How Do Eli Lilly & Co Do Deals?




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Video title: How Do Eli Lilly & Co Do Deals?
Released on: November 18, 2008. © PharmaVentures Ltd
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"Most deals will fail for non-technical reasons". A sobering thought for the biotech industry, especially with the global markets collapsing around us where big deals are a lifeline to many companies. Mark Barbato explains how Eli Lilly & Company decided to tackle this problem back in the 90's with the creation of its Alliance Management group, which is now responsible for the company's relationships with its partners. Part of their role is to find, get and create value and Mr Barbato stresses that although Lilly is currently acquiring several small companies, such as ImClone and SGX, their focus today is still on forming a diverse range of collaborations.
How Alliance Management Fits with Lilly's Fit net Business Model.
Fintan Walton:
Hello and welcome to PharmaVentures Business Review here live in London. On this show I have Mark Barbato, who is Vice President of Alliance Management at Eli Lilly & Company in Indianapolis. Welcome to the show.
Mark A. Barbato:
Good morning Fintan , good to be here.
Fintan Walton:
Good to have you Mark because clearly Eli Lilly & Company is an organization that has a good track record to high profile in Alliance Management and the application of that Alliance Management to it's � deals it's does and has done, as Vice President of Alliance Management how does that fit within first the business model that Eli Lilly has set up and then how does that actually translate into the deals you've done?
Mark A. Barbato:
Okay. It's good a question to have it first our origins go back to the 90's that actually when we started doing more deals our head of Lilly research labs talked to there had to be more research with that was i.e more partnerships and so question was asked which if you are going to do more of that how you are going to be good then at managing those partnerships so the office of alliance management was created then to help manage those. Our business model talks about three things kind of find it, get it and create value segments, find it been a global external R&D group and get it being a business development and then alliance management being the create value portion. And we actual started very early on in the due diligence process even going back to the with our find it colleagues as we try to asset that company how we are going with them, how we feel strategically and operationally as well as culturally.
Fintan Walton:
Okay. Now how and then there is the business model is the fit net model, tell us about the fit net model?
Mark A. Barbato:
Okay, the fit net model is a terminology we refer not to our business model having evolved from a FIPCO or fully integrated pharmaceutical companies, we now like to think ourselves as a fully integrated pharmaceutical network in building those capabilities. And for us that means operating at three levels. Level one is perhaps more traditional to many of our listeners today and that is on a fee for service basis kind of at the clinical research organization sample or for example we have chemist in China that deal much of a again a fee for service work.
Fintan Walton:
Sure.
Mark A. Barbato:
Level two would be more of a co-development model for example with company like Daiichi Sankyo [PharmaDeals ID = 27468] [PharmaDeals ID = 7219] right now for the co-development cum marketing Prasugrel And then level three gets more into equity related partnerships where the Lilly ventures arm and actually Lilly Asian ventures arm based in China.
How does Alliance Management work?
Fintan Walton:
Okay. So obviously those are a range of different activities under the alliance management banner in which you are responsible for making sure all those collaborations work, how does that work?
Mark A. Barbato:
Under the alliance management banner we typically tend to work with mostly in the middle group there in particular those where we have co-development cum marketing arrangements, however we do move in the other ways because there is also clearly strategic partners as well and so we've been involved with some of that larger ones with Quintiles [PharmaDeals ID = 11839] for example but we also work with other colleagues within Lilly who also manages on a more active day-to-day basis, so while we talked about alliance management but it's clearly relationship management and so the tools and techniques that we've develop in the last decade we now spread those and quite frankly we do a lot of advocacy work done within Lilly to help our colleagues become better at managing those relationships with the variety of partners that we now have.
Fintan Walton:
Right. Now the key thing here as you as anybody who looks at Lilly will see that there is a diversity of a relationships which fit into the into the fit net business model something's that's quite radical for a company that's that's been traditional seen as a conservative company but how does that actually translate in these alliances are very important, they are key to the development of Lilly itself, but how does that actually how do those actual alliances work from a alliance management perspective and what's the input from your office into those particular alliances?
Mark A. Barbato:
Okay. The alliances work I guess in a again a continuum of ways because we want to tap some of the intellectual capacity and certainly the intellectual properties that exists outside of Lilly by the same tap you want to make sure that the partners keep in may cases there are entrepreneur sprit so part of it depends on what they are looking for from Lilly whether it's simply financial or whether it's co-development help, whether it's regulatory capabilities and things like that, so we've got some early stage ones including some here in Europe, like Galapagos [PharmaDeals ID = 29312] in Belgium where they do a lot of the work and they are certainly consultation and steering committees. The most recent one and the most recent of that ones announced just within last couple of weeks was Jubilant organosys [PharmaDeals ID = 31878] in India is a joint venture where both companies are putting molecules into the partnership and would be developing those hopefully up to stage 2. And then we've got other arrangements well then I guess the other very visible one was arrangement with Covance [PharmaDeals ID = 30987] here most recently in Indianapolis where we actually sold the facility at the toxicology to Covance they have already been engaged with Lilly on many aspects particularly preclinical toxicology they will continue to do that in we signed 10-year contract with him so that will operate at a whole different level. And there is a person a point person on the Lilly side to help manage that relationship and we will be working with them as well to again use our tools and techniques to efficiently manage that relationship.
