March 06, 2020

MotionHall Executive Call Series: Anticipating & Planning for Deal Dynamics


Introduction

Rachael Craig: Good morning everyone! Thank you for joining us today in the latest in our very well attended series of executive webinars from MotionHall.

We get really great feedback on these executive calls and we tend to cover a lot of material that isn't addressed elsewhere, which makes me really feel that we're doing something valuable for the industry and that we're doing a good job bringing together talented executives out to these events to contribute to the conversation. Host Introduction: Rachael Craig, Co-Founder and CEO at MotionHall

Rachael: I'll be hosting us today.

My name is Rachael Craig. For those of you who don't already know me, I’m the co-founder and CEO of MotionHall. MotionHall exists for one reason - that's to help ensure your company closes the most valuable licensing or M&A deal possible.

MotionHall is a Silicon Valley technology company serving Business Development Executives in the Life Sciences with modern cloud-based tools. These tools sit on top of the most comprehensive data available and empower our premium OutMatch tool which is a predictive partner identification and profiling tool for dealmakers. Like many of you, our roots are as a Venture-backed company and MotionHall’s luminary fund is Village Global, which is backed by Michael Bloomberg, Bill Gates and Jeff Bezos. Building MotionHall, my team and I work with some of the most reputable names in biotech deal-making. Prior to MotionHall, I acted as interim CEO and executive to numerous biotech, medical device and technology companies.

My educational background spans business neuroscience and software engineering, which for those of you who are already MotionHall members may know is a very good background for the unique tools developer dealmakers here MotionHall.

Guest Introduction: Linda Pullan, Founder and Consultant at Pullan Consulting

Rachael: I’m very excited that we're joined by a special guest today, Linda Pullan of Pullan Consulting. She has quite a high profile as a respected thought leader and dealmaker in business development. Hi, Linda, how are you?

Linda Pullan: Good. Thank you, Rachael.

Rachael: Pullan Consulting helps in all business aspects of business development for fundraising and partnering including outreach evaluation, valuation, negotiation and strategy. Linda and her team have an extensive deal sheet from company acquisition, pre-clinical through to Phase III candidates and technologies, with deals and clients in the US, Europe and Asia. I think Pullan Consulting and MotionHall may even share a few clients and members, some of whom might be on the call today.

Linda's background includes a PhD in biochemistry and she has over 20 years of industry experience starting in drug discovery at Monsanto/Searle/Pfizer and ICI/Zeneca/AstraZeneca.

Linda led the team that put Seroquel, a multi-billion-dollar antipsychotic and other molecules into development. Business Development for Linda began in in-licensing technology and early drug candidates at AstraZeneca. She continued as the head of oncology and hematology licensing at Amgen. She then joined Kosane Biosciences as VP Business Development, focusing on out-licensing. She and her team serve as consultants to a wide array of companies and for the AUTM Foundation. Linda's spoken at many meetings, published many papers and chapters. She has quite a resume.

Linda is an absolute thought leader in our industry, and we're very pleased to have her on the call today. So thank you again, Linda, for being with us for this discussion.

Linda: Thank you.

Rachael: We have a few MotionHall members on the call today, as well as the potential newcomers who are considering the platform. In each case, MotionHall’s OutMatch professional service provides powerful insights into the partnering market for your deal, and the means to predict and plan for your deal cycle dynamics. So thank you to everyone who filled out the survey in advance. We have quite a few questions and some topics to get us started today.

Q&A and Discussion:

Topic 1: How do you create a forcing function to close a deal cycle?

Audience Question: What are the best practices to drive momentum with VCs during financing rounds? Essentially, how to effectively move them from sitting on the side to initiating due diligence and term sheets?

Rachael: Linda, I’m hoping you might be willing to speak to this one a little bit. I know my first thought here is that some of the deal dynamics are exactly the same as what we'd see in a licensing or M&A situation. I believe, competition is one of the ways that you want to create that incentive to move over the finish line. Would you agree?

Linda: Yes, I think competition is always important, although I think there's a big difference between VC-thinking and pharma-thinking because VCs are investing more in the team. Whereas in the typical licensing deal you're investing in assets. Because of that emphasis on the team, a great deal of what causes a VC to sit on the sideline is lack of comfort, lack of trust, lack of knowledge of the team. In VC, it matters where you come in the door, it matters who you know, it matters which VC you're reaching out to much more than it does in a licensing deal. A licensing deal, at least in theory, you come into a company, you get logged in a database and the information gets shared. But in the VC world, that building of the relationship is really critical. I think that does contribute to momentum or lack of momentum.

Rachael: That makes a lot of sense.

