This blog was written by Jeb Keiper, CFO & CBO of Nimbus Therapeutics LLC, as part of the From The Trenches feature of LifeSciVC.
A fresh Q1 is underway, your meetings at JPMorgan were top notch, and you have a slate of interested suitors for your company’s lead (or perhaps only) program. It’s a done deal (practically), all you have to do is execute it. “Just don’t screw it up,” are the parting words from your supportive, albeit bottom-line focused, Board members.
The situation can be daunting whether it is your first rodeo or fifteenth. Pulling from the learnings of many a coffee chat with those who have been through it, here are a couple of pieces of advice for nailing that objective before we all build calendars for next year’s JPM:
Maximize senior level interactions
Your partner’s senior leadership will need to sign off on this deal, so with the end in mind, your company’s name needs to be crossing their lips with fluency and regularity. You simply cannot get a deal done because you “have a great relationship with the Therapy Area VP” or were college roommates with their Senior Director of BD.
Getting these interactions right with appropriate parity is also essential. If you’re the CEO of your company, you should be speaking with their CEO (or perhaps their Head of R&D if a large pharma and you’re a small cap biotech). If your dance partner can’t match the seniority level you bring by the second or third meeting, you are not a priority for them, so don’t bother. Spend time with the groups that are taking this opportunity seriously. We found this behavior at Celgene far exceeded the efforts of many large pharma companies, and is one of the most important features of our strategic immunology collaboration we recently announced with them. Other hungry midsized companies are following suit. In the case of Takeda, the combination of Andy Plump and Dan Curran leading a series of collaborations demonstrates that even the staid industry giants can turn over a new leaf and get this right.
Once senior communications are established, bear in mind that dialog has one primary objective: to build trust – in your team, your asset, and your commitment and ability to consummate a transaction. Communications are a two-way street on these dimensions and those senior level relationships are essential for consummating any deal. If you’re the Director or VP of BD pushing this deal, you need to channel your inner yenta and help get more senior level relationships established and maintained.
Further, be on the lookout for the “Deal Prevention Officer”. Large organizations develop their own baffling structures, processes, and politics. Inevitably on any deal there is an influential voice that is negative about the deal you are cooking. Identifying and “managing” that individual is essential. Each situation is unique, and in one case engaging and converting the naysayer is the best path, where in other cases avoidance and pushing the deal through with your champion is the best course of action.
In God We Trust, All Others Bring Data
Developing human therapeutics is one of the more difficult group endeavors of our time, and meaningful transactions in this sector are based on facts and data. Science must lead a transaction. The data will sell the deal, not a slick presentation. Your science team’s credibility matters here – they are on stage, not the transactional professional – and their candor, knowledge, humility, and transparency matter. The buy side is savvy, no one is getting duped. Straight answers, saying “I don’t know” when you don’t, being responsive to questions, and going the extra mile demonstrate truth-seeking behavior that allows buyers to get comfortable with the risks (and there are always risks!), and how to mitigate them. Again, build trust.
By their very nature, small innovative biotechs are working on novel areas of biology or new approaches, so there is a need to build “a story” around the science. Here, the goal is to be the data-driven champion for your program, to put its utility for humanity into context, and to connect the dots from biology to patient benefit. We’ve all seen some presentations that do this well, but those alone are not enough to get a deal – your company cannot be the sole voice for your program. Your science team needs to be out with KOLs and academic partners, who in turn need to be conducting novel experiments with your program and publishing peer-reviewed research that reinforces the messages in your corporate presentation. For clinical stage programs, another key audience to speak with are the bank research teams. When a potential partner’s covering research analyst writes that “Pharmaco should consider buying So-and-so Biotech for Your Program,” you have built credibility without needing the fancy Prezi.
Avoid “50 First Dates”
I was in a position early in my career to out-license a Phase 2 program in overactive bladder. We created our “non-con” deck, loaded up a data room with gigabytes of trial reports, and enlisted the support of a trade bank to help with the rolodex. We reached out to over 300 possible partners, had over 75 phone discussions, and nearly 20 in-person meetings. We got three term sheets, but ended up doing the deal with the party we knew was interested at the start, and almost lost the deal because of the delay in conducting “the process.” Whether a backwater asset or large-scale M&A is at hand, by the time you are in serious discussions with parties, there are rarely more than five real players who are both very interested in the deal and in a position to actually consummate it on agreed-upon terms, and you know who they are now. Better to spend your time and energy on engaging the dozen companies who have a chance to be the one rather than going on 50 first dates that lead nowhere.
