4 Common Mistakes in Partnering

[MUSIC PLAYING] Farm of Enchors, The Deal Experts. Welcome to The Farm of Enchors Podcast, where we talk to the experts about all things deal-related in health care and beyond. I'm joined by Finton Walton, founder and chief executive of Farm of Enchors. We're going to talk about our experiences in deal making over the decades, things to avoid, key learnings and how to be successful. Welcome, Finton. So you and I have been in this industry for decades now. And we've seen a lot of deals. We've seen a lot of companies that want to get deals in the farmer by a tech med tech space. And during that period, we've seen a lot of people do a lot of good stuff. We've also seen a lot of people make errors and mistakes or not acknowledge things that maybe they should. So I thought it'd be useful for you and I just to sit together and talk about some of these. So other people, we don't keep hearing the same again. And people come to us having thought about a lot of these things. They may not have the solutions, of course, but that's fine. That's OK. We can help. So what's the biggest thing people come to you think they really should have thought about that? You can do the killer experiment. But can you do the killer analysis that says, this is actually a commercially viable product? The money tends to pour into CROs and spending money doing the clinical analysis and getting the clinical results. But the piece that's missing is the commercial analysis. That's necessary to really make sure that you are on the right clinical pathway. Number one, in other words, you've got a more certain target product profile and a pathway. Yes, it will be clinical. It will be scientific. It will pass us on to find the regulatory authorities. But is it really going to be a de-risk from a commercial point of view? And until you've done that and that as well, you can never be certain that the clinical analysis that you're about to take on is the correct one. Is there-- and I think this is true because I've heard it. I've heard people say it. I don't think it is true, actually. They say, yeah, but the commercial guys-- that's the farmers, isn't it? They're the guys that are actually going to sell the drug at the end of the day. So it's quite natural that these guys are going to have less of a focus on the commercial end points because all they've got to do-- and I'm trying to be a reservoir of a body-- is convince the farmer that the science is that good. It's going to trump everything else. And therefore, it's bound to be worth doing a deal on it because it'll succeed. And it'll be better for patients. And you'll be able to get a great price when you bring up a very important point because my concern is more sort of general. It includes farmer. If you've got a product that's going to be about to be launched and so forth, the commercial guys at farmer will get totally involved. But a lot of the deals that we deal with and the industry in general tends to be around preclinical phase one, phase two. You get phase three. Of course, you're going to guess, start looking at things in more commercial way. And the farmer companies are set up to do that. So I would say that even farmer companies are not taking into consideration the commercial context. And farmer companies need to do that analysis just as much as the biotech companies need to. Because what we're really doing here is to make sure that we can successfully get drugs to market. And actually, there's a, I think there's a better engagement between a biotech company and a farmer in a licensing deal, in a partnership deal, when that conversation takes place. Even when we look at licensing arrangements, the licensing deals, it's all to do with the clinical development program. It's like a closed shop. You look at the joint committees. They're usually scientific and clinical. They don't take in the commercial context as much. Now, to be fair, of course, I'm not saying that farmer and the biotech players are not commercially aware. But it's the commercial detail, the killer. We go talk about gang going back to this thing, the killer experiment. It's the killer analysis. And the convincing that you need to do to yourself and your partner, that this is actually a great idea. And that we have considered the barriers and the risks associated with this particular product. And the way it's going to make an impact on treatment of diseases. Farmer do do a commercial assessment. I mean, we'd be wrong if we thought they didn't. And they just talk about the great idea internally. But they do it. This is the storytelling comes from the biotech to the farmer and the BD people and the scouts. And it is science driven. It has to be because we have a great new antibody for Alzheimer's or whatever it is. It's a bad example because everybody knows the commercial case for that is undoubtedly the science really does lead that if you can prove it. But in oncology or where you've got a fourth, third, fourth generation TKR something and it's differentiated, but not that differentiated. So it's all about biomarkers and patient populations. And I don't think I ever hear the discussion certainly in that interaction between the farmer guys and the biotech guy saying, so what's the commercial model for this? They might ask where it's positioned, but they might say, okay, we'll go away and we'll build a model and we'll do our valuation and we'll do our assessment. And I need enough information to build a commercial case for this. I can put before the executive committee of my farmer, but it's them building it. And I think that there's probably a healthier dialogue to be had between the biotech and the farmer where they actually debate what they think the commercial endpoints are. Farmer are well equipped to do that because that's what they do. The biotech's less so, but I think it would make a much better dialogue if they equip themselves with that knowledge. And it encompasses all the things you talked about the clinical development plan, the pricing reimbursement, the rest of it. In order to be able to say in those discussions, while I want to talk about the commercial endpoints of this because then you'd all agree on the numbers anyway. And the numbers that people tend to build in their models are driven around technical success and regulatory success, which has to be. And the more detail you can put into those, the better models you have. And we build loads of them and we've got guys who are very, very good at it. You said the word risk, it's the commercial risk. And that beat seems to be done by farmer alone with whatever biotech is able to give them. And I think it would be a healthier position if there were both parties actually had that discussion. Just my view. The point you're making is an important one because one of the reasons why we love companies to at least explore doing an EN PV, doing a valuation model is because the inputs, you have to provide the pathway, the