Linda: Yes, and EiRs (Entrepreneurs in Residence) who are sitting looking for the next hot thing can, depending on the stage of the asset, be a particularly good point of entry inside the firm because they are primed to jump. Whereas the more established partners often have gotten perhaps a little jaded looking at so many things.

Rachael: Have you seen cases where there was a strong team with a promising asset and company, but the VCs still weren't moving quickly on the deal?

Linda: Yes. To be honest, I think one of the factors in this entire industry is how hard it is to predict what will get money and what won't. I think it’s harder on the VC side than it is on the pharma side. It does feel like it's magic. And again, I think it's the personal relationship that makes that one fly.

Rachael: I know we got into this yesterday just a little bit. We were talking about how many decisions are made based on fear of loss. Of course, that's just one small piece of the puzzle. But if you want a VC to move, and potentially if you want a licensing or M&A dealmaker to move, a sense that the deal won't be available later can be really important. In thinking about that as a dynamic that you can create, there's all sorts of ways that you can look at having a plausible reason for why the deal won't be available later. In my mind, the easiest one to create, which isn't to say that it's easy, it's quite hard, is to create a competitive dynamic, so you can plausibly say to the VC, to the licensing team, to the M&A team, ‘you know, there is other interest here’ so you can't just kind of kick the can down the line and hope that you can get into the deal later.

Linda: I think that's absolutely right. But I think it's also true, you need a foundation of truth. You can only bluff so far because if your actions are not consistent with your message, there isn't that foundation of truth. Especially with a team, one person might be able to bluff more effectively. But when you get a team, you're sending conflicting messages if there's not that foundation of truth. You really don't want to stretch it very far.

Rachael: Absolutely. In particular, and in our line of business you always want to operate with a lot of integrity. So provided those fundamentals are in place, the competitive dynamic can be really helpful.

Can I ask you Linda, when you're working to create that competitive dynamic and any sort of transaction situation assuming the team, the product, those pieces check out and R&Ds are promising, how do you like to go about that?

Linda: I like to reach out to as many people as I can and try to utilize some forcing functions to line them up in time. That's a term I use for a variety of things that can be what causes them to need to be at a certain stage by a certain point in the calendar. So one forcing function might be ‘We're going to meet everybody at ASCO and we're planning to be under CDA by that time’ or another forcing function might be, ‘we're going to have new data by such a time and, therefore, we want you lined up by this time’. But those forcing functions can be really helpful to keep the herd moving together, to get people to act. Not perfect because at some point, you know, if they don't want to jump, they're not gonna jump. It doesn't necessarily work every time, but it's quite useful.

Rachael: There's something to be said for applying some pressure and letting people qualify themselves out if they're not going to move. We talked about this a little bit when we were planning for this call, and we’ve certainly talked to MotionHall members about this quite a bit. We've done that full market assessment and we're looking at sort of the range of partners that fit. Sometimes starting with the partners that fit less well, the ones that are a little bit less attractive for various reasons, can be a great way to work out kinks to the pitch. Ideally talking to people who are a bit hungrier for deals, you can start to drive up to competition and interest before you reach those more preferable partners that can help create a positive dynamic.

Linda: Absolutely right. I do think working out the pitch almost always takes time. It's an iterative process. If you think about how hard it is to convey crisply and clearly the value of something as complex as what we're generally talking about, to somebody who hasn't thought deeply about it before, they may not take the effort it requires to really think deeply about it unless you make it as easy as possible. So that iteration of how to tell the story is a critical part of the value of what you're doing in the outreach process.

Topic 2: What is predictive of where a deal will get done? How do you identify partners who fit?

Rachael: What do you find is most predictive of where a deal will get done and where do you look first when you're trying to understand if that's a good match for a particular partner?

Linda: I think of four simple things that go into the evaluation of any opportunity. 1) Strategic fit is number one. 2) Revenue potential, 3) What needs to be done to reach that revenue potential. 4) Risks. In terms of strategic fit, the opportunity needs to fit the partner’s expertise, pipeline fit, revenue needs, salesforce structure, scale and risk tolerance. If a company primarily has a record of developing 505(b)(2) products, they're not going to take on a complex CAR-T cellular immunotherapy. If you're talking to Pfizer, you can't expect them to be interested in something that might have a $200 Million market potential. If you're talking to Genentech, you've got to talk about sexy science. So you really do need to think about strategic fit with some logic. I think the MotionHall platform brings that analysis faster and more comprehensively than more manual ways. I also think there are awfully hard to predict factors that can be as important as the things we are thinking logically about, like new developments. New people are big factors. A single person can kill a deal. If they leave or arrive, that changes everything. They can come in and bring enthusiasm for an area where the company has no experience. That can become their corporate strategy. It's hard to know those things and they change.

Rachael: Yes, it's extremely human driven in the end.

