What’s the Deal? Navigating the Complex World of Pharma Business Development

2024 has the potential to be a year full of partnering opportunities, driven by the much-discussed patent cliff as some of the biggest-selling drugs in history are set to lose exclusivity by 2028. Perhaps as much as 6% of the nearly $1.6 trillion overall drug market might be at risk and while this isn’t Big Pharma’s first experience when it comes to making up the deficit, there will be notable gaps to fill.

There is a broad sentiment that the volume of deals will increase this year. With biotechs increasingly short on cash, at risk of restructuring and looking for investment, undertaking partnerships presents an opportunity to sustain operations.

Successful partnerships are a delicate balance, blending both scientific and commercial expertise. You need science to understand how a drug works to demonstrate its advantages over other therapies (is it first in class or best in class?). This is demonstrated by a fear of missing out that has driven the recent interest in ADCs. Winners will generate blockbuster revenues but we may not be far from saturation. While numbers of pipeline products continue to increase, only a limited number of molecular targets are commonly cited.

You need a commercial mindset to understand its potential patient population, competitors, market size, and how physicians and payers will approach it. Payers are often considered too late in the process – something we addressed in this blog. Ultimately, it’s about proving that a new product (molecule, compound, technology or intellectual property) is addressing an unmet need, has an achievable and realistic pricing strategy, and is ahead of the curve in bringing innovation to the market.

A solid foundation of robust commercial and clinical data is best paired with critical insights to inform robust forecasts and valuation. Here are three core elements of a successful pharma deal that are necessary to successfully predict whether the product is going to achieve strong performance in the marketplace:

1. 1. Science: Explain the benefits of your product to the buyer: What does it treat, and what makes it superior? What unmet need does it address? Does it show better efficacy? Fewer side effects? Is it more easily administered to patients? Potential partners must understand the clinical benefits but it is also crucial that they are provided with credible information. As far as possible the provision of a balanced target product profile will facilitate more accurate valuations and ultimately lead to a higher chance of a successful deal, as opposed to over-promising or cherry picking information.

1. 1. Competition: Show how your product stacks up against the rest of the market, both current market standards and what’s being developed. The standard of care can change rapidly, especially as new modalities continue to enter the treatment paradigm. Given the intricate challenges that the development of new modalities pose – from developmental hurdles to logistical complexities – strategic planning and resilience vs competitor products has never been more critical.

1. 1. Commercial: Understand the patient journey and understand KOLs and payer perspectives to help define market positioning, uptake and pricing. From a buyer’s perspective, acquiring new products can help strengthen core offerings and expand into adjacent products as demonstrated by the success of companies like Novo Nordisk and Eli Lilly taking their new therapies for type 2 diabetes into the obesity space with huge sales forecasts attached to them. Indeed companies like Novo Nordisk and others that have in past avoided outside partnering will continue to use partnerships to expand their technological toolkits to access RNAi technology or potentially revolutionary technologies to make protein or peptide drugs orally available. It is also likely that the trend towards earlier stage assets will continue to increase, or companies making multiple bets on assets for a particular molecular target they find attractive.
      New acquisitions can also help you explore white space. For example, further to ADCs, costimulatory bispecific antibody treatments are equally promising, while others look to explore modalities such as oncolytic viruses or neoantigen cancer vaccines. New acquisitions can also help build your drug pipeline to create value where focus may actually be considered a negative and actually companies may move away from reliance on one mechanism or one pathway. In therapeutic areas outside of oncology in 2024, partnership valued at over $1 billion include Takeda and Protagonist Therapeutics (Mimetic peptide in haematology), Boehringer Ingelheim and Suzhou Ribo (siRNA in MASH) and Novartis and Shanghai Argo (next generation RNAi in the cardiovascular space).

After the industry downturn in 2022 and a rebound in 2023, there is reason to think there could be a continued increase in dealmaking activity and value creation in 2024. Therefore, identifying assets which demonstrate innovation, conducting appropriate risk and return analysis, identifying the right partner, and executing the most robust development strategy are key. Deals have become more complex in recent years, with lower upfront payments and more milestone-based deals taking place. This makes deal benchmarking an important factor, and buyers and sellers need to set proper expectations and consider what their business goals are. When deal-making steps are missed, the consequences are significant—overpayment, failed product development, and ultimately unmet expectations.