Opinion: When Should Biopharma Companies Buy, Partner or Develop Innovative Assets?

As the biotech industry continues to demonstrate that it’s on the financial rebound, biopharmaceutical leaders are now searching for the best path forward to advance their portfolios and remain competitive. Mergers and acquisitions are on the rise, with multiple private venture–backed biotech companies having closed merger deals this year. These include Vertex Pharmaceuticals’ planned $4.9 billion acquisition of Alpine Immune Sciences, BMS’s $4.8 billion acquisition of Mirati Therapeutics, Novo Nordisk’s $16.5 billion deal with Catalent and AstraZeneca’s purchase of Amolyt Pharma.

With this positive industry momentum, companies need to assess how to most effectively bring new products to market. Determining the right entry strategy for continued innovation is paramount.

There are several options: building a proprietary platform, acquiring another company or asset, or partnering with an established entity. Each entry strategy comes with its own capital requirements and operational models, along with varying degrees of risk.

In determining the right strategy, it is important to consider resource allocation and risk management while also ensuring long-term viability. Strategic foresight and keeping the end goal in mind are critical, as careful planning and execution can help the company remain flexible while capitalizing on market opportunities.

As leading consultants in the pharma and biotech industry, we have led many conversations with investors and company stakeholders around portfolio and asset management. We also sit on various public and private boards and regularly advise biotechs on their short- and long-term drug development strategies, helping to bring countless therapies to market.

Based on our experiences, we have learned a wealth of lessons and best practices on what makes a program or asset successful. Exploring each strategy thoroughly and selecting one based on company goals and available resources is the critical first step.

Companies seeking the highest level of autonomy and those with significant capital might consider creating a platform in-house. Pharma giant Novartis recently laid out plans for a $256 million antibody plant expansion in Singapore, demonstrating the substantial upfront investment that goes into a new facility.

Companies opting for this strategy typically establish their own vertically integrated operations, controlling every aspect of the value chain from research and development to manufacturing and commercialization. Critical pillars of this process include research and clinical development, establishing manufacturing and technical operations infrastructure, supply chain, commercial launch teams, regulatory processes and more. Adequately assessing and planning for these capital requirements is essential to establishing a robust and competitive platform.

Having the right team and project plan in place will help in navigating the technical and financial complexities that come with this approach. Company leaders and project managers should implement a robust and flexible risk management plan that encompasses and accounts for technical and scientific uncertainties, regulatory hurdles, market acceptance and potential delays in product development.

Ultimately, while this path comes with significant risk and requires meticulous planning, success with this strategy can lead to substantial long-term rewards and market dominance.

Rather than building new in-house capabilities from scratch, some companies choose to acquire one with the desired platform. When acquiring another company, the financial investment goes beyond the cost of the asset itself to include the expense of integrating and scaling both the technology and talent. For example, the recent acquisition of Catalent by Novo Nordisk enabled Novo to fulfill its need for greater manufacturing capacity of its products.

The amount of capital needed for an acquisition can vary depending on several factors, including the size and stage of the target company, the complexity of the acquisition and the strategic objectives of the acquiring entity. Adequately assessing and planning for these capital requirements is critical to executing a successful acquisition and realizing the intended strategic objectives and value creation potential. When looking at the profile of M&As seen already this year, it is worth noting that acquisitions are not only limited to startups with drugs in late-stage clinical trials, but also include those in earlier stages of development. This reflects a broader industry pattern of acquiring assets across different stages of the drug development process to boost innovation.

Following the acquisition of a company or asset, the company’s existing infrastructure and capabilities will dictate the integration efforts and operational model the acquiring company pursues. The integration plan should account for the level of integration (i.e., full, partial, functional or operational autonomy) and focus on streamlining operations, effectively leveraging synergies and capitalizing on the acquired asset’s strengths.

Successful acquisitions can expedite market entry, enhance competitiveness and reduce some of the risks of starting from scratch. However, this route brings about its own challenges, such as the friction of combining operations, potential financial issues, differences in company culture and unknowns about the assets. Effective risk management strategies, comprehensive due diligence and clear communication are essential to mitigate these risks and increase the likelihood of acquisition success.

While the previous two strategies tend to come with significant financial requirements, partnering with a company to access its resources can offer a way to reduce initial capital investment. Some recent examples of this strategy in action are AbbVie’s announced partnership with Umoja Biopharma to develop novel in situ CAR T cell therapies and BridgeBio granting Bayer the right to commercialize a drug to treat transthyretin amyloid cardiomyopathy in Europe.

This strategy is not without complication, as it comes with dependency risks and requires strategic collaboration management. Effective communication, clear role delineation and mutual trust are vital for successful partnerships, as is proactive risk mitigation. With these elements in place, both companies can achieve successful outcomes.

The financial commitment required for a partnership is dependent upon its nature and scope. Capital should be strategically allocated to cover costs like licensing fees, research and development costs, technology access, personnel and more. By managing the capital and partnership effectively, companies can accelerate success and drive commercialization efforts.

Pursuing strategic partnerships allows companies to capitalize on collective strengths while mitigating individual weaknesses, potentially expediting asset development. Collaboration models in biotech partnerships vary widely and include options for licensing agreements, joint ventures, strategic alliances and co-development partnerships. Each model involves distinct operational dynamics and shared responsibilities between the collaborating entities, and the best model will depend on the long-term goals and resources of each organization.

Choosing the right entry strategy for bringing innovative therapies to market is critical for a company’s success and sustainability. The optimal strategy for depends upon a thorough assessment of finances and talent, capabilities and risk appetite with respect to long-term objectives.

Proactively conducting this analysis allows companies to optimize resource allocation, manage risks effectively and capitalize on market opportunities while remaining flexible to navigate the complexities of the industry. Strategic foresight and decision-making positions industry leaders and their teams to meaningfully contribute to the biotech industry while addressing unmet medical needs and ultimately improving patient outcomes.