9. Not being ready for success
At long last, you've finished your trials, your drug is approved and you're ready to go--but you don't have enough of the drug to initiate sales because a manufacturing and supply sources are not in place. It's an understandable situation for small biotechs, says Ferruolo. Oftentimes they're not prepared for large scale manufacturing. However, being unprepared to commercialize wastes valuable time and can substantially reduce the ROI. If it takes a company a year to get up to speed, that is one year of lost sales-and a year of patent protection squandered.
Especially in difficult funding times, biotechs have to marshall and conserve their resources, and often focus all their efforts on clinical trials. Planning and preparation for manufacturing and commercializing are deferred, often with unrealistic expectations for making up the tie or assuming a partner or buyer will resolve the problem. Lack of such planning has been fatal to many deals. And companies who choose to go it alone often admit they made they made it through pure luck. Ferruolo recalls the words of one Agouron exec talking about the experience of launching Viracept. "He said, ‘If we knew how difficult it was we would have never tried to do it on our own,'" recalls Ferruolo. Agouron was eventually bought out by Pfizer.
10. Not knowing when to partner
When it comes to partnering, "a lot of bad decisions have been made." In the 1990s, biotechs partnered early and went public based on the validation provided by the partnering they did. Biotech companies then came to the view that companies were squandering their potential value by partnering too early. The preferred strategy for biotech became holding on to their programs and developing products themselves. "The problem with this is it almost always takes longer to develop a drug than you think. To advance a drug to its first pivotal trial, a private biotech company may have already raised over $100 million and will need access to the public market to raise more funding. What happens when the public markets are closed and the funds cannot be raised?" Waiting until late in the game to partner means your company is shouldering more of the risk.
Ferruolo recommends companies think strategically about partnering. Are you a platform company? Are you a product company? An indication company? What indications are you targeting? Are they chronic indications, like diabetes, that require large, long-term trials and a large sales force to market the drug? Or are you targeting a rare or fatal disease with no approved therapy that will require smaller trials with clearer endpoints and drugs that need only be marketed to a defined number of specialized centers. Each situation is unique so companies shouldn't follow generalized trends about when and how to partner.
Ferruolo closes with a final warning: "Don't make generalizations about the prospects for M&A." Despite recent reports, Big Pharma is not buying as many companies and programs as anticipated. "There should be more deals given the situation of Big Pharma and the need to build product pipelines to replace blockbuster drugs coming off patent in the next few years," he observes. "But it has become clear that you can't count on a partner or an acquisition." Even when deals get started, a lot of deals are not getting done. "All of us are seeing a lot of deals that have gotten past due diligence and the exchange of term sheets, even rounds of negotiation and drafting, only to have Big Pharma back out late in the game." Pharma is increasingly risk adverse and the public markets are getting weaker. In these times, expect buyers to wait longer for values to go down and risk to be diminished.