The Age of Virtual Pharma: Creative Financing and Exit Models 
Posted by Carlos on Feb 22, 2016


At last month’s Biotech Showcase, a panel discussion was held discussing different models for advancing assets without resorting to a license. The link to the discussion is here.

It was an interesting discussion because each speaker detailed their own experience in advancing assets without partnering. Examples include risk sharing relationships with CROs and investors.

A few comments from that discussion:

Choose Your CRO Carefully – Several speakers made the point that a small company may not get the desired attention from a large, multinational CRO. Huge CROs may also be less likely to accept development risk, instead focusing on their fee-for-service business model.

As the speakers noted, there are some terrific, smaller CROs and CDMOs around the world. Many of these lesser-known organizations are staffed by highly experienced scientific, clinical, and managerial talent.

The key? Interview as many CROs as possible, and choose carefully, especially if you are considering a risk-sharing model. The latter introduces an incremental layer of complexity to the relationship, one which will not be present in a standard fee-for-service model.

So having the right team working on your project and having the right terms and conditions in the agreement are critical. Fortunately, there are plenty of CROs with significant experience with risk-sharing models.

When Should I Partner? – Some of you may say “Now” or “As soon as possible.” And, for some assets, this is indeed true. However, a careful analysis is usually required before answering this question. Key considerations may include:

  • Does the asset fit with what the big pharma companies are looking for, especially in terms of indication and stage of development?
  • How much capital is needed to advance the asset?
  • If I partner it now, will I lose visibility in the investment community, especially if I am a listed company?

That first bullet point is especially important. Too often we see corporate executives will beautiful presentations which convincingly describe a commercial opportunity which has absolutely no value to most multinational pharmaceutical companies.

To put it another way, if the multinationals have conducted an analysis to determine what they are looking for from a licensing perspective, then it is extraordinarily difficult to convince them on an idea which is was already rejected as part of their analysis.

A great example is this study by Giniatullina and colleagues. If a company has taken the decision not to partner in a specific therapeutic area, it is safe to assume that decision was made after some analysis. So no presentation on Earth will convince a scout with his/her marching orders to deviate from the corporate decision.

That’s not to say this analysis is correct. Nor does it say that the areas of interest are attractive. The analysis may have been flawed. Maybe the decision was made as a reflection of internal experiences and biases. Or maybe personalities play a role.

Whatever the case, the point here is that the decision to out-license is likely already made for you by the marketplace. And so your asset strategy should reflect that reality.

Think Global & Regional – Every company should think and be global. Even companies who only sell products in a specific country need to think globally because their in-licensing opportunities might come from anywhere.

How does this apply to the virtual pharma model? The panel correctly noted that regional licensing and regional financing deals may be possible for a given asset. For example, a company could consider out-licensing China rights to a Chinese company, while retaining rest-of-world rights. That upfront payment can then be used to fund additional development or other assets.

Similarly, listing a company on a smaller stock exchange, such as the AIM or the TSX Venture Exchange, or some of the European exchanges could provide small, but meaningful access to capital and liquidity. This option has to be carefully balanced against the additional reporting requirements and costs associated with a listing.

The Bottom Line – There are a limited number of companies willing to in-license assets, especially early stage (pre-Phase IIa) assets. Boards of Directors need to be keenly aware of what prospective in-licensing companies are saying about their areas of interest, then develop a financing and asset development strategy which reflects this reality.

If not, we will see your CEOs at the conferences walking around, trying to arrange more and more meetings with scouts who have a mandate not to meet with companies like yours; wasting time and resources better spent on developing a realistic asset development and financing strategy.

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