PharmaTelevision - PharmaVentures CEO, Fintan Walton discusses the impact on deal-making in Q3 2010.

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Video title: PharmaVentures CEO, Fintan Walton discusses the impact on deal-making in Q3 2010.

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In this interview, PharmaVentures CEO, Fintan Walton discusses the impact on deal-making in Q3 2010 with reporter Helen Wright at the PTV studios, in Oxford, U.K.

The current state of deal making

Helen Wright :

Hello and welcome to PharmaTelevision News Review. On today's program we'll be assessing the state of play in deal-making, and with me is PharmaVentures CEO, Fintan Walton. Fintan Walton we are in Q3 of 2010, how would you characterize the state of deal-making in general?

Fintan Walton:

Well as you say in Quarter 3 of 2010, the situation largely is that when we look at the overall trend of deal-making going on inside the pharmaceutical industry the trend that we noticed about three or four-years ago of declining number of deals is continuing. However inside that framework of decline there are also some good news, there is good deals still being done by biotech's and pharmaceutical companies and the reason for that is that there is still this huge need by the pharmaceutical industry in general to fill their pipelines, so there are still good quality assets out there, there are good quality opportunities for products either in clinical development or even in preclinical stage. And so we see a continued activity in this particular area, but the nature of deals have changed that's the important thing that we've seen in this particular period.

Key factors influencing the deal making landscape

Helen Wright :

I guess what most people would be keen to know is what's really influencing the deal-making landscape as you see it?

Fintan Walton:

Right, what's influencing it is it's a really important question, clearly everybody who today is looking at 2010 will look at the ongoing economic recession, that economic recession has brought with it difficulties in terms of financing and so forth, but interesting enough in the first few quarters of this year there has been more money raised by venture capital for biotech companies, so what we are seeing in 2010 is a changing environment, now we are still at this particular stage in 2010 were some of the biotech companies are still suffering from lack of funding from previous years, so the positive effect that we'd normally see from funding will only occur for these biotech companies later on, and what's important about this is that the biotech companies with products and development one of the big issues has been that they have not been able to bring those products to a stage of clinical development or proof of concept for an example where most major companies like to get obtain a license, with increased funding going to some very key important companies we do see, we do predict a return to higher deal making going into 2011 and beyond, but this year deal making itself has been constrained. The other driver of course as I have said already is that pharma companies themselves continue to need to develop their pipelines. A lot of the companies that are trying to develop those pipelines or strengthen those pipelines have resorted to acquisitions, and so for an example a company like Shire Pharmaceuticals has just recently put in a bid for Movetis [PharmaDeals ID = 36959] which is an emerging pharmaceutical company in Belgium which were actually was spun out of Johnson & Johnson or Janssen-Cilag, which has got one product on the market and a number of products in clinical development, so we are seeing more acquisitions, licensing is one way of getting access to these important assets, but obviously acquisitions is another component. Then the other influencing factor again because pharma companies need to develop their pipelines another recent activity is for an example Sanofi Aventis's attempt to buy Genzyme [PharmaDeals ID = 37246] a very well established biotechnology company but now largely a specialty pharmaceutical company, so acquisitions are key to the play as well.

Helen Wright :

So much more competitive landscape than a couple of years ago?

Fintan Walton:

Absolutely more competitive, but some people would argue it is always competitive, but because of the rare number of really good assets and also the crisis if we can call it that where pharma companies need to strengthen their pipelines doing a patent cliffs and so forth they need to get high quality products on to the market, so it's really important that these companies move quickly to gain access to not just one product but the whole range of products and obviously acquisitions is clearly another way of doing that or a very straight forward way of doing that. So it is a much more competitive a marketplace for deal making.

Role of PharmaVentures in assessment and competitive deal risk profiling

Helen Wright :

And what do you here at PharmaVentures doing to help companies succeed in that competitive area?

Fintan Walton:

Well one of the things that we've started to do recently and it came out of a specific need for one particular company as it often happens and what they wanted to do is to assess where they were in the competitive landscape, what sort of deal makers were they in relation to their competitive companies, so it comes back to this pipeline issue that I talked about, if you are a pharmaceutical company you're the only reason why you are doing deals is to fill your pipeline either your development pipeline or to get products straight on to the market through like for an example through acquisitions. What we've been able to do for our clients in recent times is to do an assessment of their deal-making and that assessment is called competitive deal risk profiling. And this exercise is an intensive diagnostic if I could describe that of how a company fits in relation to its competitors with respect to deal making that all links back to the types of risk they are prepared to take in order to strengthen those pipelines, when we look at a technical risk we look at a number of components within technical risk, for an example we look at the clinical stage that the company is, the types of products it's in-licensing for an example the molecule type, the novelty of the targets, and the novelty of the compound as well as the therapeutic area and the risk within that therapeutic area. So we are looking at various parameters just around one particular component which is technical risk. Then in addition to that as you can see in the next slide is that we have not only technical risk assessment we look at the competitive risk, we look at the deal financials of the company and the types of money its prepared to spend on deal making particularly in terms of things like upfront payments, which is a risk of course you are putting money risk right up front, on to the corporate financials of the company what strengths it has in terms of its own balance sheet for an example and also the strategic alignment is it bringing in new products or is it just bringing in products that it's along existing therapeutic alliance. So all of these parameters provide to build up an understanding of the overall what we call composite risk of the company itself. And if I can show on the next slide you can see how this how one particular company fits in relation to its competitors and in this particular case it's a company that's risk averse, now the question back to management is are you happy with your position in relation to your competition, because your competition might be taking higher levels of risk.