future. And NPV is forward looking, this kind of cash flow is looking at forward looking cash flows. And of course, all the factors that go in there have to consider certain assumptions like cost of goods, risk and so forth, which we talk about. But don't forget, I mean, the value of an asset is in the future on the positive cash flows. In other words, what is the size of that market? What is the price of the drug in that market? What is the true epidemiology? Okay, this is market assessment. But the pricing of a drug, the preparation for whether the payers are prepared to pay for a certain price for a drug will make a huge difference to the perception of what the offering is. And if you haven't got that argument clear in your own head and not just based on what we assume on the overreliance on assumption, but I'd like to have our assumptions as grounded as much in fact and in real world evidence, which is a real driver for any serious conversation that two parties can have, rather than saying, well, in my experience, it's about, it's more about, well, these are the facts. This is the research, we've, the commercial research, we've done. This is the commercial assessment we've done. And we have come out with a de-risk plan to take this product to market and these are, this is how we're going to do it. That to me is a much more convincing argument by just then rather than just focusing all the time on the, on the next clinical experiment or the next clinical program. You're listening to the Farm of Enchors podcast with me, Adrian Dawkes and Finton Walter, founder and CEO of Farm of Enchors. By we're discussing both the things we've learned over decades of deal making. You know, I think I'm going to start asking some of the farmer contacts I have and say, look, if we, if we turned up with not just a teaser and say, look at the great thing that our client has got, but we turn it with that and say, oh, and by the way, we've got a full commercial assessment on this. We know exactly the value of it and what can be delivered in the right hands and what we're asking of you is, are you the right hands to deliver that? You're still going to do your assessments. You, you should and, you know, that's the right thing to do. And you may arrive at a different answer. But does that make a more compelling case than somebody turning up with, you know, there's different degrees this we see some people turn up with just the teas and have done the science and the science is great and they don't have nothing about it beyond the point of which they're going to let go of it. Those that do know what's going to happen in terms of the regulatory path. We're now seeing more companies come back and VCs saying, what's the market access? What's the pricing position for this? Which is, I think we've acknowledged it's becoming increasingly important. We're now offering that and getting a lot of people interested in it. And it never used to be before. So it seems we seem to be heading in that direction. I think there's a case here for saying actually, rather than wait for it to be demanded by a text would be smarter if they went out and did it. Gathered all the information, built the case, don't just rely, it's not just, as we said, not just about 100% of science, it's balancing the two, get the answers. Don't forget, and we, we all should never forget, is that farmer, if you talk to a typical farmer, pharmaceutical company, they will say they've got somewhere between one and one thousand and two thousand opportunities on their desk every year. They can't do that sort of assessment themselves. They would need literally hundreds of people all specializing in doing all the analysis that we're talking about. The biotech company should be doing. So that the biotech company do the work on behalf of the farmer company. That will help the farmer company to do a proper assessment. But I'd also like to suggest is not just get this before you're going to go to the partner. If you actually do this before you go out and partner, right? This is the prep, we're going back to the preparation point. You know, preparation starts as we all know, one year's two years, even maybe even five years in advance of doing a partnership. It's really looking at if the exit for the shareholders, if the exit for the, for the company is through a licensing deal or a eventually an acquisition, the pathway to that event needs to be clearly understood. So this analysis that one does is not just to the benefit of farmer company saying, oh gosh guys, you've done a fantastic job here. And we can see clearly which is a benefit to the farmer company against the thousands of other opportunities coming their way. You've got a clearer story, more convincing story. And it's not just because it's a story in like a fairy tale story. This is a plan that's being well considered and thought through right from the very early days of taking a product into clinic. If you're going into the clinic, you want to spend millions. Millions, tens of millions. What's the problem of doing a commercial analysis, including a market access study, you know, against the backdrop of spending that sort of amount of money. It's like an insurance policy. You'd be crazy not to. It's so, it's so obvious. But sometimes it's all about no, no, we need to get to this, we need to get into the lab. We need to get into the, into the clinic because that's the important thing. Don't, don't tell me about all the other stuff because the next thing is really we must do this. But I would say, you know, for a tiny proportion, a small proportion of the cost of doing a clinical trial, a proper commercial assessment by, let's say, you know, obviously I would say farm adventures. Well, no, well, no, well, no, well, no, well, no, but knows the thinking that goes on within amongst investors, amongst farmer companies when they're looking at opportunities. And a well-thought, thought through commercial assessment in the context of a clinical assessment means that the pathway is clear. It's a, it's a better argument. We have considered, we have dismissed this approach. We've taken the rock. We are convinced by facts. Our clinical plan is driven by both clinical and commercial facts and the de-risking process. You highlighted the other community again, they're the investors. And we, we are hearing, um, soundings from, from investors. And again, it goes back to the pricing and market access thing. So they've looked at the clinicals, they've looked at we know, well, we get a deal out of this possibly. So there's some commercial assessment. But they're even now, after they've made an investment in something. And then when it comes to the next stage, they start thinking about market access and pricing reimbursement and they're thinking, we might not get a good price for this now. So does that mean there's enough value in it to warrant us continuing to invest in it and thinking about pulling out because the commercial