Buying development or commercial stage assets is a strategy with the potential to create multiple sources of value for many small to mid-sized companies. Closing a deal on the buy side can create potential short and/or long term revenue growth, create catalysts to move stock price, mitigate risk by diversifying the portfolio, generate commercial and other synergies, and provide numerous other benefits to the company and its shareholders. However, as smaller companies contemplate how to identify and pursue buy-side opportunities, they often face unique challenges not encountered by larger companies.
Below are some tips that Locust Walk has used to drive success for smaller companies we’ve worked with on the buy side:
- Reality check: define what you want and what’s realistic. The first step in pursuing any buy side process should be to define expectations (including those of your board and investors) on what you are looking for and what’s realistically possible. Examining your core capabilities, current and planned strategy, and what you may be able to afford to pay will allow the creation of clear and realistic screening criteria. To be successful, you’ll then need to devote significant time and resources into applying these criteria to the universe of assets to generate interesting leads.
- Be willing to move forward on multiple assets at once. Once interesting targets are identified via a screening process, the next step is to begin discussions and diligence with the potential seller. For a multitude of reasons, most ideas will not ultimately turn into a deal. Therefore, in order to close a single buy side deal, it’s often necessary to be willing to investigate and pursue multiple assets at once, sometimes devoting significant resources into parallel diligence and negotiations processes.
- Be creative in evaluating an asset’s fit. Smaller companies sometimes need to get a little bit creative when evaluating an asset’s potential value. As many illustrative case studies show, being willing and able to see the value in an asset despite challenging commercial positioning, a previous failed trial or launch, or other less-than-ideal characteristics can enable access to extremely valuable assets that may not be on the radar for larger players.
- Convince them you are the best partner. It is often possible to win a bidding process even if there are bids on the table with larger economics. Demonstrating to a seller that your team has the experience, capabilities and motivation to maximize the asset’s success can often make an important difference. This is particularly true if the deal has royalties or other back-end components, if there are important non-economic deal terms, or if the seller is passionate about the drug or the treated population.
- Be willing to move quickly. One competitive advantage that smaller companies often have over big pharma is speed and agility. While large companies are often slow to move through diligence and deal execution due to organizational constraints, smaller companies that are serious about getting a deal done can often move much more quickly. Devoting resources to a speedy close may make the difference between success and failure.
- Come to the table with financing in hand. A challenge often encountered by smaller companies when pursuing an asset is the seller’s uncertainty about the buyer’s ability to pay. One way around this problem is to bring potential investors over the wall early in discussions to provide certainty about financing. A term sheet submitted along with a confidence letter from one or more willing investors will have a lot more credibility than it otherwise would.
Portfolio expansion through asset acquisition can create a lot of value for companies and their shareholders. Although smaller companies sometimes face challenges when seeking to pursue this strategy, success can be achieved by mitigating real or perceived competitive disadvantages while maximizing the unique attributes and benefits of a smaller would-be buyer. Locust Walk has experience and resources that can increase the odds of buy side success for smaller companies, so please contact us if you’d like to see how we can help. Happy hunting!
Written by Nick DeLong