Strategic partnerships: The key to unlocking value through innovation?

The 21^st century biopharmaceutical company faces extraordinary challenges, a fact that no one could deny. Firms are up against huge amounts of pressure to develop novel products, speed up their timelines and meet ever more stringent regulatory demands. On top of all this is intense competition for lucrative new markets, as well as the need to mitigate financial and operational risks.

Recent efforts to expand R&D pipelines through mergers and acquisitions or licensing deals have helped to some extent, but for many companies such mechanisms have failed to produce the anticipated levels of return and innovation. According to the 2010 New Health Report, a survey conducted by Quintiles, around 72 per cent of biopharma executives expect an increase in mergers and acquisitions in the months and years ahead. However, more than half of those surveyed lacked confidence in large mergers' potential to create opportunities for innovation.

In fact, 21 per cent said big mergers generally had "no impact" while 53 per cent said they usually provider fewer opportunities. On the other hand, strategic partnerships and alliances have become a proven method for mitigating risks, increasing pipeline depth and bolstering products' clinical and commercial potential, the Quintiles white paper noted. The latest pharmaceutical giant to announce its allegiance to strategic partnerships as a biobusiness strategy is Merck, which in recent times has made plain its intention to raise its game in biotech drug development.

As part of the company's long-term plan to catch up in the business of biopharma development, Merck has signed an agreement with Vancouver-based Zymeworks to develop new antibody drugs for cancer and autoimmune diseases that are engineered to hit two or more cellular targets, as opposed to just one.

In exchange for its expertise in creating the so-called "bispecific" antibodies, Zymeworks will receive an undisclosed cash sum up front, as well as milestone payments that could be worth more than $180 million (£110 million) if certain targets are hit. Meanwhile, Merck will own exclusive rights to sell drugs from the partnership globally, with its strategic partner also receiving tiered royalties from the sales of any products that emerge.

The reasoning behind Merck's long-term focus on innovative biotech drug development is quite clear. Analysts predict that by 2014, at least eight of the world's ten best-selling drugs will be biologic medicines, with only the remaining minority being resultant from chemical synthesis. In recent times, the company has increasingly leaned on small firms, such as New Hampshire start-up Adimab, as sources of antibody drug candidates. Merck has also spoken publicly about the ability to make antibodies in facilities obtained through its Schering-Plough merger two years ago.

But the deal with Zymeworks represents a huge opportunity for the company to get involved with emerging areas of protein drug engineering that the most innovative biotech firms, including Biogen Idec, Amgen and Genentech, have been pursuing intensively for a number of years.

Another recent example, of how strategic partnerships empower biopharma to unlock the value through innovation, is provided by Genesis Biopharma, a biotech firm developing targeted cancer therapies. In July 2011, it signed a process development and scale-up agreement with Swiss chemicals giant Lonza. The deal relates specifically to the production of Contego, an autologous cell therapy product candidate for the treatment of stage-four metastatic melanoma.

The key ingredient critical to any type of partnership is a clearly-defined vision and a seamless alignment of objectives between allies. As the biobusiness landscape evolves, it is increasingly evident that strategic relationships must balance the needs of all stakeholders by establishing a structure through which genuine innovation can be fostered. Exactly how this juggling act is performed, and the extent to which eventual outcomes are considered throughout the process, will invariably be what drives biopharma to success.

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Sustaining innovation in the global biotech industry

As the financial pressures on global biotech's business model intensify, largely due to the scarcity of R&D funding for the vast majority of firms, traditional approaches in the pursuit of innovation are being rethought and reshaped in every corner of the industry. In its Beyond Borders: Global Biotechnology 2011 report, Ernst & Young identified two complementary approaches for biotech firms to sustain innovation in this increasingly challenging environment.

Prove it or lose it
With healthcare in the initial stages of what Ernst & Young describes as a "sweeping transformation" into an outcomes-driven ecosystem, pharma and biotech companies of every size are affected by the growing emphasis on demonstrating outcomes. The change is largely being driven by an increasing need to ensure sustainability in healthcare and the "coming of age" of new technologies, from digital health records to social media.