Fintan Walton:
Right. I mean how you the alliance management that you have for a joint venture with Jubilant in Bangalore would be different to the type of relationships that you would have with the with Covance very close to your own home?
Mark A. Barbato:
Absolutely and as well as different then what we use for example Daiichi Sankyo for Prasugrel or with Amylin for Byetta [PharmaDeals ID = 11452] trading for its Exenatide so in part of those there is a more active role if you will for alliance management in some cases there is more of a consulting role more hands off so again we look the relationships and the people involved (indiscernable) as to whether there is an official alliance manager for example that comes out of the office of alliance management, but we would also like to say that all those people involved that alliance there are alliance managers too and therefore we have to help them with their alliance or relationship managing skills.
Changing pharmaceutical industy environment and Lilly's acquisition Strategy
Fintan Walton:
Right. And nobody would doubt that the pharmaceutical industry is going through huge changes has done for the last 12 - for the last 25-years but in recent times it has undergone those changes and we see as we all know Eli Lilly & Company buying or in the process of buying ImClone, so and you've also done a series of acquisitions more acquisitions in that recently as well. So how is that changing changing environment impact on an organization like Lilly?
Mark A. Barbato:
Okay. again as we look at the fit net it too is an involving model it's not just one particular model or way to do things. You mentioned ImClone [PharmaDeals ID = 31381] but also early this year we actual made an acquisition of SGX [PharmaDeals ID = 30740] a company in San Diego for it's technology consistent with another one in San Diego AME [PharmaDeals ID = 14647] few years ago, so we have made targeted acquisitions and we will continue to look for those, but we are not on large acquisition buying's pre per say we look for lot more collaborations and that in fact is by far the bulk of our portfolio of relationships or collaborations those collaborations would be more simply on financial basis royalties and milestones there might be joint ventures as the Jubilant one could be and in some cases like you mentioned ImClone which possessive closure but least referred is SGX where there actually could be an acquisition in as a fact what we've done on the West Coast a couple of times now.
Fintan Walton:
Right. But I suppose the key thing here is that the message is that collaborations are still the bulk of what Lilly wants to do on the acquisition trail they tend to be � are they tactical or strategic above little bit above?
Mark A. Barbato:
Yeah. I think they go hand-in-hand Fintan on that I think you obviously have a strategy you are trying to act as we will make targeted acquisitions and will move in that direction, but we will look at the collaborations you know one of the other aspects I had mentioned is some of them might be risk sharing we got some arrangements particularly in India with Piramal Life Sciences [PharmaDeals ID = 26307], [PharmaDeals ID = 29463], with Suven [PharmaDeals ID = 31951] [PharmaDeals ID = 25143] where is actually some risk sharing where they've taken Lilly assets we developing them and then we have a chance to come into the arrangement or allow them to continue. So even that expecting is changing into more risk sharing arrangements with partner that's something we won't do and may be 10-years ago.
Fintan Walton:
Right. And that includes bringing in financial partners as well?
Mark A. Barbato:
It would be.
Fintan Walton:
Some deals with TPG?
Mark A. Barbato:
We've done with TPG-Axon, we did a deal on one of our Alzheimer's molecules early this year we announced, so again a different risk sharing financial model there. So I think we are open to a lot of innovative ideas and of course there is one here with the partner's interest in so we can get a mutual meeting at the minds.
Alliance Management spreading across the diversity.
Fintan Walton:
Right. Now because of all these, these deals, these alliances all these collaborations going on the your office that you're Vice President of Alliance Management you have a significant responsibility basically for a broad range and diverse range of alliances there, I mean I know that you � you focus on particularly on co-development type arrangements, so again I suppose how does that imprint of that knowledge distributes itself appropriately across the diversity?
Mark A. Barbato:
Well we have a very core group of people in the office of alliance management as you indicated in terms of network particularly on our co-development, co-marketing arrangements. As I indicated we also work with other departments in Lilly to spread their relationship managements skills with a bit of missionary work I guess you could say to help them understand what's needed to become a good relationship manager you know how does most of deals let me back up a step most deals will fail for non-technical reasons I think that's the sobering thought that everybody has to realize. And so to do that you got to have the right skills to make sure you can get through those issues so we spend time on issues like governance, trust, communication and leadership to lay foundation elements across all of our deals.
