Pranav Srivastava co-wrote this blog post with Arup Das.
Merger and acquisition (M&A) activity for the oncology, pharma and biotech sector is off to a blistering start in 2019. Three huge deals announced in the first two months of the year have set the pace for what could be a record-breaking year:
- In early January, top-10 pharma company Bristol-Myers Squibb said it would acquire top-10 biotech company Celgene, gaining access to the biotech’s chimeric antigen receptor (CAR) T-cell therapies for cancer in a cash deal valued at $74 billion.
- A few days later, pharma giant Eli Lilly announced its plan to buy Loxo Oncology, a startup focused on genetically targeted drugs for ultra-rare cancers, for about $8 billion in cash.
- And in February, pharma titan Roche made a $4.3 billion bid to acquire mid-size gene therapy pioneer Spark Therapeutics.
Following GSK’s $5 billion acquisition of Tesaro in late 2018, industry analysts predicted that cash-rich big pharma companies would intensify their efforts to boost aging pipelines with novel drugs that address unmet needs. They also predicted that biotech companies with advanced technologies and cancer drugs would be at the top of the shopping list.
Although some oncology acquisitions fail, dealmakers would rather view those failures as learning opportunities and continue to place their bets in hope of future success. However, acquiring a company that specializes in advanced regenerative medicines, such as CAR- and TCR-engineered T-cells or gene therapy, requires significant knowledge of alternative integration models because these technologies follow materially different pathways to success in the market than do traditional synthetic or biologic products.
There’s a long list of biotech companies with innovative oncology drugs that target unmet needs in cancer—and many of them are promising acquisition targets. The challenge for potential acquirers is how to deliver on the promise. The following three principles can guide companies in making acquisitions successful.
1. Be bold. To reap the most benefits from M&As, acquirers must be willing to take risks.
Common pitfalls: As an acquirer, do not succumb to “conqueror’s syndrome” and try to impose your vision on your target. No matter how big or small the acquired company, it will have built a unique culture, mission and set of values over time that can’t be easily molded into a different organization. The biggest problems happen when an acquirer marches onto its new territory, plants its flag, places its people everywhere, and attempts to vanquish the acquired entity.
To go beyond business as usual, consider these bold approaches:
- Operate differently. Is this the moment when you can pivot to a nimbler way of approaching the market? Can you break down barriers between the commercial and clinical/medical teams and establish a common pathway for integrating customer-facing efforts?
- Deliver on patient centricity. Utilize the processes of acquisition and integration to define a pathway to patient-centric decisions and embed this idea in the new organization.
- Build a business beyond drugs. Actively pivot to build capabilities and deliver solutions that go beyond drugs for future patients by investing in technology, support systems and innovative trial designs (such as use of synthetic control arms).
2. Focus on talent. Successfully integrating and utilizing the expertise of the people who work for an acquired company is the most critical task immediately following an M&A event.
Common pitfalls: Most acquiring companies focus on roles and headcount planning while considering cost synergies, and they often neglect talent planning. Delaying decisions about how to reorganize, integrate and, in some cases, eliminate employees from an acquired company can prevent the acquirer from realizing gains in efficiency. And if employees are distracted by prolonged uncertainty about their jobs, they are less productive.
A better way is to look beyond headcount rationalization and focus on prioritizing, engaging and combining talent as quickly as possible after an acquisition.
- Prioritizing: Prioritize the essential talent that can impact top-line results—call it creating revenue synergies. Focus on taking the best people—from both organizations—and nurturing other high performers to build a combined workforce that has a deep pool of talent. Keep in mind that both R&D and commercial talents are limited in oncology. There are just a few hundred specialized sales reps in the United States who can have a meaningful 60-second conversation with an oncologist, and there are even fewer investigators who can lead your next trial of a treatment for a rare tumor. For the newly combined entity to thrive, it will need the best team more than ever, which could mean letting go of some of your own people.
- Engaging: Recognize that loss of key talent due to cultural misalignment accounts for half of M&A failures. Be diligent about diagnosing and addressing cultural conflicts before they become a roadblock: Keep channels open for two-way communication to win hearts and minds.
- Combining: Revamp the customer organization’s design by replanting talent across multiple disciplines: Integrate them into sales, account management, patient access, reimbursement, and other key functions. A well-planned M&A can produce synergies that couldn’t otherwise be attained or could only be attained at a higher cost. For example, knowledge about cutting-edge therapies like CAR- and TCR-engineered T cell therapies—which would normally take years to acquire by hiring experts and educating employees—can be obtained at lower cost through M&A.
3. Be a visionary. Build the company you want to have in 10 years. It’s easy to get focused on the here and now, but to deliver on the promise of an acquisition, companies need to plan and design capabilities for future readiness.
Common pitfalls: Many companies look at integrating capabilities linearly between the target and acquirer. They try too hard to harmonize legacy processes, systems and enterprises and end up with a mediocre mishmash of old and new.
Smart companies focus instead on cherry-picking new capabilities that may set them apart in the future oncology landscape. Acquisitions are disruptive, but companies can use the M&A opportunity to create more value by building best-in-class capabilities.
- Accelerated R&D: With oncology market competition rising, maximizing revenue requires shortening the development cycle and getting to market faster. Build sprint agility in your launch engine to build strong capabilities for your future portfolio.
- "N of 1" engagement: Start building the capability for a customer engagement model that’s ready to take on future oncology disruptions. Today it may be local healthcare trends, and later it may be hyper-local markets that customize engagements for individual customers.
- Data consumption and decision acceleration: Nurture the ability to generate and harness real-world data across oncology trials and in-market use. Install continual data-generation programs—patient-reported outcomes (PROs), real-world evidence (RWE), etc.—to shape the life cycle of a product beyond its launch. The goal should be to have an exponentially better understanding of the product and the market a year into launch and beyond.
While there’s no secret sauce for success, an acquirer who follows these three principles increases the likelihood that oncology acquisitions will add value to their company and deliver value to patients and healthcare. Right now, the chase is on to develop transformational gene therapies, but only time will tell if that can be done faster by startup companies that go it alone or by those that are acquired.
If you are considering acquiring an oncology company, plan carefully: Plot out the moves necessary for both high-level and lower-level synergies, including everything you need to do in the next 30-, 60- and 90-day intervals. Your work is just starting when the deal ink dries. After the acquisition process is complete, evaluate what worked and what you would do differently next time. This will make you smarter on your next acquisition, setting you up for greater future success.