If you protest my advice here with the counterpoint that you need to meet dozens of companies “to get your name out,” I urge you to pause and refocus your networking energy into another avenue: academic experts, investors, research analysts. All pay dividends far beyond an introductory meeting with the Director of BD at Big Pharmaco. This explains why having your science team present a poster at a conference like AACR is worth more than 100 speed dates behind drapes at BIO. Ensure your Board is working for you too, as the relationships your CEO and other Board members have pay dividends in establishing the senior level connections described earlier. Those relationships are only built over years, and are far better avenues for connecting companies than blind emails to a website. Successfully executing a transaction involves solid preparation and investments long before a deal even arrives on radar.
Be clear about what you want
Set expectations early (just not too early). It is important to have a clear-headed idea about what you need from any sort of deal, and a knowledge of where you can be flexible. The professionals on the buy-side are often best equipped to evaluate deals, not create them, so to the point of focusing your efforts on the few acceptable suitors, it is important to set the bar of what makes an acceptable deal early, and be prepared to walk away if that is not appetizing to the other side. There is a “too early” clause to this advice – it really is rarely the very first meeting. Nothing ruins a good introductory scientific discussion like having the BD professional stand up to speak to a slide about terms. This is where the art of deal making comes into play: that sort of conversation is best saved for after the buy-side has reached the consensus that they like your program and want to move forward, it is at that point you need to gain agreement on the general parameters that your potential partner must meet. Many of us have been confronted with the “I can’t give you an answer on terms until we’ve done more diligence.” Beware! If you hear this, push back and get them to a point where they agree that if diligence checks out they are prepared to meet your terms. If they cannot do that, you are not even in the same ballpark; pass.
Keep your options open
The counterpart advice to “don’t seek 50 partners” above is “don’t have just one.” However, this advice does not immediately square with some of the blow-by-blow transcripts released through the SEC disclosing gory details of one buyer bidding against itself to consummate a deal. So, let me refine the advice to: “don’t have just one option.” In all those “one party” cases the selling company did not have its back against the wall: it either had lined up an IPO or other financing or had enough of a war chest to go down periscope for the next year and generate data that would get multiple parties jumping at an appropriate valuation. As a sellside leader, you simply can’t bluff out of this one when it matters. Remember that trust-building notion, even if you could bluff it today, why compromise future credibility? The key here is maintaining leverage, and the best way to keep the upper hand is the ability to forgo the deal if not on the terms you demand by ensuring you have the cash and investor support to do this effectively. When we sold our ACC program subsidiary to Gilead, we had three other offers from pharma partners, one with a different rights structure, and two term sheets for a crossover financing round prior to IPO later in the year. Those options are a big part of what brought top decile economics to the buyout upfronts.
Deal Making is a Team Sport
A post-closing deal team dinner should be an exercise in finding a big enough private venue, since you’ll be bringing a small army who worked on the deal to thank them. Your whole company leadership is on this team, as are often some of your Board members. They need to be brought in and aligned with the plan to consummate the deal and be ready to play the roles you need them to play. Once you’ve reached brass tacks and are turning redlines, you’ll thank yourself for having built a talented deal team, replete with expertise across a range of disciplines in law, finance, and operations. Getting a deal across the line is hard work, and more than one holiday gets ruined for most people who are charged with “just getting the deal to signature.” Invest in these relationships before you are pulling all-nighters and this collection of professionals will become a team, and teams win championships.
Also, don’t forget that the notion of “team” needs to extend to your counterparty, too. The other side needs to win too, and if they don’t feel like they are going to win (or at least have some wins), they simply won’t sign. Finally, when a deal is powering toward the finish line, the one-upmanship and rivalry fades and the camaraderie of getting across the line together takes hold. The transactional leads, especially, on each side find themselves as their own “team” whose common objective is to get the deal signed and avoid any last-minute wobbles. Investing in those relationships, and maintaining positive industry connections and collegial friendships is critical.
So, you’ve read the blog, what’s next? Pick-up the phone, set up the coffee: it’s about relationships, people, so time to start investing in them.
Big thanks to the many mentors, friends, and colleagues who have contributed all of the wisdom behind this blog, with an ‘extra mile’ shout-out to Sam Truex, Ros Deegan, Pamela Esposito, who were also patient editors, along with members of my Nimbus family.