Build or Destroy Value: Your Choices as a Biotech Company Board Member

As a board member at a biotech company, you're often going to be in a position to make decisions about asset licensing, company M&A, and taking on new investors.?

The most common decisions facing boards with respect to Business Development (BD) and licensing are:

• What should we develop in-house vs. sell/license?
• What is the right timing for a transaction??
• How should the deal cycle be managed in terms of process?
• What resources do we need to execute the deal properly?

If you came to your board position through an investment then you may have already considered the BD and M&A future of the company as an aspect of your due diligence. An asset is better protected and less risky when the licensing and M&A future has been considered prior to making the investment and there's a plan in place.?

A common point of confusion for many boards is understanding the difference between when it's time to begin planning for and initiating partnering conversations and when it’s time to execute a? transaction; whether that’s licensing a product or selling the entire company. (Hint - planning should happen as early as possible as engagement with potential partners may need to start much earlier than you may think - Also When Should a Biotech Consider a Licensing Strategy).

A transaction should take place only when enough value has been built in the company to create a return on the investments that have been made. However, in order to get to that place of value and return on the investment, it's critical that boards plan early for business development, and invest up front in the people, information and tools that will let them understand the licensing or M&A market and how to optimize transactional value.

Invest Early in Information and Planning to Build Value

As a board member, you should be acutely aware that biotechs predominantly realize the value of their investment into platforms and pipelines in the form of licensing deals or full company M&A. For the rare company that builds a regional sales force of its own, you will still need to realize a majority of the value through licensing deals that allow for global distribution. As such, a company that doesn't understand its likely strategic partners can't have a viable plan for interacting successfully with them. Making strategic decisions without the right information and insight is extremely risky for you, your company - and please remember, ultimately, for the patients you wish to serve.

A company should seek to understand its position in the market, its potential licensing partners and M&A buyers, then form a plan for how to interact with these companies in a way that protects the value of its science. This needs to happen as early as possible, ideally at the inception of a company. You as a board member should want to know:

• Is there a viable business development plan? If not, how can we develop a viable business development plan for this company??
• Is that plan sufficient to realize a meaningful return on the funding raised?
• Likewise, is there an attractive M&A scenario for this company, and can we use this to protect against downside?

See How to Create a Solid Biotech BD Strategy for more information on creating your BD plan.

Every Company Should Have an M&A Plan

Whether your company was set up with the goal of M&A in mind or not, having a credible plan in place puts you in a position of strength, should you ever need to, or choose to, sell the whole company. Understanding the position of your company and your pipeline in the market lets you make better pipeline investment decisions, understand when to license, who to talk to and how to talk to them. Planning within this context ensures you are always in control of value generation regarding your company’s technology and future.?

This also means that while understanding the M&A position of your company day one is critical, it is also critical to maintain an up-to-date understanding over time as the company grows and the pipeline moves forward through development. Having real time comprehensive knowledge of the M&A position of your company can allow you, as a board member to:

• Seize opportunities for a healthy exit should the M&A market become very active;
• Protect and enhance the value of the company should an M&A buyer approach the Board; and
• Make more informed trade-off decisions across the pipeline to ensure both asset valuations and the ‘sum of the parts’ (i.e. corporate valuation) are being optimized.

Licensing and M&A Strategy Should Inform Pipeline Investments

While the company will grow and plans may change, before making a substantial investment in the pipeline, you should clearly understand the full scope of opportunities around the situation of? the company and its assets. If you understand what it will take and/or how difficult it may be to transact your asset early, you can strategically plan to ensure you have the best chance to transact at value on preferred timelines. This includes having early answers to these questions for each asset:

1. At what stage of development will this asset transact at the highest value, in a way that's meaningful for this company?
2. What is the set of potential licensing partners that could transact on this asset??
3. Who are the ideal partners that will be strong fits throughout the asset’s life cycle, to carry it to patients and stay the course??
4. How well does the asset fit with them? Is it attractive to them??
5. What is it going to take for us to transact with these companies??
6. What are the target deal terms we should look to achieve with these companies?
7. What is the competitive situation of this asset and are there serious competitive threats that may pose challenges for the licensing cycle?

Many Biotechs?Benefit From Early Market Development

A common next step once the above questions have been answered early is the initiation of discussions with potential partners or acquirers? to educate and prepare the market. This means nurturing relationships, and building awareness of your science and pipeline early with the scientific teams at companies with whom you hope to transact someday. These relationships will not only prepare the market for when you are ready to transact, they also provide valuable feedback on your technology and plans, ensuring you have this external input as you adapt and deliver on your corporate strategy.

