Samantha Truex

Biotech BD Transactions: The Soft Stuff

Posted June 27th, 2016 by Samantha Truex, in Business Development, From The Trenches


This blog was written by Samantha Truex, former CBO of Padlock Therapeutics, as part of the From The Trenches feature of LifeSciVC.

I grew up in a setting where “continuous improvement” and “total quality management” were household terms, as unusual as that sounds.  Given that upbringing, I try to take time periodically to reflect on areas for improvement.   Since I have the luxury of time just now, I have taken a step back to reflect on best practices in business development.

My perspective on BD transactions is based on experiences on both sides of the negotiating table: I spent 17 years in BD at Biogen, Genzyme, and Chiron before becoming the CBO of Padlock Therapeutics.  While there is much to consider regarding transaction structure, that topic is fairly well-covered.  I’ll focus instead here on the “soft stuff” of BD transactions.

So, what is this soft stuff of which I speak?  Hard to define precisely, but in totality, I think of the soft stuff as the set of activities, responses and fact patterns that makes us feel, “I really like these folks; I feel confident they are a good, solid team that will shepherd our programs and/or our funds well and I want to move forward with them on this transaction.”

I have debated whether to write on this topic; I’ve asked myself whether the soft stuff truly matters in maximizing shareholder value.  After much consideration, my answer is this: The soft stuff may not necessarily win the day in every transaction. Indeed, I’d say the competitive process we ran at Padlock Therapeutics was not necessarily won by the company that performed best (or with whom Padlock performed best) on all elements of the soft stuff.  I also led an M&A transaction in which Biogen clearly led the competition on the soft stuff; the target told us as much multiple times over the course of negotiating an acquisition agreement to the point of readiness for signatures.  Nevertheless, another bidder won the deal by bidding $0.50 per share more than Biogen was willing to pay.  All that said, the soft stuff really matters over the long run of an entire portfolio and an entire career.

Why does the soft stuff matter? It could matter for lots of reasons. If all else is basically equal on deal terms in a competitive situation, it could determine which deal gets done, especially if the transaction involves an ongoing collaborative relationship. It could shape the tenor of negotiations, and thus the quality of the transaction, as trust and goodwill are either built up or degraded bit-by-bit with each encounter.  It will also certainly color the view on future interactions between the same parties.

Indeed, one of the five characteristics of the Partner of Choice highlighted here is “chemistry” – meaning the right personal relationships and trust. In Seven Habits of Celgene’s Highly Successful Strategy here, both personal chemistry and embracing empowerment and trust are discussed.

I’ll add to those a few more observations on the soft stuff:

  • Communication is key. Communication is the foundation of all relationships. In its most basic form, good communication means responsiveness. Providing a response to an inquiry, even if merely to say that it’s a very busy time and I won’t get an answer to you any time soon, is a demonstration of professional respect and the first step in building a relationship. Clear articulation of the value proposition is another obvious area of important communication in BD. Continuity of communication is also important; it provides clarity, builds trust and paves the way for good collaboration or integration post-transaction. When we maintain consistency of message and messenger, we maximize the quality and efficiency of the interaction. I was so impressed with the communication by a BD professional across the table while I was searching for hematology assets for Biogen that I hired that person later, when he was ready to make a move.   On the flip side, passing off the baton from BD person to BD person mid-stream, particularly without good communication or overlap, creates room for misunderstanding and redundancy that can certainly affect the outcome of the deal process.
  • Consider the audience. Ability to tailor the content and tone of our message to the audience is a valuable strategic tool. Does this audience include a senior research executive who has not yet heard the scientific story? Are there commercial folks involved who want to understand the likely positioning in each potential therapeutic area?  Understanding who will participate in a discussion and what their likely questions are allows us to focus on the points they want to understand in hopes of leaving them feeling satisfied or, better yet, excited, at the end of the discussion. On the other hand, letting frustrations with one part of a team color our interactions with a different part of the team can be detrimental – unless done strategically in a context that is appropriate to effect change.
  • Win Hearts and Minds. Nothing boosts motivation to work together more than genuinely liking folks and trusting that they are good at what they do. Spending time together, preferably face-to-face, to get to know the team at a potential BD partner company is invaluable. While time and financial constraints don’t always allow for it, try to visit potential partners in person, both to formally present (or hear, on the buy side) the story and to get to know the team. If possible, get together multiple times over the course of the partnering process. Ideally, both parties will share a balanced view of their thinking about the prospect of working together, including what excites them about the opportunity, how they could work together to make progress and what concerns they have. If either party’s communication is one-sided, either over-selling the value of their programs on the sell side or focusing solely on the risks and perceived issues with a program on the buy side, the lack of balance can curb the other party’s motivation to proceed.  Keeping the research/development champion involved in communications over the full course of a deal process helps keep at least some focus on the drug development mission even in the midst of negotiations that can become tedious in their depth of focus on risk mitigation.  The biopharma companies whose research teams are truly engaged in business development – who make the time to investigate, meet in person and show genuine interest and enthusiasm once they really delve into an opportunity – are the ones who really win the hearts and minds of their potential collaborators.   As an example, I led a negotiating team for Biogen that visited TIGET in Italy multiple times.  Eighteen months after signing, the team from Fondazione Telethon that had negotiated for TIGET asked me to join their board based on our good BD interactions. From the sell side, I experienced at Padlock the power of a senior exec’s willingness to get on a plane and to discuss the vast possibilities for a therapy as vigorously as the risks.  To our genuine surprise, more than one company took this approach during our process, thereby engendering very positive feelings that provided wide berth for the inevitable tough diligence questions regarding the potential pitfalls.
  • One Size Does Not Fit All. While many transactions may look and feel like the same structure, the parties and circumstances always differ to some degree.  If we take the time to understand the technology and the team, we can better tailor deal terms to the situation in a practical and efficient way.  Hearing from a buyer “this is the way we always do it” and “in all our deals, other parties have accepted this approach” without any rationale as to why it should work in this setting is frustrating and can become a time sink.  On the sell side, offering large deal term “comps” from deals that differ in various ways from the one at hand can also be frustrating.  Sure, we all use precedent to argue our case, yet adding rationale specific to the current situation is a far more thoughtful and persuasive approach. While not always possible when time is tight, we should take the time to review a draft agreement from the other party’s perspective before sending it, especially a draft that is largely lifted from another deal. Proposing written terms that don’t reflect what has been discussed or “standard” terms that are not even applicable to the situation can put a real damper on a nicely-progressing process.   Particularly if there is competition for the deal, we should be careful about proposing an aggressive stance across the board.  At very least, we should acknowledge that there are some things that may not be appealing to the other party, then be ready to listen and scale back on those that aren’t working or relevant.   In our Padlock experience, this was critical to our final outcome in both directions:  1) our recognition that our preferred structure didn’t work for all other parties was crucial and 2) other parties’ willingness to accept that we didn’t fit and/or accept their usual terms was instrumental in the end.

I honestly don’t know if the soft stuff will change the outcome of your next deal or mine – and I am certainly no expert on it.   I’ve been working to improve emotional intelligence since my first job over 20 years ago.  Sometimes I screw it up and sometimes I get it right.  What I do firmly believe is that it is worth some thought and effort.  In our world where consolidation has reduced the number of buyers and serial entrepreneurship brings repeat sellers to the table, relationships are long-lived and emotional intelligence matters.

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