This blog was written by Tariq Kassum, COO and Head of Corporate Development at Obsidian Therapeutics, as part of the From The Trenches feature of LifeSciVC.
Experience can be a tough teacher. Over the last two decades as a biotech investment banker, investor, pharma business development executive, and now company entrepreneur I’ve built up my fair share of deal-related scar tissue. However, for my first LifeSciVC post today, I’ll share three key lessons that I was lucky enough to learn in a completely pain-free fashion. Plus, I’ll provide some thoughts on how you too can accelerate your learning in a way that doesn’t leave visible marks.
First, some background: I trained as a medical doctor but then moved to the business side of healthcare – originally as a biotech investment banker, then as a healthcare stock analyst. In 2009 I left Wall Street and started working for Millennium/Takeda, where I had a number of roles including leading BD finance, running oncology BD, and, for a mercifully brief stint, leading global M&A (short version – I’m still getting over the jet lag). I had a great run at Takeda and learned a lot from many good people, but eventually I needed to scratch my bio-entrepreneur itch, which led me to Atlas and, ultimately, Obsidian Therapeutics. I’ll have plenty more to say about Obsidian in later blog posts but suffice it to say that our science is clicking and the opportunities in front of us are truly exciting.
My background as an investment banker was very helpful in terms of learning the space, grasping the fundamentals of finance, and becoming adept at creating slide decks at the last minute. However, when I moved to Millennium, it became clear that my perspective was truly “outside-in”; I didn’t know how deals get done within companies. And those intracompany dynamics are complex. Over time, and after many faceplants, I ended up learning several lessons about how to think about pharma BD in real life, in real organizations, run by real people. Here are three of my favorites:
Lesson one: 2 + 2 = 5
When you are scouting M&A deals, you spend a lot of time with investment bankers. I probably have a lot more sympathy for them (perhaps because I was one) than the average pharma BD professional. Because they see the internal dynamics at play with a lot of transactions, the good ones develop a keen feeling for what it takes to get deals done. My friend who works at Megabank (we’ll call him the Megabanker) is one of the good ones.
A few years ago I called the Megabanker since I was baffled by an acquisition that he had advised on. A big pharma company had bought a one-product biotech for billions of dollars, and I just could not figure out how they had made the numbers work. The one product was a good product but, in my view, not that good a product. Megabanker had advised the big pharma and was, understandably, pretty pleased with what had just happened – I suspect he was shopping online for a new Porsche when I called. When I asked him how they made the numbers work, he stated something I had always suspected but never heard articulated: for bold BD moves, you really need a senior-level internal leader to drive a variant hypothesis.
You see, while a given transaction may spark the interest of a senior leader in a pharma company, it’s left to people in the middle to analyze and eventually consummate, and this is where deals usually fall apart. The analysis and the numbers (and therefore the value) inevitably drift to the conservative end of the spectrum. This is understandable. If you are, for example, responsible for the commercial forecast for a new drug, it’s really difficult to defend an opinion about the drug’s potential that is outside of consensus ranges, no matter how sound your analysis. That is not to say that people in pharma companies lack courage, but rather that expectations tend to get “normalized” as a function of natural organizational dynamics. In order to get past this, you have to break those dynamics.
So how did Megabanker earn his sweet new whip? He and his team members got the CEO of the large pharma company deeply involved in the transaction, to the point where the CEO himself helped build the commercial model. He helped the team build a differentiated viewpoint that allowed them to ascribe greater value to the company. His involvement gave them permission to think about what the sources of upside could be, rather than just think about risk. And the bottom line is that in a competitive auction, you need a differentiated viewpoint (and therefore a differentiated valuation) to win the bidding.
Now, this doesn’t mean you have to get your CEO to believe in mermaids or magic unicorns in order to get a deal done; but what you do need to do is apply a degree of creative thinking to understand how things can go right. Senior leadership can play a critical role in building safe spaces for this sort of thinking. And then, if you’re lucky, the press release will go out, a bell will ring, and another banker will get his (or her) Porsche.
Lesson two: I might be wrong
We all know that decision-making when you have a limited set of choices can be hard. But decision-making without any constraints at all is much harder. Limits, confines, guardrails, whatever you want to call them – they force you to act creatively within the degrees of freedom available. Without them, chaos looms. A great jazz standard unleashed from the constraints of the melody quickly devolves into noise (which, admittedly, some people call free jazz and pretend to like).
The same is true in organizations. When you can do anything you want, it becomes harder to create something coherent. This lesson became clear to me at one point during my time at Takeda (again, before current management) when the oncology organization, fresh off a series of leadership changes, suddenly had free rein to pursue anything it wanted. Solid or hematologic tumors, small or large molecules, any MOA – nothing was off-limits. And just like that, decision-making became incredibly hard. How could we pick a promising BD target from the giant universe of potential partners? And given the breadth of opportunities (and our limited BD capital at the time), how could we ever be sure that we had really picked the single best one?