Linda: Again, back to trust, and respect is a big factor there, too. Often, we look at situations where a company has stumbled. A stumble can lead to two very different outcomes. If they have a clinical failure, for instance, a potential partner can say, “Oh, we're burned and we never want to do that again.” Or they can immediately be hungry for the replacement. Knowing which outcome will happen is really tough.

Rachael: Certainly in terms of the work that we do with data, we're going to try to spot those companies by watching how they're spending their money and investing in science. But if there's been a big failure, immediately after that failure it's very hard to tell, until you talk to people, what's going to happen at the company. I also think depending on the company and their culture, there may still be room to wiggle into those conversations, which comes back to negotiation capability and navigating human relationships.

Linda: It helps to have those relationships and know who is interested in what within a company, even where you have figured out that the company makes strategic sense to talk to, it's helpful to know who within the company is the right contact.

Rachael: When we think about this at MotionHall, we do a lot of work to understand very deeply how the science of a particular asset or a company product fits within the potential partner companies. So not just pipeline composition, but are the potential partners doing science at a really granular level that relates to your science? Who on the scientific team might be involved in that science and understand it to really value what we have? That's a data-driven level of discovery, but then the human conversation comes when you want to start speaking to that scientific team or pointing to them in a business development conversation, as a way to streamline company understanding of the asset and of the deal. I think we've found that very productive.


Asking, 'Who on the scientific team might be involved in complementary science, and really understand and value what we have?'

Rachael Craig, MotionHall

Linda: Yes, I think that's very powerful. A related concept, I love getting my clients to go out to scientific congresses, to present and to attend presentations. That's how you build an internal scientific champion. You expose the champions to your thinking, you have those conversations and they can be a tremendous asset when you go through the BD side and try to move forward.

Rachael: I was talking to a dealmaker in-licensing at Novartis, and she was saying, “You know, even within my areas of therapeutic focus, if you bring me a platform technology or something really novel, and you don't tell me much about the science or who within my company can understand that science. I look at so many deals. You're betting on me to really understand how to match what you have and what I have, and I might not know. So consider maybe telling me, who in my team understands this science and where this fits.”

Linda: That's great advice. Technologies are particularly hard. In general, technology licensing is driven by internal client’s shopping list of interests. There are relatively few deals that are driven by receipt of technology. It really has to stand out. Technology licensing is so diverse that no person in charge of technology licensing, let’s say at Pfizer, can cover everything from a technology that applies to manufacturing, to AI for pathway modeling, to delivery technologies, to wearable digital devices, it's just way too diverse for anybody to manage. Therefore, I believe technology licensing is really heavily driven by the internal people saying, “Keep your eyes out for one of these. We're in the market for this.”

Rachael: That’s great. To summarize, if we're looking for partners that fit. We talked about complementary salesforces, can this product be reasonably carried out to patients with the company's existing salesforce? Does this company work with science similar to my own? I think you made some good points there. If the company specializes in 505(b)(2), they're probably not going to in-license the highly novel compound, even if it is world changing, if it doesn’t fit their business.

We look at a lot of deals trajectory and deals history. Have they done a deal like this in the past? Does it look like they'll do another one within a relevant time frame? What does that behavior as a company level look like in terms of transactions? Dedication to the therapeutic area, not just pipeline composition, and looking at whether a company is continuing to invest in that therapeutic area. Sometimes it looks like if the pipeline's drying up and that's a risk, or they may not be as interested in bringing new products in there.

Linda: One example is Boehringer Ingelheim. If you look at their pipeline doesn't have much in the way of CNS. But if you look at their deals, they've been doing a lot of deals in CNS. So that is an interesting dynamic. If you were only to look at their pipeline, you might miss that opportunity entirely.

Rachael: A more holistic look at the company ends up being really important. To summarize, this is a statement that we like at MotionHall, and I think you'd agree. When looking for partners that fit, the key is that companies are going to transact for value that aligns with their strategic priorities. From there, they need to be able to understand that value which is where the job of streaming and presenting to them comes in. You really want to lay it out and show them the fit so that they can appreciate how you add strategic value to them.


Companies are going to transact for value they can understand, that aligns with their strategic priorities.

Rachael Craig, MotionHall


Linda: Right.

Topic 3: How does fit with the partnering market impact deal dynamics and transaction strategy?

Rachael: Let's dig into understanding how partners that fit help us predict deal cycle dynamics. We've just talked about all these elements that help us understand where we will find fit, and aspects that we can measure in the data, and what we can find out from our relationships and network.

If we have a good sense of partners that fit across the board, how does that help us think about what our deal will be like to transact?

I have a couple of common scenarios that we see fairly often top of mind - the best scenario is that many partners potentially are very good fit for the deal. Can I ask you, if you looked at a deal where there's many, many companies that fit, that looks pretty attractive to the market, what you would expect in terms of deal dynamics for that asset?