Such advances are increasingly equipping new solutions with the potential to make healthcare more sustainable, while sustainability's growing urgency in turn accelerates the rate of adoption. The Ernst & Young report states: "At its essence, this is about changing behaviours. As the need to make healthcare sustainable becomes more acute, payers will inevitably need to pay for the products, services and solutions that are most effective and stop reimbursing the ones that don't work as well — which will spur fundamental behavioural changes by actors across the healthcare ecosystem."

It is important to note, however, that the prove-it-or-lose-it model does not only apply to regulators and payers. The modern economic climate dictates that every imaginable organisation must do more with less. As a result, it is to be expected that all stakeholders in the healthcare ecosystem will be more careful with resources – and investors will demand more proof that something works before they consider parting with any cash.

Do more with less

In the aftermath of the global financial crisis, raising capital has become inordinately more difficult. In response to the heightened challenge, many biotech firms have turned to strategic partnerships as an alternative source of funding. Companies looking to embrace such opportunities will need to calibrate their approaches to the needs of their potential partners. The fact that many drugmakers are restructuring their pipelines and moving away from entire disease classes no longer considered strategic is one ongoing shift that will need to be monitored closely.
The Ernst & Young analysis explains: "With a shrinking pool of potential partners, [biotech companies] will need to tell a different 'story' — one that reflects the changing needs of their partners and the growing pressures on the regulatory and reimbursement front. This extends to an understanding of where a particular technology fits into the potential partner's strategy and how it may measure up against the partner's programmes — whether sourced internally or externally."

As well as broadening and differentiating their approach, it is more important than ever that biotech firms are able to extract as much value as possible from their existing assets. Since intellectual property is arguably the most valuable asset that most emerging organisations will have at their disposal, this is where most optimisation of capital has been focused so far.

This could be achieved by retaining some commercialisation rights, while giving others away through strategic alliances. Alternatively, companies could reconsider their actual market offering. In the majority of firms, the bulk of value is captured and monetised through products. Through expansion of its portfolio into new areas, a biotech company may therefore be able to capture more value in this way. When considering the two approaches discussed above, one final point for biotech firms to note is that each one complements the another - to the extent that they are almost one and the same.

The Ernst & Young report concludes: "In an environment where value will increasingly accrue to differentiated products that can prove their worth, the most prudent use of scarce resources will be to invest in the approaches and market offerings that are best aligned with that trend. Over time, this is no longer an either/or. 'Proving it' is [essentially the same thing as] doing more with less. You mitigate one problem by focusing on the other."

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Stop, Collaborate & Listen.

It might be a the opening lyric from a classic 90s pop/rap anthem, but it also could be the key for

smaller biotechs to stave off the funding demon and get the leg-up they need to position themselves amore investable company.

To explain more about the concept I spoke to Martino Picardo, CEO at Stevenage Bioscience

Catalyst (www.stevenagecatalyst.com), a potentially revolutionary system for up-and-coming

biotechs.

Q: Please briefly explain what Stevenage Bioscience Catalyst does...

MP: Stevenage Bioscience Catalyst (SBC) is part of a growing life sciences cluster in the South East of England, and is the UK’s first open innovation bioscience campus, pioneering a unique culture to drive early stage drug discovery and development. It is backed by £38m of funding from its founding partners – GlaxoSmithKline, the Wellcome Trust, the Department for Business, Innovation and Skills, the Technology Strategy Board and the East of England Development Agency. Scheduled to open in Q1 2012, buildings in Phase 1 of the development consist of an Incubator, an Accelerator and a Hub, covering 60,000 sq ft of laboratory, office and networking space. The independent facility is expected to house a range of companies, from virtual and start-up firms to those which are more established.

In short, our vision for Stevenage Bioscience Catalyst is:

“Access to world class resources, including superb high specification laboratories, funding and a

vibrant community for biotech growth and development”

To view the full interview, please visit www.biobusiness-conference.com