Finding the right path: the evolving relationship between small biotech and big pharma

Scott Vogelsberg

Datatrial

As the pharmaceutical industry has struggled to address barren pipelines, the patent cliff, regulatory issues and the challenging economic climate, many organizations have set their sights on promising biotech firms for mergers and acquisitions. However, many question whether this is a healthy or sustainable approach for either party, leading to many questions: What has been the true impact of M&amp,A on the biotech space? How has the relationship between Big Pharma and biotech evolved? And where do CROs fit into the mix?

Dearth of VC funding forcing difficult biotech decisions

The realities of the global economy have had a dramatic impact not only on Big Pharma, but on biotech companies as well. With a lack of venture capital funding, biotechs are increasingly slashing budget and adapting more virtual principles.

Going virtual has been one trend that is gaining popularity in the biotech realm, as a way to offset scant funds. So-called “backyard biotechs” are popping up, centered around rarer and more neglected diseases. In this way, these virtual biotechs are able to find a market for these compounds, since blockbusters and biosimilars are not as feasible for smaller biotech organizations.

“The realities of the global economy have had a dramatic impact not only on Big Pharma, but on biotech companies as well.”

Of course, the more popular and frequent biotech response has been to merge with larger pharma organizations. Increasingly, however, observers question whether M&amp,A does more harm than good for biotech firms and their cultures of innovation.

Has independence day arrived for small biotech?

There is a sentiment from some quarters that maintaining autonomy is the only viable forward for biotech—not succumbing to one-sided M&amp,A deals that ultimately destroy the biotech firm. Some feel that domineering practices by Big Pharma have produced a one-way relationship that benefits only pharma in the long run, since many acquisition deals eventually lead to the downsizing or swallowing up of the biotech. In response, many small biotech companies are considering independence or seeking out partners that will retain the biotech culture and see the relationship more as a partnership.

Many small biotech companies have been created around a single compound around which scientists have dedicated most of their professional lives. As a result, these researchers become protective of the compound almost as if it is a child, which leads them to seek out CROs or pharma companies that will treat the compound as if it is their own. Taking these protective feelings into account, staying independent until a comfort level is achieved and the compound has “grown up” enough to leave the nest could sense for smaller biotech firms.

Some industry observers also feel that biotech companies have more leverage in the relationships and transactions with Big Pharma than they perhaps realize. After all, already-drying-up pharma pipelines are going to suffer even more if biotechs continue to be killed off through questionable deals with Big Pharma.

“Some feel that domineering practices by Big Pharma have produced a one-way relationship that benefits only pharma in the long run…”

M&amp,A viability depends on individual biotech philosophy

The other side of the argument is that biotech has to be more cognizant of its role in the drug development process, and be willing to embrace the reality that they need to pass the baton to Big Pharma at the right time and phase of development. As a result, mergers with larger pharma companies and alliances with academia are simply a part of that reality. And to be fair, some biotech organizations build themselves in a manner designed to attract pharma buyers in order to achieve their end goal of being bought out by a pharma company.

But the composition of board rooms in terms of pharma vs. biotech experience supports the theory that Big Pharma decision-makers are too far removed from the elements of the drug discovery and development process that exist where biotechs live. As a result, these Big Pharma directors don’t have a full appreciation or understanding of the biotech perspective—which becomes problematic when many large pharma organizations are espousing the nimble, agile approach favored by biotechs. If Big Pharma is intent on modeling itself more closely to the biotech way of doing business, perhaps incorporating more biotech experience into its upper ranks could assist in that alignment.

What’s the answer for biotechs big and small?

So should small biotech search out ways to retain independence? Should they pursue partners that fit their existing corporate philosophies and principles? Should they chug along only until the best M&amp,A deal comes along? Or should an increased presence of government, for oversight purposes, be introduced in hopes of protecting biotech innovation?

The answers to all of these questions have—and will continue—to spark inspired and evocative debate. What is not debatable is that biotechs have to move quickly when faced with difficult decisions about their futures and whether to sell or stay independent. And what is clear is that biotechs have been forced to reinvent themselves on the go—and that the industry as a whole may be facing the same challenge in coming years.

About the author:

Scott Vogelsberg is communications manager at Datatrial, an oncology-focused boutique data management company, as well as managing editor of the DataBridge blog. Any views expressed are his own.

Scott can be reached by e-mail at scott.vogelsberg@datatrial.com or on Twitter (@Datatrial).

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