Fintan Walton:
And does mean that you are less likely to have your deals fall apart because of
Mark A. Barbato:
We would hope so.
Fintan Walton:
Non technical reasons?
Mark A. Barbato:
We would hope so I mean that's still it's we are in a difficult game the pharmaceuticals have always been that way, technology changes fast and in fact that's really one of the reason why if they do more partnership is because no one company can certainly have all that technology which also realize sometimes mother nature is tough on us so how we develop things and so we've got to be able to work through there on some cases risk sharing other arrangements but also recognizing there will be some failures but there is also ample opportunity to meet unmet needs.
Lilly's continual focus on good biotech intellectual properties.
Fintan Walton:
Right. Now we are all super aware of the changing financial markets in this current lateral part of 2008 that way will may mean that biotech companies will find it tougher to raise money and so forth do we see or do you see a change in the role that larger pharmaceutical companies will have to take in the future with biotech companies, are they going to be more sympathetic or are they going to be little bit tougher with those biotech companies that don't have the appropriate funding?
Mark A. Barbato:
Well I think the driver for us actually is you know the intellectual property and the capability the asset they have, you know funding depends on what their needs are and whether we can reach it but you know we are looking for new technology as I said it changes so rapidly and there is platform technologies there are just new things that are happening today that worked 20-years ago you look for example a therapeutic antibodies today which companies including ourselves in the 1980's we didn't have that. We had one oncology one and there has been early 90's from mid 90's we brought Reopro to market with our partner Centocor [PharmaDeals ID = 214] [PharmaDeals ID = 5608] and that was really only the second therapeutic antibody.
Fintan Walton:
Sure.
Mark A. Barbato:
Today at multiple therapeutic antibodies.
Fintan Walton:
Yeah.
Mark A. Barbato:
But it's taken 20-years to get to that point.
Fintan Walton:
But I suppose the pharmaceutical industry is a long play anyway it's the deal you do in 2008, 2009 is going to have a financial impact hopefully in a positive way you know eight-years later possibly 10-years later?
Mark A. Barbato:
Well generally speaking that's exactly what has been and right now folks would say that it cost 1.2 billion or more to bring that molecule to market over a decade, we are hoping actually some of these models are gone be two things, we gonna reduce that expenditure to under billion dollars and it's also going to reduce that 8,10, 12-years to something less, so it can be more nimble, can we get to proof of concept faster, can we address the regulatory needs at the same time which seems to be increasing almost on a monthly basis though.
Fintan Walton:
So biotech companies that have good intellectual property that of a is a continued interest to companies like Lilly and other pharmaceutical companies may not have the access to the financial markets and the venture capital in the short-term but could possibly get assistance in funding from pharmaceutical companies?
Mark A. Barbato:
Absolutely.
Fintan Walton:
In the short-term?
Mark A. Barbato:
In the short-term I mean biotech, I mean well we tending the position as big pharma you also have to remember we are the fifth largest biotech company and so we've got a long lasting history actually going back for Humulin and Humatrope products and so we'd like to think that we are spirit to those biopharma companies, biotech companies and again as you indicated if they've got the right technology, the right intellectual property position we would love to talk to them.
BIO partnering event
Fintan Walton:
Right. And obviously you are here in London at the BIO partnering event and early days in discussions with companies, what's the mood out there as you see it?
Mark A. Barbato:
What I've heard so far at the conference I think it's very optimistic, lot of interest between both biotech companies and larger pharma companies. And again a lot of people talking about a variety of deals, so again deal structures are different depends on both companies needs and how much money they wish to put at risk, so back to your comment on how much funding can be provided depends on how much money that we would like to put at risk or there is some other deals of risk sharing where there could be more earlier risk sharing but then again more value sharing down the road.
Fintan Walton:
Well Mark, thank you very much indeed for coming on the show and tell us all about Lilly and its activities in the alliance management and all the deals it's doing. Thank you very much indeed.
Mark A. Barbato:
Fintan you are welcome. Thank you as well.
Mark A Barbato
Vice President, Alliance Management
Mr. Barbato joined Eli Lilly & Company in 1973 as a sales representative and has held a variety of sales, marketing, and new product development management positions. Recent assignments with Lilly have included Vice President of Operations for LillyUSA, Executive Director and Cardiovascular Platform Team Leader and prior to that Executive Director of the Cialis and ReoPro global product teams, the cardiovascular business unit, and global cancer and cardiovascular therapies.
Eli Lilly & Company
Eli Lilly & Co was founded in 1876 by Eli Lilly a 38-year-old pharmaceutical chemist and a veteran of the U.S. Civil War, Colonel Lilly was frustrated by the poorly prepared, often ineffective medicines of his day. The company headquarters are located in Indianapolis, Indiana, U.S.A and it employs more than 40,000 people worldwide.