Time Will Kill Your Deal…but in Deal-Making, Timing is Everything (Part Two)

In part one of this blog series, we emphasized the importance and potential impact of early outreach on partnering for early-stage biotech companies. Let’s turn our attention now to another setting where timing can favorably and significantly impact the deal process – that of upcoming program milestones. These events, such as the start of Phase 1 dosing, or an end of Phase 2 (EOP2) meeting with FDA, can be used as levers to drive and accelerate time pressure on deals with the buy-side for clinical-stage biotechs. Let’s use a real-world example to show how this approach can work.

During the partnering process for one of our recent deals for a Phase 2 program, our client (a private biotech) was preparing for an EOP2 meeting with FDA. As this audience knows, these meetings are momentous events to both sell-side biotech and buy-side pharma companies, as their outcome defines and clarifies the development path forward through Phase 3 to submit an application for US marketing approval. Though official “meeting minutes” are the final tangible product from an EOP2 meeting, neither the tone nor engagement of regulators is adequately captured in the minutes. The only true way to evaluate and understand what “actually happened” is to attend these meetings in-person. It goes without saying, but I’ll say it anyway, that body language, posture, and enthusiasm (or lack thereof) must be seen to be believed.

As you would expect, all potential buy-side pharma partners for this Phase 2 program were interested in the upcoming EOP2 meeting, but from two very different perspectives. The first, a more conservative view, was that if we (partners) were going to in-license the candidate and bring it through to approval, for what specific development program and associated cost would we be committing our organization? So, we (partners) will wait until after the EOP2 meeting before we can proceed to submit a term sheet for a potential deal. The second, a more aggressive view, was that if we (partners) were going to in-license this candidate and bring it through to approval, then we need a seat at the table at the EOP2 meeting so that we can participate in discussions with FDA to help shape and influence the path to marketing approval.

With the upcoming EOP2 meeting providing a critical regulatory milestone during the partnering process, we capitalized on the event with potential partners who had adopted the aggressive view, and kindly informed those companies who had been doing diligence that, “if they’d like a seat at the table for the EOP2 meeting with FDA, then term sheets are due by X date, and full contract must be executed by Y date”. This strategy put us in the very fortunate and enviable position of negotiating term sheets and contracts in parallel with three pharma partners along a very aggressive timeline (< 1 month). In the end, the final contract was executed just 12 hours prior to (the night before) the EOP2 meeting. Remember, passage of time will kill your deal, but utilizing milestone events during partnering can accelerate deal discussions dramatically. Pharma can move quickly when the situation requires it.

Again, what’s the take-home message here? We believe that biotechs should be mindful of the timing of upcoming milestones and regulatory interactions when forming strategies for initiating and executing sell-side partnering campaigns. We strongly suggest that, at least for late preclinical or clinical-stage programs, a biotech needs to understand and capitalize on the alignment of partnering timelines and development activities. This understanding provides a great framework for evaluating the “when to partner” question that will be discussed by the management team and Board. Of course, a similar strategy that we employed for the EOP2 meeting deal timeline can be implemented for other regulatory discussions (e.g., pre-IND or pre-NDA meetings).

Returning to our original premise that time will kill your deal, but that timing is everything, once momentum begins to slow during a partnering campaign, it can be nearly impossible to rekindle the buy-side’s fire in the absence of new data. Given the points outlined here and in our previous post about the implications and importance of timing – of partner outreach and upcoming program milestones – on deal-making, we strongly recommend that biotechs spend a significant amount of time thinking not only about “whether to partner”, but also to clearly evaluate other essential strategic aspects of a deal – when to partner, with what data, and driven by which timelines and upcoming milestones.