 20 million with the filing of our first IND two months later. That deal paid for everything going forward 100%. GSK and Bayer effectively funded the programs we were working on with them. The reason for that is the disruptive nature of the technology. And this funding helped us leverage our internal resources and come up with two new pathways.
With products moving into clinical trials and data being published, we gained the kind of momentum that programs need to attract attention. These were the underpinnings for either another massive financing round, or else a series of smaller one-off deals, or potentially an initial public offering. At this point the public markets started heating up again. We went into the IPO, but with the other options as well, which is what you want to have going into any kind of financing to maximize the option you select. We did the IPO, which was 15 times oversubscribed, and raised USD 92 million. This gave us the funding for multiple random Phase II results. As we were doing this, IPO investors were asking if we would consider a Sanofi-Regeneron type deal. Within six months of the IPO we pulled off this transformative deal with Celgene with USD 177 million upfront and the ability to co-commercialize, co-develop five of six biologic candidates.
We did each partnership and deal because they made sense, because they added enormous value, and because they created a situation where we don’t need to raise equity in dilutive offerings.
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