Vancouver, British Columbia - A steady fog hovered over Vancouver on Monday, and inside the Westin Bayshore, a steady stream of dark suits crowded into the foyer. The BioPartnering North America conference was in full swing, with more than 900 attendees rushing to 4,500 meetings in an attempt to find their perfect match.

According to speakers, the somewhat frenetic pace of the conference mirrors the current state of partnering activity in the biotech sector.

PricewaterhouseCoopers LLP said the pace of deals increased 32 percent in 2006, resulting in $167 billion worth of pharma and biotech mergers and acquisitions. And for biotechs, valuations gained in those deals were up 60 percent over 2005. Compared with the current IPO window - open for a record 33 months but holding its bar high while the valuations it returns are often low - partnerships offer an increasingly attractive exit strategy or value-building option.

Yet money isn't the only reason to do a deal. In a lessons-learned session entitled "Creative Deal Making," panelists explored the rationale and processes behind a few deals completed last year.

"We underestimated the importance of credibility," said Sean Cunliffe, vice president of commercial development for Neuromed Pharmaceuticals Ltd. In March 2006, Neuromed signed a $475 million deal with Merck & Co. Inc. for its N-type calcium channel blockers for pain. (See BioWorld Today, March 21, 2006.)

"We thought any global pharma would add credibility," Cunliffe said, "but people recognize the heritage Merck has in research and development." While Neuromed previously found it difficult to get meetings with venture capitalists, Cunliffe pointed to the company's full schedule at the recent JPMorgan Healthcare Conference as evidence of the opinion among potential investors that "if we passed the Merck screen, we could pass anyone's."

Risk mitigation also played a role in Neuromed's decision to partner its lead compound. Although the company had sufficient funding to complete Phase II trials on its own, those trials would have demanded nearly all of that funding, to the detriment of the other programs. Partnering the lead drug in Phase I "allowed us to put more resources into the earlier pipeline," Cunliffe said.

And pharma is showing no resistance to coughing up big money for early stage drugs. In 2006, preclinical programs pulled in massive valuations, such as the InterMune Inc. $530 million deal with Hoffmann-La Roche Ltd for preclinical HCV program. (See BioWorld Today, Oct. 18, 2006).

Competition - even for early stage programs - is also on the rise.

"We generally assume all deal negotiations are competitive, whether the companies tell us they are or not," said Jane Devereux, senior director of corporate licensing for Merck.

When partnering its lead candidate, Neuromed gave 20 presentations to potential partners, proceeded to due diligence with six of them, and entered term sheet negotiations with three. Similarly, when Plexxikon Inc. decided to partner its B-Raf inhibitor, the company went to term sheets with 10 parties. Roche emerged as the winner, offering up to $706 million. (See BioWorld Today, Oct. 5, 2006.)

The increasing competition also may be driving faster completion of deals. Both the Merck-Neuromed and Roche-Plexxikon deals closed in about 12 months - faster than either biotech had anticipated.

The panelists also shared insights into the nonfinancial tipping points that drove their deals to completion.

Kathleen Sereda Glaub, president of Plexxikon, pointed to her company's willingness to take a "portfolio approach." Rather than focusing on "just a lead compound and back-ups," Plexxikon will develop compounds to deal with mutation resistance and find synergies with other kinase inhibitors.

All parties agreed on the importance of a cultural fit. "Our teams developed very good chemistry; this is a very important point," said Peter Singer, global alliance director for Roche.

As for how to get that chemistry, Devereux recommended meeting face-to-face as much as possible. She also emphasized the importance of the first due-diligence meeting in building the relationship, and said Merck's scientists are trained in how to use that meeting to lay a strong foundation even while asking tough questions.

When progressing to term sheets, Cunliffe shared his strategy for not leaving money on the table. "We initiated the first term sheet, and we developed terms for end of Phase II. We then said, You tell us how you would adjust the terms given our current stage.'"

Beyond the up-front money, Cunliffe and Glaub both pointed to creative terms such as co-promote options, bonus milestones tied to accelerated approval and joint committees to ensure agreement on future development decisions as key elements of their deals. Less tangible factors such as the strength of the relationship, commitment to the project, and readiness to move forward quickly also played a role.

"We were going to sign with Merck on a Monday, and on that Friday a company offered us 30 percent more in economics," Cunliffe said. "But we still signed with Merck."