Profiling exercise and overall corporate strategy

Helen Wright :

Okay, so you've been through the profiling exercise you know where you stand in relation to your competition, what did you next?

Fintan Walton:

Well this, why this is a useful exercise it provides a platform for your overall corporate strategy and the people who really like this exercise are the corporate strategists that senior people within the organizations who want to steer their company straight into the obviously success against their competition, and what our companies that we are advising are doing are using this information to the next stage which is setting the overall corporate strategy. Now in some cases the results fit exactly the corporate strategy they've taken, so if you are risk averse you are happy with your position, but if you are concerned that your competitors are moving in a particular direction you may want to either move towards that or you may want to move away so what the next stage which is really important is aligning the facts that we've generated through the risk assessment into where that fits in relation to your own overall corporate strategy and do you now want to change your corporate strategy.

Fintan Walton's perspective: The future deal landscape

Helen Wright :

So in an environment which is so competitive, but where companies still need and want to do deals, what sorts of companies do you see as been most likely to succeed?

Fintan Walton:

Well it's a fascinating subject this, because in the end we have an overall need within our societies wherever around the world to have medicines that are going to ultimately relieve the symptoms of disease or hopefully even over come disease itself, and in the end we are going to in my view we are gonna end up with few large players who are generally big marketers, we are going to see as well specialty still some specialty pharma companies, but I would predict that the number of specialty pharma companies will be absorbed and the fact that Sanofi wants to buy Genzyme is a classic example of that. The question is will company like Shire Pharmaceuticals exist in the future, is that going to be ultimately an acquisition target, The key thing here is one thing is to be a great marketer, but you also need to be a great innovator, the problem with innovation is that it's difficult to trap innovation you can take all the best scientist with white coats and put them into your secret building inside the volcano of a in the James Bond (indiscernable) and have them all work extremely well and even though they may be the best scientist in the world you cannot guarantee that innovation will happen there, innovation will pop up elsewhere. So the world's gonna be divided into in my view three parts, one is the very strong successful marketers of products who understand the whole dynamics of pricing reimbursement, how to get products to market and how they can be effective in the patient population. The other group are gonna be innovator companies, the companies that will come and go, they will not necessarily always be there, but they will be the innovator companies they will supply the pipelines to these big marketer companies. And at lastly the third class of companies that we'll see and we are seeing this through our own work here at PharmaVentures is the establishment and the growth of CMOs and CROs these are the companies they are the contract manufacturers, contract research organizations major pharmaceutical companies are divesting those, the people the organizations are buying them those CMOs and the CROs and so the landscape these, all these features exist today, but we were gonna have fewer marketers probably five may be six major marketers in the world, we will have a group of innovator companies which will come and go, will be important, incredibly important to supplying the pipeline of drugs to these pharmaceutical companies. And then finally well established contract manufacturing organizations, contract research organizations so that's how we see the landscape probably in about 5 to 10 year's time.

Helen Wright :

Fintan Walton, thanks very much for joining us.

Fintan Walton:

Thank you Helen Wright .

Helen Wright

Reporter

Helen Wright has worked as a broadcast television journalist for several years, covering general news, business and politics and currently involved with PTV news of Pharmatelevision.com. Helen Wright has also worked as ITV News education correspondent and covered disability affairs. She has reported from Europe and the US. She also researched, directed and presented films for a Yorkshire TV regional documentary programme. Helen Wright began her journalistic career in local radio in Bradford. She has a BA Honours Degree in English.

Fintan Walton

Dr Fintan Walton is the Founder and CEO of PharmaVentures . After completing his doctoral research on the genetics of cell proliferation at the University of Michigan(US)and Trinity College (Dublin, Ireland), Dr Walton gained broad commercial experience in biotechnology in management positions at Bass and Celltech plc (1982-1992).

PharmaVentures

PharmaVentures is a corporate finance and transactions advisory firm that has served hundreds of clients worldwide in relation to their strategic deal making in the pharmaceutical, life science and healthcare sectors. Our key offerings include: Transactions / deal negotiations; Product / technology valuations; Deal term advice; Due diligence & expert reports; Strategy formulation; Alliance management; and Expert opinion for litigation/arbitration cases. PharmaVentures provides the global expertise to ensure our clients generate the highest possible return on investment from all their deal making activities. We have experience of all therapeutic areas and can offer advice on both product and technology commercialisation.

PharmaVentures