Biotech M&A by Slow Simmer: An Inside Look at the Build to Buy Deal


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attention drift over the lifetime of the external development program? After all, it’s a two to three year journey while the science works itself out and we even know if the cool lab experiments translate into real clinical science.

If I had the opportunity to do this over again, I would add one important internal feature to the partnership. I would charter and run a shadow team that would be working alongside Annovation. A lean, virtual company that is executing fast on a proof-of-concept program makes decisions that involve tradeoffs and consequences that the buyer will have to address later. The shadow team would sit ringside for whatever important decisions Annovation is making. It would help move the science along while also focusing on how the decisions Annovation makes may affect Medco. What things will we need to address or understand if the asset ever comes our way?

Management focus and people time are certainly not free and one has to be cautious about diverting too much of either, but a shadow team would have ensured that we were feeling and retaining some ‘experiential residue’ of the external program. Annovation hit a number of bumps along the way, and we saw and digested them alongside Annovation with eyes wide open. There were simple choices, like filing patents in countries that line up pretty closely with our global commercial footprint and engagement areas. There are more complicated ones, like where to open a phase I program (U.S. or Europe). We were at the table when these discussions were being had. But, knowing of the nuances and tradeoffs made in reaching the decisions is not the same as having a plan and a team in place to quickly and effectively pivot around them and move the program to the next stage when the asset eventually becomes ours. Without genuine investment of emotional and fiscal energy to the project, Medco knew about these decisions, but never really owned their consequences and the effort that would eventually accompany them in practice.


Like all companies, we have a purpose which, distilled down, is all about trying to develop a solution to an important unmet medical need. A solution (vs. a drug) includes aspects of behavioral change, process change, and some new technology (like a drug or a device). The challenge with the slow M&A burn lies in converting a clinical development program that was designed to get to proof-of-concept with speed, elegance, and capital efficiency, into a much larger program that leads to the eventual successful treatment of patients and moves the needle on some genuine unmet medical needs. This is not semantics. It’s the difference between an asset, or even a drug, and a solution to a problem that we find strategically important and worthy of resources. This is so crucial, because the business case for an acquisition ultimately rests on applicability of the management bandwidth-weighted program to our overall strategy.

So, why is this a challenge? In an ideal drug development model, customer jobs and their attendant needs are fully baked into clinical development from the earliest stages. Data that eventually enable hospitals, payers, and governments to see real-world value added and also to make smart decisions about reimbursement and guideline inclusion are all generated via the development program as part of a comprehensive solution set. The issue is how to do this with an S&D sourced program. It’s not our asset, and if we take that shadow team (limited investment of human resources and management time) and start allocating real dollars, the deal calculus changes. The statistics around success rates of new drugs start to exert some gravitational tug and we get jolted back to reality: the reason we entered into the deal in the first place was to avoid the resource trap of early stage development.

The big value inflection point for Atlas was reaching proof-of-concept. This is the point at which a lab experiment becomes an asset, options get exercised, and exits happen. For Medco, however, the real value inflection point comes years later and is realized only with successful commercialization. There is almost no accretive value to Medco for adding another ‘portfolio’ project (see here and here for some excellent discussions about this topic). This really means that the more relevant we make our commercial enabling endpoints, and the earlier we build them into clinical trials (go/no-go decisions around commercial potential is critical for us), the more we discharge commercial risk and get more comfortable around valuation and investment.

We need to find the equilibrium between the lean, asset-centric development model of Annovation and the much more capital intensive and commercial success-enabling one required for Medco. But, when you are 12 to 18 months away from a potential option trigger, how do you make these kinds of capital allocation decisions? I do not have a single answer to this question. Instead of proffering one, I prefer to highlight the fact that while the S&D method helps companies like Medco overcome the science risk and get a good jumpstart on discharging the clinical risk, it largely leaves the commercial risk unaddressed. Without a thoughtful approach to this ‘last mile’ problem, a really promising drug may have poorly defined strategic applicability.

M&A done by slow simmer makes addressing these two issues much more complex, which means that these types of programs need a bit of special handling by the potential pharma partner long before acquisition day arrives.

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Jason Campagna is the SVP, Health Sciences Lead, in the Surgery and Perioperative Care Global Innovation Group at The Medicines Company. Follow @jcampagna98

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One response to “Biotech M&A by Slow Simmer: An Inside Look at the Build to Buy Deal”

  1. Extraordinarily insightful post.