assessment didn't wasn't done or a full commercial assessment wasn't done with all the right component parts at the beginning, arming with the knowledge. Absolutely. By the way, when we're talking about pricing reimbursement and market access, it's not, these days, it's not, your barrier, as we all know, is not the regular, just the regulatory authorities. It's the payers. And payers look for additional clinical evidence that the regulatory authorities won't be asking for. So your clinical development program, even right back at the very beginning of your phase one and phase two clinical trials, are you doing the right, you know, talk about killer experiments? Are you doing the right clinical program that will generate data that will be used in an argument for price? And that's additional clinical data that if you just purely focus on the regulatory side, you're not doing the right clinical trial. You go, oops, we need to go back and get that data if we want to convince payers that this has an impact on the cost of therapy. And there's an inherent issue in the system, if you like, that's that's born out of the, just the way it works, that typically market access analysis and health economics and big pricing studies, and I said, the word big there are big, and they cost a fortune and small biodexicon afford them so they don't do them. And we've seen that, and that's something that we think there's something that can be done that gives enough knowledge, and obviously one of our colleagues here, Ray, Ray, his specialist area, addresses and enabling people to get enough knowledge to have sufficient commerciality around their asset as well as clinical and technical. So that you're just building a stronger case, you're, you're de-risking, it's it's the technical regulatory and technical success and commercial success and you're de-risking, there's no brainer, why wouldn't you do it? There's an obvious thing to do. How, how, how more can I de-risk my asset by knowing more about it? We all know what investment is all about, investments about getting a return on your investment. And how you invest that money, you know, the spread on how you invest, not just amongst the different companies that you may invest it, but within around a single asset, how much investment you're going to put in to both the clinical and the commercial side of that. That's really what I might keep point. So you're going back to your original question, you know, what are the things that, you know, really impact us and and we see as obstacles or frustrations from our point of view that our clients haven't really thought through. And then it's that aspect that that makes of getting that investment, having a clear investment plan that is coincisable with the clinical development program and a commercial consideration of that, which addresses issues, which in the end will mean that the investment is going to be optimal and has a greater chance of success. If I was to sort of try and, and from my perspective, capture it in a couple of the thoughts, which is hard to do, because we've talked about an awful lot here, you have to be more holistic and go just beyond the technical regulatory, etc. and include the commercial, but don't get so head up and focused about particular aspects of it because you'll end up ultimately arguing yourself, I don't know, doing anything and not investing in anything and never bringing an idea to the table. So we need to strike a balance between, you know, over analysis, if you like, or over, over determination and finding too many reasons for saying no, there still has to be risk in there. You've still got to have the entrepreneurial spirit and people going, well, you know, I'm going to take a pun to this. Otherwise, we'd never see anything new and novel and game changer out there. I guess is it a good example? Jim Allison, check point inhibitors 1970s, that's what he started doing and people said, that'll never work, Jim. I didn't believe when he kept going. I didn't turn into a huge commercial opportunity. So there's a place for ignoring the naysayers, but also actually equipping yourself with the right data, the right time, the right information to actually, as we're saying, de-risk to the max if you can and give yourself the best chance of technical, clinical and commercial success. When we just had a conversation just before we went on this, on the air, we talked about and you actually raised it, Adrian, is this interplay between the two? This commercial element is also driving the science and the science tries to commercial. There's an interplay between the two, which in the sense if that works perfectly, we can get that rhyming perfectly, then you are really de-risking the whole approach. Okay, so let's just sum up. If we can in a couple of a couple of points each, if you had to sum up, what would be your couple of key points that you would want people to walk away from this with? I suppose the key thing here really is, if you're going to invest in a drug and take it through a clinical development and into the commercial world, you need to invest wisely and when you invest wisely, you consider both the clinical program as well as commercial context. The more you understand the commercial context, the more you can get that clinical development program going in the right direction. That might be my overriding piece of advice and it doesn't cost that much to get that right. I think mine's linked to that. It's actually back to where we started, which is when you get into this, do all the preparation. Don't just do your technical scientific preparation as well. Do the commercial preparation. Understand where you're going be prepared to change your mind and modify as you would if you were doing the science. Modify your commercials as well, but get the knowledge that you can to do that and enable it. And ultimately, don't argue yourself out of doing some great science. Please continue to do that. I'll do the great science, absolutely. When we talk about the commercial context, it really is making sure that we hit the right arguments. In other words, what I'm trying to say is this, that an argument for any decision, whether you're taking a clinical development program forward, or if you're going to do a deal around a particular product, is that you are introducing strong argument and fact-based arguments for taking something through. And that is based on both the science and the commercial side. So it's making sure that in part of your preparation is that you're not doing a big you're not saying things like well are more believe this and we've got people who also believe the same thing. I would try to reduce the number of beliefs and introduce more of the facts. When we do a commercial assessment it's fact-based. Agreed. Finton, thanks very much. Thank you. For more information on other farm avengers podcasts go to www.farmaventures.com/podcast where you can also subscribe. Farm Avengers, The Deal Experts.