Novartis: Deal-making and the Increasing Attraction of Venture Funds




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Video title: Novartis: Deal-making and the Increasing Attraction of Venture Funds
Released on: January 13, 2010. © PharmaVentures Ltd
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In this episode of PharmaTelevision News Review, Fintan Walton talks with Tony Rosenberg, Global Head of Business Development at Novartis.

Filmed at the PharmaTelevision Studios in Oxford, England, they discuss:

• Why a biotech should choose to partner with Novartis over other pharmaceutical companies
• Targeting specific opportunities
• Tony's thoughts on the decline in the industry's deal-making
• The structure of the Novartis venture fund
• Novartis' relationship with MPM
• Exit options on transactions in the current financial climate
• 2010 through the eyes of Novartis
Why a biotech should choose to partner with Novartis over other pharmaceutical companies
Fintan Walton:
Hello and welcome to PharmaTelevision news review here in Oxford, England. On this show I have Tony Rosenberg, who is Global Head of Business Development and Licensing at Novartis Pharma based in Basel. Morning to you, Tony Rosenberg, Novartis obviously is one of the big corps out there in the pharmaceutical space you head up the Business Development and Licensing function within Novartis , a key question obviously Novartis is out there doing deals we see doing deals and it doing all sorts of deals we will come into some of the detail of that, but how is where, what distinguishes Novartis from the rest of the pharmaceutical companies in terms of doing deals, why should a biotech company come to Novartis ?
Tony Rosenberg:
I think there is a couple of reasons that distinguish ourselves, firstly we are very research and science driven, so we look at deals in terms of are they meeting unmet medical need and do they have a mode of action that is interesting for us and it is also incredible. So we look very much at the science space right at the beginning before we start looking at sales figures, forecast et cetera. And I think biotech's appreciate that, so we work peer-to-peer with scientists of our in-house with their biotech needs. Secondly I think what is interesting is that we can offer in the end value right down the chain so in terms of right through from research through to development, through to consumer health, through to animal health for example and in fact with our Sandoz on even post patent expiry, so we are very skilled at planning out a life cycle for compound right through from the test tube through it's commercialization to the end of commercialization. And I think that's a very interesting position to be in, we have a lot of skills and capabilities that apply to those areas and in conversations with biotech that's appreciated.
Targeting specific opportunities
Fintan Walton:
So when it comes down to the therapeutic focus, I mean we are very obviously aware of the type of products that Novartis currently produces and the type of therapeutic areas you pretend to focus in and is that always going to be the case or are you " you know how much degree of flexibility do you have in looking at opportunities are you very strict on looking at specific opportunities in the therapeutic areas you prefer?
Tony Rosenberg:
I'd say we " that's an interesting question. I'd say we are opportunistic in a targeted way, so there is certain areas where we are we not simply not present now, I will give you a couple of examples HIV we are not present, we probably would not look at that compounds there, but in most of the other areas we tend to look at the opportunity first, judge it on it scientific merits and then worry about strategy afterwards. So I would say with some of more opportunistic " a good example is our infectious disease franchise, seven or eight-years ago we were not really present in infectious disease now through a on an aggressive partnering strategy we built a presence in Hepatitis C, Hepatitis C and most recently in a deal with Paratek [PharmaDeals ID = 33947] in the anti- infective area, antibacterials. So I think you know in terms of moving into something in where we were not present, we will do that if it's an area where we can see unmet medical need in the future and an area where we believe we can deliver and develop.
Fintan Walton:
So from your perspective you know clearly you are Novartis Pharma you've mentioned the other divisions within the Novartis group, so when you are selecting you are looking at that you are really still largely focus on Novartis Pharma's needs and the other components like the consumer health side, animal health and so forth are additional benefits?
Tony Rosenberg:
Yes each one of those divisions has their own business development set up, so vaccines and diagnostics, consumer health, Sandoz have their own business development set up, we do talk to each other and work together so we do understand who we are talking to that's also important, but there is an understanding of which respected partners we are talking to, but my particular role is restricted to looking at opportunities for pharma.
Tony Rosenberg's thoughts on the decline in the industry's deal-making.
Fintan Walton:
When you look at the deals that you guys do, I mean obviously you are in there looking at very early stage deals that's one of the areas and strengths that you have, but have you got any particular preference over products in later stage development?
Tony Rosenberg:
In later stage development we'd like to see proof of concept. And so if you look at the three compounds for example that we've licensing this year which are later stage Portola [PharmaDeals ID = 32429] we bought in an anti-thrombotic and that clearly proved itself in terms of being able to compete the Plavix, we are licensing Iloperidone from Vanda [PharmaDeals ID = 16928] which was actually approved unusual before that but that's the case and lastly Paratek where we've licensing Tetracycline derivative again clearly there is a proof of concept when we entered the transaction. So we like products that have reached proof of concept. We will often take products that haven't, but then we look at the deal structure in relation to that.
