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Biopharma partnering and the importance of differentiation

For companies looking to successfully compete on the global stage partnering deals will be a critical component of their activities

Biopharma partnering and the importance of differentiation Last year the biopharmaceutical industry entered into more than 3,500 partnering deals to fill their pipelines and the success of these will determine how well they compete in the global market of the future.

The traditional model of mergers and acquisitions has not necessarily produced healthy pipelines and to remedy this some companies have been more aggressive than others in recent years. Merck, for example, generated 62 per cent of its revenues last year from partnering deals.

With this trend accelerating, competition for the right deals to fill pipelines and grow revenues will become more intense. Whilst biopharma companies may be able to demonstrate technical expertise and presence in key markets, this alone will not be sufficient to differentiate them from other potential partners.

In order to successfully compete and win the best partnering deals, companies will need to be able to demonstrate that they can also be great partners through a strong alliance ethos focussed on jointly-agreed principles and a common vision.

Securing the best partnering deals, however, is only the start as the real challenge is to extract the full value.

“Delivering the pharmaceutical product models of the future – including targeted treatment solutions – will require partnering and collaboration,” concluded IBM's review of the biopharma industry back in 2004.

Dr Steve Arlington, global industry leader life sciences/pharma at IBM Business Consulting Services, wrote: “Competition for alliance deals is getting fiercer as biotechs come of age and compete alongside the more mature pharma companies for a slice of the US$6.5bn per year 'biopartnering pie'.

“Implementing good competitive alliance management practices is crucial in helping recoup the salvageable portion of the value currently lost annually through failed alliances – approximately $2.7bn.”

Another report, Reinventing Innovation in Large Pharma by Deloitte in 2008, stated that for large pharma to truly claim its role as the “commercial engine” of the healthcare industry, it needs to focus its investment in two areas: developing superior deal-making and alliance capabilities to enable virtual R&D, and redefining sales and marketing functions to own the patient relationship.

The value lost through sub-optimal alliances may be associated with delays in drug development and commercialisation: compromised protocol designs, delayed study outcomes and sub-optimal launch planning and implementation can mean many millions of lost sales. Of the many reasons why value is lost through alliance failures, the key ones are:

  • Time taken to conclude a deal and access funds
  • Poor alignment on drug development protocols
  • Lack of forward planning resulting in missed milestones and lengthy issue resolution  
  • Cultural differences can slow decision making and lead to compromise that is not optimal for the partnership, product or portfolio 
  • Poor communications leading to misalignment on objectives and strategy
  • Lack of agreed modus operandi leading to misunderstandings and differing expectations.

If one accepts that the trend in partnering will accelerate, with larger and more complex deals, and that value is being lost, then there are two key challenges facing the industry:

1) How to compete for partnering deals through differentiation

2) How to extract the full value from these alliances.

Alliance challenges
To truly differentiate and ensure that the full value can be extracted from these partnering deals companies need to invest in alliance best practices.

These practices and associated tools and processes have been developed over many years and are tried and tested methods for improving the success rates of alliances.

Indeed studies conducted by the Association of Strategic Alliance Professionals (ASAP) have shown that over time alliance success rates increase through the use of alliance tools and processes and can, therefore, provide companies with a marketable asset, ie the proven ability to partner.

Alliance best practice
As mentioned above ASAP regularly carry out studies across industries to illustrate how alliances perform over time by investing in alliance best practices. The study below clearly shows this improvement with 23 per cent of companies having alliance success rates of over 80 per cent in 2009 compared to only 9 per cent in 2007.

Their conclusion was that growing experience backed up by investments in alliance management tools and processes make partnerships more successful over time.

Alliance success rates

Alliance success rates

The Third State of Alliance Management Study 2009
Alliance Management Tools & processes

The study demonstrates that investment in alliance management tools and processes clearly helps companies achieve greater success with their partnerships. Many of these exist to support alliances and one of the most effective is the use of an 'alliance scan' to ensure that the parties are fully aligned. This approach can be used to either effectively establish a new partnership or help create more value from an existing collaboration

This alliance scan typically involves working with the key stakeholders from both parties in the alliance to develop a joint vision and modus operandi for the partnership. Through a series of individual interviews with structured questions, which are closely linked to key cornerstones of an alliance, the team can articulate their ambitions for the product, their thoughts on optimising the development or commercialisation plans and any concerns they may have about achieving this through a partnership model. The outputs of this exercise provide the joint executive team with outputs to ensure alignment on key partnership elements, such as:

  • Common vision
  • Mission statement
  • Agreed objectives
  • Communications plan
  • Key metrics
  • Expected outcomes.

The most effective way to optimise an alliance scan is for the joint executive team to hold an independently facilitated meeting in order that the outputs can be reviewed and translated into a jointly owned partnership plan, with agreed strategies, tactics, owners and budgets to ensure that the full value can be extracted to satisfy stakeholders in both parties.

A partnership plan, as distinct from a development or commercial plan, is a very effective way for the joint executive team to become aligned on the key components and can be used to bring new members quickly up to speed, disseminate key attributes of the partnership to team members and provide evidence to future partners of the companies commitment to professional alliance management best practice.

Conclusion
For biopharma companies to successfully compete on the global stage in the future, partnering deals will be a critical component of their activities. For them to succeed in securing the best partnering deals, and to ensure that the full value is extracted for each party, investment in alliance management best practices will become increasingly important.

Colin Love - Virtual Healthcare Solutions
The Author

Colin Love is director of Virtual Healthcare Solutions
Email: colin.a.love@hotmail.co.uk

 

3rd April 2012

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