Taking the pulse of partnering at BIO 2014

SAN DIEGO--Whether it's in Boston, Chicago, Philadelphia or Washington, DC, the centerpiece of the annual BIO convention is always the same: a sprawl of interconnecting cubicles and makeshift corridors where would-be dealmakers shake hands, make promises and hope to form pacts that'll turn their strategic plans into reality.

It's perhaps the least romantic aspect of a show that often features what one assumes is the cutting edge of booth architecture, but BIO's partnering pavilion is what keeps many coming back.

That was no different at this year's show, but biotech's big 2013 has altered the stakes a bit. Last year, more than 45 life sciences companies made their way onto the public markets, banking more than $3 billion in the process, and another 29 pulled off IPOs in the first quarter of 2014, raking in $2.1 billion more. That trend, added to a reinvigorated venture climate, has given biotech its best access to capital in years, Sophiris ($SPHS) CEO Randy Woods said, making for a seller's market in the partnership world.

Sophiris CEO Randy Woods

Sophiris, for example, pulled off a $65 million IPO last year, raising the cash it needs to get its top candidate, PRX302, through a Phase III trial to treat enlarged prostates. The biotech will need to embark on a second late-study to support an FDA application, Woods said, but, once it has data from the first trial, it'll have the option of either mounting a secondary public offering and going it alone or getting on the phone and nailing down a strategic partner. That freedom should give Sophiris more options and better terms than would otherwise be available, Woods said.

"Because so many companies have access to capital markets through IPOs, they're less dependent on partnering," he said. "A few years ago, it was the other way around. Big Pharma and Big Biotech knew that you had to come to them."

Meanwhile, the world's largest drugmakers are yet to solve their R&D productivity problems, and many pipelines across the industry are looking light on late-stage assets. Now, with biotech valuations hitting post-downturn highs thanks to cases like that of Sophiris, there's great competition in dealmaking, said Sophie Kornowski-Bonnet, head of partnering at Roche ($RHHBY).

"We pride ourselves on our due diligence," she said. Every deal Roche signs must go through the same rigorous vetting process put to internal candidates--and with some immediacy. "You can assume, on any deal, we're never alone. Our competitors are out there, as well."

Sophie Kornowski-Bonnet, head of Roche partnering

About 35% of Roche's pipeline comes from external innovation, Kornowski-Bonnet said, a figure on the rise as the company evaluates more and more potential partnerships. Roche considers about 2,500 deals every year, she said, signing between 50 to 60 of them.

Johnson & Johnson ($JNJ), whose pipeline is about 50% externally discovered, has another solution to the issue: get there early. Over the past year and change, the company has stood up deal-scouting outposts around the world to find the academics, entrepreneurs and innovators at work on what could be tomorrow's blockbusters. The plan is to fan out and look to seed and incubate promising ideas, whether by licensing assets or helping build new companies, said Ken Drazan, head of J&J's California innovation center.

"By decentralizing these people, you set their minds free to be less constrained by how the corporation feels and focus on what the science is telling them," Drazan said.

The innovation center model was created out of necessity, said Robert Urban, who leads the Boston branch. For years, J&J and the rest of Big Pharma counted on venture capital to create a sort of farm league of promising biotechs ripe for partnering. But when money dried up after the financial crisis, the company decided to get more involved in early-stage projects, looking for "an adaptive approach to interacting with innovators."

No matter when a deal gets done, however, it will only succeed if the partners are a match in goals, capabilities and culture. For example, J&J's deal with Pharmacyclics ($PCYC), which spawned the expected blockbuster Imbruvica, came only after the two parties spent months feeling each other out to ensure they could work together, and the biotech turned down Novartis ($NVS), Celgene ($CELG) and others along the way. Similar assessments are among the first orders of business in every deal discussion, Drazan said.

Finding the right fit is all the more important in today's world of soaring asset valuations, Roche's Kornowski-Bonnet said, and the company makes an effort to map out milestones, define risks and harmonize expectations before putting ink to paper.

"We are very keen on having our partners enjoy the relationship," she said. "We want a win-win at signing to still be a win-win two years later."

-- Damian Garde email | Twitter