Fintan Walton:
Now one of the things that we've observed and I think you guys in Novartis have observed as well is the decline in the number of deals that have been done and particularly this year and it's been as a general downward trend, from a Novartis perspective why is that? I mean what's your perception and what's your interpretation of that decline?
Tony Rosenberg:
Yeah, actually from our perspective interim year our deal making slightly increased this year strangely enough, but we are aware that the number of deals has dropped by I think around 25% or so our figures and it concerns us. I think the what we have seen is because of the economic environment companies looking to make deals prematurely with data the sets that are not complete and despite the fact that possibly you could pick up opportunities at a relatively lower price the fact is that there is still too much risk and too much unknown to do that. So what is interesting is that although the number of deals have dropped the prices have not. So people I think are still prepared to pay for quality, but I think because companies are in a funding crunch and are needing to get things out the door earlier of VC's returns the quality of what we are seeing might have dropped a little bit.
Fintan Walton:
As a result of that you know change in financial profile of these companies have the deal structure okay the values may have failed, are you changing the way in which you do deal structure " structure your deals?
Tony Rosenberg:
To some extent yes, so we very much look at risk. So when we structure a deal we are interested in a win, win relationship for both organizations but we are also aware of the amount of risk that we would have to take to maximize that transaction. So we do very much, I would say our deal structuring has become much more granular and in the past we may pay a milestone of Phase I, Phase II, Phase III we are now trying to do as very much to target product profiles with upgrades for " an upgrade profile also to reimbursement for example in Europe registration is interesting but unless you get reimbursement you don't start to make a return so again that is coming to our deal structuring. So in summary I would say that our deal structuring is becoming much more detailed in relation to the risks we see in both development and commercialization.
The structure of the Novartis venture fund.
Fintan Walton:
Right. Now the other thing of course Novartis does as well as doing deals it's looking at companies themselves obviously the biotech company themselves emerging and so forth, Novartis has got several activities in the area of venture capital and sometimes a little bit confusing for people outside to understand each of those, so Tony Rosenberg could you just bring us through how the structures work and in particular how your involvement or how what's your involvement in some of on some of these activities?
Tony Rosenberg:
I'd try to, this deal is done. So basically all of them are run under an umbrella of the Novartis venture funds from venture point of view. There is the original Novartis venture fund which is an evergreen fund that was set up on the merger which basically takes minority positions in start-up companies so it does not act as a lead investor and that has been running for many years very successfully. There is secondly again under the Novartis venture fund run by Reinhard J Ambros what we call the Novartis Venture Option Fund which looks at start-up companies, but takes a much more active role in terms of investment and also will take an option, a licensing option on one of the programs that that company has with various trigger points. That are the two that are run through the Novartis venture fund under Reinhard. I think the area that causes a little bit of confusion is that we also run a joint exercise with a VC called MPM based in Boston which is run through pharma so it might be the (indiscernable) Organization and the MPM where basically we will co invest with MPM in an opportunity. And at the same time we will take a licensing option with pre-agreed milestones going forward. The difference is that the Novartis venture fund are investing very early. My interaction with MPM, the MPM fund is much later based, so it's looking really at certainly a post Phase I, Phase II opportunities. So what we " I think what we identified four or five-years ago and it may have been somewhat lucky, but I think it was born out is that we saw that VC's were not really funding early start-ups as much as they have been in the past and we were concerned that the deal flow going forward would actually dry up, now obviously we are only scratching the surface till now so but we did fuel that funds applied to both those early options and then subsequently in fact as the financing environments got bit more difficult to later options would drop some opportunities as proof to do so.
Novartis 's relationship with MPM.
Fintan Walton:
So the relationship then with MPM is that obviously you've identified an opportunities to earlier at the stage for you to take the risk on that, MPM takes the risk you have the option and when the risk is reduced by the successful outcome you'll strike the options?
Tony Rosenberg:
Not quite that way, in fact it's a little more subtle in fact MPM and our source both work on the deal flow, so they will bring things to the party we will bring things to the party. We both co invest so we both taking risk so we both co-invest in the company alongside our investment we take an option at pre-agreed trigger points which we agree with MPM and with the company. So both sides are taking risk and the advantage is you may ask what's the advantage for the company and what's the advantage for us. The advantage for the company is that although we take the options we don't have a formal government structure so we don't have a board seat, there is no licensing joint management committees et cetera. But they do get informal advice from us on how they are developing that program, how they should approach regulatory authorities and sometimes scientific and commercial advice. The advantage for the company is that they " you would argue is it advantage or isn't it obviously depends very much on that company's evolution at that time in the cycle, but they do have a pre-determined end point if in terms of financial parameters if they meet the milestone requirements.