The answer was provided by an irascible but extremely wise co-worker of mine, who sat me down and told me, in no uncertain terms, that we needed to take a step back and focus on what we already know. For us, that meant dialing our efforts back to the indications (hematology) and mechanisms of action (small molecules, ADCs) we knew best, and then expanding into new areas from there.
Yes, it’s not as exciting as forging new territory, but it’s much easier to make decisions when you’re dealing with a familiar landscape. From a BD-transaction perspective, there are also significant side benefits. First, forecasting the commercial potential of a product in a TA you know well is much easier than learning an entire new space from scratch. Second, per lesson one, senior leaders will be much more likely to lend support to variant hypotheses in areas they know well. Finally, a transaction in an area with existing infrastructure (whether preclinical, clinical, or commercial) provides operating synergies right off the bat, which gives you extra value that may help you win the deal.
As it turns out, taking things back to basics really worked. We were able to get unstuck and executed a series of transactions for technologies and indications that we were familiar with and that we really believed in. My colleague was right, and – fun fact – it is probably no coincidence that he is a dyed-in-the-wool punk rock fan. Back-to-basics, indeed.
Lesson 3: How to disappear completely
At one point in my career at Takeda I was regularly invited to speak at conferences. At the time, I thought it was because of something to do with me – perhaps because I was a good speaker or a smart guy or something. With hindsight, I now realize that these invites were entirely due to the perceived power of my former job, because nobody has asked me to speak at anything more than a beer hour since I left pharma.
Anyway, one time I was sitting on a panel right next to a senior BD executive from Very Large Pharma (VLP, we’ll call them). The panel discussion was about BD strategy, specifically M&A, and I went first. I think I did an okay job of explaining our process for evaluating acquisitions (audience stayed awake, laptops stayed closed, etc.) But then Mr. VLP started speaking and he said something that surprised me.
Up until that point and even before that, I always had thought of drug development as a funnel: you start 50 preclinical projects, 20 of them make it to the clinic, 5 of which make it to late stage clinical development, and one of them is a commercial hit. This is a more-or-less accepted paradigm and one that most of the industry buys into.
Anyway, the VP of VLP started speaking and proceeded to thoroughly demolish that approach, starting off by pointing out that if it were true, pharma companies would be enjoying a multi-decade period of uninterrupted prosperity, rather than the miserable, repeated losses of exclusivity and serial rounds of layoffs that were happening at the time.
So what went wrong? Well, Mr. VLP reminded the audience that huge research organizations have difficulty focusing on the best ideas, and don’t have the same life-or-death urgency around working through tough problems that biotechs have. Also, the best programs don’t always get adequate emphasis for various organizational and structural reasons. Finally, to add insult to injury, these research organizations are also constantly at risk of downsizing since their costs are real but their benefits are still theoretical. Such downsizings tend to disproportionately threaten the highest risk – but also highest return – projects.
This is why distributed R&D models, where pharma can access the best of biotech alongside their own internal efforts, make so much sense. Biotechs can run their best scientific ideas to ground in a way that is very difficult to do in a large organization. But pharma has superpowers as well: downstream product development capabilities that are powerful and extremely difficult to replicate. Marrying those strengths, while difficult at the interface, is a winning strategy, and one that VLP itself had recently pledged to pursue. All of this resonated strongly with me because I had seen many of these dynamics at Takeda (again, before present management took over). Large companies don’t have a monopoly on innovation and should therefore not be structured as if they did.
Soon thereafter, Takeda started moving towards a more distributed R&D model and I am very glad they have done so. As for Mr. VLP, well, his company seems to be going there, but in fits and starts. However, he himself has risen smartly through the organization, so I suspect that his voice is being heard – and that he is also getting invited to speak at many more conferences.
Epilogue: Where I end and you begin
Attentive readers may have already noticed that in each of these lessons, I didn’t actually figure these things out for myself.
In each case, the key point was provided to me by a helpful coworker, advisor, or co-panelist. That, in itself, is a great lesson. As my career has progressed, and as I meet more people in this industry, I am continually struck by the value of the collective wisdom of my biotech peers. It is quite easy to tap into this wisdom since most people in this business are quite nice and are willing to share what they know. You can learn from their successes but also, critically, their failures.
Therefore, my last piece of advice is to step away from the computer, put down the smartphone, and get out there and start talking. Spend time with your peers and ask them about deals, organizations, and strategy. Friends can give you an education that equals that which you can obtain via experience alone, with the added benefit of the lessons being scar-free.