Licensing or Acquiring Assets from Big Pharma 
Posted by Carlos on Aug 12, 2015

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Michael Gilman, CEO of Padlock Therapeutics, wrote a terrific post recounting his experiences from in-licensing assets from Big Pharma.

Mike’s perspective is unique in that he has managed to pull this off not once, but twice.

It has been our experience that doing this once is incredibly difficult.

But why?

Mike gives a few reasons, but three of them stand out in our mind:

Knowledge is Power – It sounds obvious, but you have to know the asset is there in the company in the first place. Now I know some of you are thinking that you can run an ADIS search, or visit a company web site, etc.

But these sources will likely have the crown jewels in a company’s portfolio. All the other “stuff” is in a lab somewhere, or it may not even be an active program.

In Mike’s case, he was intimately familiar with the program at Biogen Idec, which he licensed into Stromedix. If you lack that insider information on a specific asset, then having deep connections helps.

But, it also helps tremendously if you know what you’re looking for, such as a specific mechanism of action or a specific drug target. 

This is where and why having external consultants can really help. A short engagement can rapidly scale the search to help find these hidden gems in an out-sourced manner.

And once the search is over, the engagement is over. Why depend on your own contact list, a list that’s likely out of date anyway? 

Make It Easy For Them – We have had a few clients over the years who are thrilled when in the middle of negotiations. They love the thrill of it…the action surrounding finer points in a contract. 

The reality is that when trying to extract an asset from a company which a) has no incentive to do so, and b) has no executive who will be rewarded with an out-license, the best way to negotiate is to be very very flexible, and to make it as easy as possible for the other party. 

You simply must be ready to “take a haircut” on any number of issues, such as liabilities, tech transfer, manufacturing, etc. This is NOT the time to be aggressive.

In fact, if your lead negotiator is the “out-licensing” person, I would recommend finding another lead negotiator for these types of transactions. 

Show Them The Money – There are dozens of ex-pharma / ex-biotech executives who want to raise capital and start a new company. “Great!” say the investors. “Come back to us when you have an asset.”

But what happens? No pharma will return their phone calls because they don’t have that blank check. Mike Gilman was taken seriously in part because he had Atlas Ventures behind him. He had that blank check. Many who try to execute this model do not. 

Acquiring Commercial Assets

Mike Gilman’s experience has been with the in-licensing of Preclinical assets. 

What about acquiring commercial assets and brands from Big Pharma? Are there any differences?

We have been involved in a few projects in which our clients wanted to acquire commercial brands from Big Pharma. Admittedly, most of these attempts (but not all) have been unsuccessful for the exact same reasons Mike describes in his post.

To many companies, a brand still has historical and residual value, even if that branded product has sales of $5 million or less. Would Pfizer ever divest Lipitor, for example? Probably not, at least not in the near-term.

Why?

Because Pfizer wants to be associated with an innovative, successful brand. Liptor is Pfizer. As is Viagra. As are many other household brands. A brand has value, and we will have a difficult time wresting that value away from a company. 

Therefore, it is rare when a company has an executive with the title of  “Senior Vice President, Divestments, Established Brands” There are a few with this responsibility, but they are hard to find.

When acquiring commercial assets, our experience has been that having the blank check is the most important factor in getting a company’s attention. It is critical to have that backing from the financial community before calling the Pfizers or the Mercks of the world.

But a close second is finding the right person (or persons) with the incentive to divest a brand. 

The fact is that you may not be taken seriously unless there is a pre-existing relationship with the person responsible for a divestment. 

Here’s a hint…Business Development is unlikely to be the right department to contact when trying to acquire a brand from a multinational company. 

Thirdly, transferring the manufacturing of an established brand can be a moral challenge for a Big Pharma company. What if this transaction causes job losses at a manufacturing plant? Does the company want to be associated with job losses? Is the bad press worth it?

Conclusion

We are all fortunate when Preclinical assets are spun out or out-licensed from large companies. These assets can be nurtured in a focused corporate environment, resulting in new investment opportunities, new jobs, and, with a little luck, a new therapeutic product. 

Certainly we are seeing more and more companies considering an out-licensing approach (with or without an option) as a way to advance their own portfolios by using other sources of capital and expertise. And we hope to see more of this activity. 

If you are trying to acquire a brand from a company, be prepared to make a strong offer, backed by a legitimate source(s) of capital, and with a detailed tech transfer/manufacturing plan in place.

And while you are at it, retain the services of a consultant to help with the search. When you have impatient investors waiting for the right asset, you will want to conduct the search and outreach as quickly as possible. Otherwise, your prospective investors will move on to other opportunities. 

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