Linda: So oncology is the classic example where there are many, many partners. The flipside of that is there many, many assets competing for attention. It's a broader outreach campaign. It's really thinking hard about your differentiation to rise above the noise. Depending on the stage and the asset, you can begin to think in a more structured method, if indeed there's real demand. Saying we’re in oncology is not necessarily saying there's real demand, because it's very asset specific. If there is a high degree of competition you can think about partnering it in at least a semi-structured process. The opposite, that's going to be really tough.


Oncology is the classic example where there are many partners. The flipside is that there are many assets competing for attention.

Linda Pullan, Pullan Consulting


Rachael: Sometimes we see preclinical oncology assets that are not very differentiated, and those are really hard to really navigate. If the science is a loose fit with everybody, the asset is not differentiated, or there's a lot of competition, it’s very hard.

Linda: Or there’s a lot of uncertainty still remaining that hasn't been answered or the path to that value is not clear. Small companies often underestimate how they need to tell the other side the best way to develop the compound. Even if the other side is huge and has all the expertise, and you are tiny. You need to think through that, because that is one of the key factors of an evaluation: “What I have to do and spend to get to that value”. That's a piece of the story you really need to think through, especially in a crowded area like oncology.

Rachael: Of course, a different situation, again, if the asset is highly differentiated, if there isn't a lot of competition, if we can see sort of a clean fit with a number of companies, and create the conditions for the potential partner to really to understand that science. I would say that's a classic, more auctionable scenario. Not so common but if you've got it, that's a good position to be in.

Linda: Absolutely.

Rachael: One of the tougher situations that we come across - sometimes you've got a really unique asset, maybe in an unusual therapeutic area, strange indication, and there may be very few companies that fit. Maybe you've got two really good fits. I think this is the classic MotionHall example, because we worked with a company like this many years ago, and they had a tough time. There were two companies that fit really well and a long tail of companies that didn't fit so well. It's tough to be in that situation. And when you’re in this situation the last thing you want to do is overestimate the fit across the market.

In the case of my example company, they did make this mistake, and assumed the asset was highly auctionable and about 100 companies would want the asset equally well, so they began with the top two best matches, and alienated those two companies, and then had a really hard time trying to get the transaction done after that point. I think that's an example of how to approach a case where two companies fit well the wrong way. What do you think the right way is? I think you can win in any scenario, but it takes thought.

Linda: You can! But boy, you have to work hard because you got to get it right from the start. If there's genuinely only two partners, which is rarely ever the case, but if they're genuinely only two partners, you've got to get everything right because “No’s” are very hard to reverse without new data or something changing broadly in the field. Once you've gotten a “No”, that's an uphill battle to change their mind. You really don't want to enter half-baked if you don't have very many chances at this win. You've got to get your story completely right, you've got to really think hard about that fit and the path to connect into the partner. You may have to go out and raise more money and carry it further to make it more appealing, because if you only have two partners, and they say, ‘come back when you have more data’, you're stuck.


Once you’ve gotten a ‘No’, that’s an uphill battle to change their mind. You really don’t want to enter a company with a half-baked strategy if you don’t have very many chances to win.

Linda Pullan, Pullan Consulting


Rachael: To add to your earlier point, I know that you've run the data and we've run the data and found that about 66% of all licensing deals are going to medium and specialty pharmas, rather than the top pharmas - only about a third are going to the top twenty-five. So when we think about companies and how many partners fit, sometimes we're looking at two favorite partners, maybe two top pharmas that fit, but to your point, there usually are others that can get involved in there. Then there's some thoughtfulness in terms of ‘well, if you really want the big pharma partner, how do we navigate and think carefully about this market?’ Closeout:

Rachael: We only have two minutes left, so I’d like to move to closeout. Thank you, Linda, for that great conversation!

Thank you everyone for attending and everybody who filled out the survey in advance. Again, we do have a couple MotionHall members on the call, so very glad to have you with us today and to play a role in your success and the important work you do for your companies and patients.

If there are questions about anything that came up today during the webinar, either MotionHall products and services, or for Linda and Pullan Consulting, know that you have the option to follow up by email afterwards and we can make those connections.

Thank you once again to Linda Pullan of Pullan Consulting for being our guest today.

Pullan Consulting writes a free monthly newsletter called Pullan’s Pieces and it goes to thousands of readers. It's a fantastic, really thoughtful and a very well researched newsletter. I highly recommend it and read it personally. You can find her newsletter and other resources through Linda's website: www.pullanconsulting.com

A big thank you to Linda and I'll look forward to seeing you on a future executive call. Enjoy the day everybody!

Linda: Cheers.

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