Fintan Walton:
Right. And does it always have to be MPM in that situation because obviously you could do the same sort of deal with another venture capital?
Tony Rosenberg:
We could and MPM with the first we have not done solely yet, I would not rule them out, it's a lot of work I mean you know MPM put resources into it, we put resources into it so I would not " you know one should not underestimate the amount of resourcing that it requires and intensity. But I would not rule out doing that you know we have spoken to other VC's, MPM simply the first where we were able to cement this.
Exit options on transactions in the current financial climate.
Fintan Walton:
Right. Now clearly again we were talking about deal making, we've been talking about funding of biotech companies, 2009 obviously was the year where the global economy was hit pretty hard, sources of capital were hit pretty hard and off course biotech were hit pretty hard and so forth. How do that affect Novartis in relation to trying to do deals with biotech companies? Did you change " did you change the way you do things?
Tony Rosenberg:
We've yes I mean, I think we have to be very cognizant of the particular of these investors. So as you say not only has the funding dried up but the IPO window has completely shut, it's actually very difficult for investors to get exits at this point in time so you mentioned deal structure and we have " you know we've entered a number of earnout type deals as opposed to just licensing deals, we have done obviously also acquisitions, but we are aware that going forward that this type of structure we think for the next year or so or two-years will be quite prevalent in terms of simply allowing investors to make an exit, so well turnouts in the past you know they were there. I think in the last year or so they have become a lot more common both with us and other companies.
Fintan Walton:
So earnouts on the license, earnouts on the " on what?
Tony Rosenberg:
Well in effect these are acquisitions but they are based on an earnout type approach.
Fintan Walton:
The approach Okay, rather than there is a full cash of fund?
Tony Rosenberg:
Yeah where us before maybe companies would have been prepared to do licensing transactions with the promise of you know abetted of bigger deals going forward they simply need an exit now, so we've seen a lot more of that now in our discussion. I mean, I think basically we having to be a lot more aware of what the needs of the biotech companies are in this " in this new economy environment we are in. And you know we think we've addressed that as much as we can.
2010 through the eyes of Novartis.
Fintan Walton:
And finally when we look at 2010 as we do I mean clearly we've just talked about biotech companies having a tough time, pharma companies had " are having a tough time right now too, so where do that place a company like Novartis particularly in doing deals or what's your view of 2010? Is it more of the same of 2009 or you seeing light at the end of the tunnel bit more optimism coming back into our industry?
Tony Rosenberg:
Well, it's a difficult question. I don't think the deal making environment would change significantly. And in fact if you look at the number of biotech's that will be out of cash it continues to be a very scary picture, now that will throw up some good opportunities you know that will lead to transactions. And I think the industry now that the healthcare reform looks like it might be settling down in the US at least the industry generally knows the road forward and can start adjusting you know for those requirements, but I think that the in terms of deal making I don't see for example an IPO window opening up, I don't see venture capital at the moment being able to attract significantly greater funds than they have been to do so over the last year or so and therefore I think the, the funding environment for biotech's will be very difficult. I do see an increase in these both you know not just within Novartis but across a number of other companies had increasing use of corporate venture funds to seed what organizations regard as very promising technology, I think that will continue to increase and will be an important source of capital in the future.
Fintan Walton:
Tony Rosenberg, thank you very much indeed for coming on the show.
Tony Rosenberg:
Thank you.
Tony Rosenberg
Global Head of Business Development
Tony Rosenberg has served as a director since June 2009. Mr. Tony Rosenberg is Head of Business Development and Licensing of Novartis Pharma AG and a member of the Pharma Executive Committee. He joined Sandoz in 1980 in the UK where he held various leadership positions in sales and marketing, business development and strategic planning. In 1994 he moved to Basel, initially as international product manager (Clozaril), and undertook roles of increasing responsibility in Global Marketing, ultimately as Head Global Marketing Primary Care. In 2000 he became Global Head of the Transplant and Immunology Business Unit and began his current role in 2005. He has overseen several major in-licensing transactions in the respiratory, infectious disease, CNS areas. Tony Rosenberg has a BSc (Biological Sciences) University of Leicester, and an M.Sc (Physiology) University of London.
Novartis
Novartis was created in 1996 through the merger of Ciba-Geigy and Sandoz, two companies with a rich and diverse corporate history. Throughout the years, Novartis and its predecessor companies have discovered and developed many innovative products for patients and consumers worldwide.