Beyond Biotech M&A: What Comes Thereafter

Posted September 22nd, 2016 by Samantha Truex, in Business Development, Exits IPOs M&As, From The Trenches

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

Biotech M&A is all the rage these days. Allergan has acquired four small companies in the past couple weeks. Pfizer won the Medivation prize. Horizon bought rare disease play Raptor. Just to name a few. The past couple years have been some of the most active for deal-makers, underscoring the role of M&A and external sourcing as a key component of Pharma’s pipeline strategy.

Further, Bruce Booth’s recent blog here connects the dots from 1) downward pricing pressure to 2) pharma’s growing need for innovative products to 3) a silver lining of even more biotech deal-making. That’s great for all of us, right? Woohoo. QED. Nuff said.

Hold on. Let’s consider that question more deeply.  Is more biotech deal making truly great for all of us? Specifically, is an acquisition of our employer great for all of us?  If not, what could we do to make it great for all of us?

At least in venture and business development circles, there is an assumption that an acquisition is great for everyone. We created value for shareholders, right? That’s our job. Unless the shareholders are convinced they would have gotten more value later by not selling now, an acquisition is certainly great for them.  By selling, we also put our precious drug development programs in the hands of experienced teams who can apply ample resources to moving those therapies to patients. That should be incredibly motivating – and it is.

Why then was the most uttered phrase internally at Padlock on the day we announced an acquisition last March, “This is not all good – this is bittersweet?”

For the record, the acquisition of my employer was great, overall, for me personally.  Yet my perspective has broadened substantially over the course of my career to see the world not just from the viewpoint of a transactions-focused type A personality who is confident she will find another fulfilling role, but also from the viewpoint of folks who have spent 10-20 years at one company, who aren’t comfortable with change and/or who are not all that self-confident (even when they have all the right substrate to be so) when it comes to a job search.

An acquisition is not necessarily a welcome outcome for all people. Depending on the maturity of the post-acquisition plan at the time of announcement – if there even is a plan at that time – it can be a stressful time for employees of the target company.   Everything from roles, reporting relationships, and decision-making to location, benefits, comp and the existence of a job can come into question. And even the most confident change-seekers who are comfortable with all that uncertainty can’t help but feel a pang of sadness at letting go of the chance to keep working with a cohesive team on a project about which we are passionate, especially if the team’s time together has been short.

Let’s look to a 2014 blog here in which Bruce points out that “once an M&A deal is done, we rarely if ever read about the company again – despite the success of their products in the buyer’s portfolio.  Pharmasset isn’t mentioned when discussing Sovaldi very much anymore… or Organon Biosciences when mentioning Merck’s Keytruda.  The loss of a company’s identity in an acquisition makes it easy to quickly forget the importance of M&A in a world that wants and loves to talk about companies and their products.”

Loss of a company’s identity. That’s a great way to put it. All that work we do to establish a meaningful mission, a compelling vision, an inspiring culture and a sense of passion within our energetic start-ups can seem to be swallowed up in the jaws of a behemoth in an instant if the integration process is swift and complete. It’s a catch-22, because a swift and complete integration may, in fact, be the best way to drive our drug programs to the patients we serve.

I asked earlier in this blog, “Is an acquisition of our employer great for all of us?”  I think the answer is that it depends on our outlook.  I also asked, “If not, what could we do to make it great for all of us?”  As usual, I don’t have a definitive answer.  What I will say is that we can try, when time allows for this, to plan an integration path that best harnesses the value of the target employees.

When a company is acquired, there are choices to be made regarding the treatment of the acquired employees. Numerous factors drive those choices. As sellers, we may have little say in those choices, but can try to influence them as we convey the value proposition to potential buyers. Is the value purely in the assets? In our team’s unique discovery capabilities? In the platform know-how our team has built? In our relationships with clinical experts, trial sites or prescribing physicians? If so, can we effectively persuade the acquirer to work hard to preserve that value? Unfortunately, many elements of a target company’s intrinsic value don’t translate easily into financial value, especially when the buyer’s team is under pressure from finance to justify valuations in a spreadsheet and fill it with cost synergies.

As buyers of companies, we may embed integration choices integrally into the value proposition. For instance, are we buying the company because it provides an avenue to new revenue growth, perhaps in new technology and/or therapeutic areas, with a team that is knowledgeable, nimble and respected in that arena? If so, we may endeavor to keep that team in place and operating as is, so as not to disrupt its value. We may even attempt to maintain its company identity, norms and culture. There are numerous examples of this approach, including Roche/Genentech, Biogen/Idec, AstraZeneca/ MedImmune,  Sanofi/Genzyme and smaller local examples in Genzyme/Geltex, Biogen/Syntonix, Biogen/Stromedix, Celgene/Avila.

Some folks involved will have strong retrospective views on how well these examples worked out over time, yet good intention was surely there at the outset. Let’s take Biogen/Stromedix. The value proposition for the clinical asset was intrinsically linked with carrying out the clever clinical development plan authored by the Stromedix team. I’ll venture to say that Biogen did a nice job creating an integration approach to preserve that value. Biogen integrated the small Stromedix team into its fold, yet kept the team co-located, responsible for the drug program and reasonably nimble with its leadership intact. That was a smart approach. It didn’t last as long as many had hoped, but it was a smart initial approach.

On the flip side, what if the value proposition is largely in marketed products? Maybe the sales and medical affairs relationships are valued, but we don’t need to keep duplicative R&D and other G&A functions.  If that’s the value proposition, then a huge chunk of the target employee base will be looking for jobs.  Take Merck/Cubist, for example.

What if the value proposition lies largely in pipeline programs that the acquirer can fully integrate into its established research organization? Even if the acquirer genuinely wants to retain the team, it may not be practical or valuable in the long run to maintain the seller’s team in its current form and location. BMS/Padlock fits this description. To BMS’ credit, they offered very reasonable positions within BMS to Padlock employees. They even went the extra mile to offer alternative positions in nearby geographies to Padlock employees who did not want to move to Princeton, NJ.  The reality is that team members from a small company don’t always favor a transition to a large company. By three months after the close of the transaction, no Padlock employees remained at BMS. No fault of BMS. No fault of anyone. That’s just the reality of M&A sometimes. It was predictable and was, indeed, bittersweet.

A rare, but fantastic integration approach arises when the acquirer values the assets and genuinely values the help of the selling team – yet circumstances allow for the selling team to remain intact and focused on other elements of their business while providing transition services to the acquirer .. BMS/iPierian may be an example of this. The iPierian team had cleverly spun itself into True North to focus on a separate asset prior to the BMS acquisition. BMS took over iPierian’s mAb program while the iPierian team remained together working on True North’s assets and providing input as needed to BMS via a service contract. Gilead/Nimbus – similar story. Nimbus is an LLC with plenty more to do even without the ACC program Gilead acquired. The Nimbus team remains together working on Nimbus’ other programs while advising Gilead on the ACC program, which Gilead is moving swiftly through the next phase of clinical development. That’s a dream situation in which Gilead has made impressive progress already, partly because it has no distraction of organizational transitions and partly because of Gilead’s admirable tenacity in moving drugs through development to the patients we all serve.

The challenge of preserving value post-acquisition is not new. The approaches I have covered are not particularly new, either, but deserve reviewing periodically since this topic is not always on top of mind for those driving the transaction decisions.

I sign off by saluting the folks from Pharmasset and Organon and the countless other folks who have contributed to meaningful approved therapies even while losing their company identity somewhere along the way. May you feel fulfilled in the benefit you have provided to patients, whether you were there to receive a commemorative trinket upon launch or not.

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