BioWorld Perspectives Contributing Writer

Editor's note: Toban Zolman is director of consulting services at ISI.

Today's economic difficulties place the biotech industry in a precarious position. Major advances in biomedical development — such as stem cell research, genomics and personalized medicine — are opening doors to opportunities for higher-value therapies. However, with venture capital scarce and development costs rising higher, biotechs are searching for new ways to sustain the business behind the science, and partnering with big pharma has become the preferred route for many.

Emerging Biotechs Are Focusing on Sustainability
Big pharma is eagerly pursuing this new paradigm as it now faces its own challenges, heightened by increased competition, shrinking pipelines in the wake of an innovation gap combined with patent expirations, and the complexities brought about by globalization. Not that long ago, pharma had the upper hand when it came to biotech dealmaking. Large companies could pick and choose the products or companies in which they were interested. Deals were cemented that largely resulted in payments for the biotech company and majority or even full product ownership and IP transfer to the acquiring company. Today, very few large pharma companies are going it alone and the definition of the "pharmaceutical enterprise" is rapidly shifting: The enterprise is not just within the company's walls; it's really the entire networked business model of all partnerships.

As competition for biotech's R&D has intensified, biotech companies have become better positioned to negotiate the terms and conditions of deals. The result has been a shift toward equal partnerships, even for very early stage technologies. Along with this new dynamic, more biotech companies are focused on their business models and strategies to accommodate the compliance mandates required in later phases of development, ensuring their approaches are aligned with their larger company partners and their processes are in sync.

According to an ISI survey of emerging biotechnology companies conducted earlier in 2009, while innovation remains at the core of what they do, emerging companies are now building infrastructures to support the long-term goal of sustainability. Based on the survey data, companies are now beginning to leverage IT, new regulations and enhanced business processes to facilitate their strategic vision, to create efficiencies and to speed time to market, thus making them much more attractive as partners to big pharma.

How to Get Ready for an Acquisition
So what steps can biotech companies take now to ready for a potential partnership or acquisition later?

No company wants a deal derailed because it hasn't adequately prepared its infrastructure to exchange data with its partner, or has not considered how the data need to be prepared and formatted later downstream when the compound moves along the development cycle.

While it's clear that most companies are focused on near-term milestones, they're keeping an eye on later phases and submissions and what will be required in terms of data, according to the ISI survey. Most survey respondents stated that the industry standards — such as the electronic Common Technical Document (eCTD) and Clinical Data Interchange Standards Consortium (CDISC) standards — that help guide the format of drug-related data would have a significant long-term impact on their business. Although corporate readiness to comply with such standards varies, most surveyed have not yet put comprehensive solutions in place.

For progressive biotechs, there are several points that should be addressed when positioning for an acquisition:

• Standardize data early in development. Historically, partnerships have been struck during the drug application process. In today's economy, however, M&A and development and marketing partnership deals are happening earlier in the drug development phase. Whether or not a young company plans to take a drug through to a new drug application alone, it should migrate and standardize its data — from clinical documentation to submission — as soon as possible in a drug's lifecycle. This is fast becoming a requirement for pharma. Adoption of standards early on reduces the cost of integration and provides greater flexibility during a merger.

• Begin to incorporate compliance solutions into business models. In an increasingly complex regulatory environment, "keeping pace with regulations" was cited as among the top business challenges emerging companies face today, and levels of corporate readiness to comply with regulations were cited as varying. Regulations involving the eCTD and the CDISC have the most impact on companies' businesses.

• Decide on a model that is light on capital investments. In today's tough economic times, emerging biotechs are hesitant to incur overhead costs, add to employee head count, and dip into cash reserves. A variety of delivery options are in place — SaaS (software as a service), outsourcing and a blended model — to enable companies to obtain the technology infrastructure needed to ramp up their data and submission capabilities without totally building up the functions in-house. This approach speaks to the current investment mentality of pharma companies, which are not looking to make major capital infrastructure investments as part of their acquisitions.

• Focus on core business processes. Emerging companies are planning to invest in technologies that help execute and streamline key business processes. Electronic regulatory submission systems, document management systems, clinical trial management systems and enterprise resource planning will be the technologies respondents said most of their IT budgets would be spent on in the coming years.

These days, it's not all about the compounds. Instead, business sustainability, an attractive drug pipeline and organization of the drugs' data that are compliant are equally significant and scrutinized by potential partners and/or buyers as much as the promise of a drug or compound.

Published: December 3, 2009