It is critical that you conduct this early outreach thoughtfully and with a lot of tailoring and awareness, or else you risk anchoring the relationship in the wrong place - they will be keeping detailed records of your interactions in internal databases so ensuring positive momentum within these companies is key to future BD success. These strategic fundamentals set the roadmap for value development at the company, and they provide the guideposts for avoiding unnecessary risk.?

Early Planning is Crucial to Building Value and Future Success

Less sophisticated teams usually want to wait before they try to tackle the licensing/M&A issue. Common misconceptions are:

• ‘We don’t need to understand the licensing opportunity yet. We haven’t even started our deal cycle.’
• ‘We will wait to see what our next data milestone says before we consider what to do about licensing.’
• ‘We know who to talk to already, we are sure our technology will excite them enough to do a deal with us when we do talk with them.’

If you, as a board member, hear this from your team, it may be time to challenge them on these damaging misunderstandings. Leaving this critical conversation until it’s too late to adjust plans to engage with the market can lead to significant destruction of value.

As previously discussed, early evaluation of the business development landscape should inform pipeline development and investor conversations. Specifically, preparation of partnering materials and planning your large company entry and navigation strategy should begin prior to your first conversations with the market of prospective partners.

In an unplanned scenario, it is common for the company to invest valuable time and resources speaking with companies that might, on the surface, look interesting, but are unlikely to transact under any circumstances, or who would not have the right capabilities to properly support the technology going forward. Furthermore, entering stakeholder navigation and management of those higher quality companies that might transact, without a properly constructed outreach strategy, is likely to lead to the company struggling to develop deal champions there from either the business or scientific teams. Such fruitless conversations are recorded in internal databases with prospective partners and can become a difficult obstacle to overcome in the future when attempting to re-engage at that same company. Without careful planning and a deep understanding of the whole market of potential partners that gives you the ability to develop positive relationships and reasons for the pharma partner to engage, those few you approach are likely to stay on the sidelines and keep asking for more data until you have sufficient leverage to close. And this is a best case scenario.

If you’ve done your homework correctly, well before engaging with those companies you are most likely to transact with, you will have understood who all your potential partners are,? who the right stakeholders within these companies are, and how to tailor messaging to them for the highest impact. Then, you’re working to win over internal scientific champions who can drive your deal forward in tandem with smart stakeholder management of the business development team. If you’ve run a thoughtful, organized and credible process, by the time you begin conversations with your best-fit potential partners who you want to transact with, you may have already collected alternative term sheets along the way so that you have sufficient leverage to close with them.

Mastering this navigation and entry strategy is profoundly important to generating value in your deal cycle. And you do need to think about how to engineer a competitive process where you have a better shot at closing with the companies that you want to close with the most.?

The MotionHall Platform Improves Foresight and Deal Acumen

Many highly experienced teams believe that if they've invested in databases and smart analyst time, they're going to know the partnering market for their products and technology. While a great amount of ground can be covered, this approach is not only slow and expensive, potentially taking years to complete, it's no longer a credible, best-practice approach. MotionHall’s Platform has surpassed the traditional best-in-class business development approach with its unparalleled ability to process specialized market data at volumes that are only possible with modern data processing and AI techniques. By constructing a virtual, constantly self-learning model of the entire industry, MotionHall is able to predict how biotech companies should go to market, who is most likely to transact, and enable a powerful, science-led outreach to this marketplace.

Wise leadership will act fast to make these resources available to its executive team. An investment in MotionHall’s cutting-edge Platform offers a massive ROI? considering the value that you are looking to capture from your planned transaction. MotionHall's Platform supports decisioning that allows you to capture that value by giving you those early answers on the transactability of your asset, pipeline, platform or company M&A potential. You will know when and how to initiate a transaction process, led by a deep understanding of when sufficient value has been built in the company to create a return on the investments that have been made. All of those answers come from MotionHall’s Platform, Model, and Method.?

Build or Destroy Value? As a Board Member, it's your responsibility to build value for shareholders and patients.

As a board member, you may find that not everyone on your executive team understands these concepts. However, it is your responsibility to protect and build value in the company by making sure you understand them clearly,? and by pushing for investment into understanding the company's position in the market as early as possible. This early investment in knowledge and insight is the critical difference between maximizing vs. destroying your company’s value. We hope that this short article is of assistance to you and your company on this journey.

. . .

Meet the MotionHall Model, Method and Platform: Working at the fingertips of senior biopharma executives and their teams worldwide. The MotionHall Platform is an emerging modern icon of strategic acumen in IP portfolio management and transactions. Learn more.