Business development involves bringing "things" from the outside into your company in order to enhance your company's business. The "things" can be intellectual property (e.g., patents or patent applications), technologies, know-how, compounds, drugs, research collaborations, equity investments in a company, and so on. This variety of items is what makes the job so challenging and exciting. The acquisition of these "things" can be done on an exclusive (for your company only) or nonexclusive (shared by two or more parties) basis. Financially, the transactions to obtain these "things" may involve the simple exchange of money for goods, property, ideas, or other creative means that ensure that both parties obtain what they want and need.
At Bristol-Myers Squibb, business development has been divided among several different groups, each of which has its own niche. This also allows each group to have particular expertise among its members. As a part of the research division, the External Science and Technology (EST) group is responsible for the acquisition of early stage technology from biotech companies, universities, and government agencies on a worldwide basis. The deals that this group performs range from simple licenses to drug discovery targets, receptors, or other forms of intellectual property, up to extensive research collaborations with biotech companies, which typically include upfront payments, licensing fees, research funding, payments for the achievement of clinical milestones, and royalty payments. The deals may also include an equity investment in the stock of the biotech company, which involves the valuation of the company and its platform technologies.
To complement the work of EST, a second business development group exists for licensing compounds that are in clinical development. The agreements put together by this group are similar in structure to EST deals (i.e., upfront licensing fees, research support in some cases, clinical milestone payments and royalties on product sales). Some deals also involve an equity investment. The client group of this licensing team, however, is broader than just the drug discovery division of research. Much more attention is paid to financial projections. Because the compound and its potential indication use have been identified, the market projections for such a drug are more predictable than something in early preclinical research as a part of one of EST's research alliances. The licensing group will also interact more extensively with the clinical division, which has a justifiably heavy influence on the licensing deal. Marketing considerations are also more important for these later stage deals.
The mission of EST is to enhance the ability of the research group to discover new drug candidates. The job involves both the proactive and reactive evaluation of technology in order to match its fit with the needs of the research division of BMS. On the proactive front, EST visits universities, government agencies, and biotech companies to learn the novel technologies that they have uncovered and, if available, to evaluate its value to BMS. Alternative proactive approaches include attending scientific meetings, partnering conferences, and investment banker meetings to track down the sources that are discovering cutting edge technology. Such "one stop mall shopping" is a time and cost-effective way to survey multiple opportunities in a short period of time and to build one's mental database of the playing field in the business.
In addition to the excitement of proactive prospecting for appropriate opportunities, EST and other business development professionals must also react to unsolicited proposals. We receive on the order of 400 to 500 proposals per year from any university technology transfer agent or biotech business development representative worth their salt. EST personnel serve as a first screen of such proposals. It is our responsibility to filter out and reject the real turkeys (I have received non-confidential data on alien spaceship warp drives, no kidding!) and to discuss with the appropriate scientists within our organization the technologies that have substance and merit and that may fit our research strategy.
Once a technology has been identified as one in which BMS indeed has an interest, we quickly start to move matters ahead. If the initial disclosure about the technology was non-confidential in nature (i.e., a very brief and usually rather uninformative document designed to whet our appetite for the technology), we will request to see confidential information under the rules and regulations of a Confidential Disclosure Agreement, or CDA. A CDA is a legal document designed to protect the disclosing party from having their confidential intellectual property (such as a novel cloned gene) from being ripped off by the people who view the documents.
If the confidential data package (with an emphasis on the existence of data) still looks impressive, BMS usually invites the scientists who made the discovery to make a scientific presentation to our in-house scientists. The business development person attends such sessions in order to learn about the proposed technology so that he or she can help value the information for BMS and formulate a deal strategy to bring the technology into BMS.
At this point, a commitment needs to be made by both sides. If there is interest from both parties to move ahead and strike a deal, then the proper structure for the interaction must be formulated. Both sides must also negotiate in good faith such that, if a "win-win" agreement can be reached, both parties will execute it. I have been involved in negotiating major proposed alliances where BMS has moved forward in good faith, only to have the other party decline on doing the deal at the eleventh hour. One actual deal was closed to 11:59 P.M. when I had a huge equity investment and R&D alliance being voted on by the BMS board of directors, only to find out that the other party had been negotiating with several parties at the same time!
I have also worked with skilled professionals who know their job and the value of their technology. Such individuals make the negotiation process as painless as possible. Most people would assume that I would rather work with a rookie negotiator of whom I could take advantage. In reality, it is much more difficult to negotiate with someone who has no knowledge of what is included in a typical contract and what terms are the norm for the industry for a given type of deal and technology. It's about the same as teaching your surgeon how to operate during your heart transplant. It just seems to go more smoothly if they have been there before!
In any event, the most exciting component of the deal revolves around the negotiation. To those who have not been there, it would appear that, once the horse trading over money is completed, the negotiations are over. But, no! God invented lawyers! That means that the good old English language has to be put into "legalese" before it becomes a final, unambiguous document. And getting there, if you ever do, is the most laborious, time-consuming part of the whole process.
In all seriousness, the lawyers play an important and helpful role for both negotiating parties by crafting language that will protect their respective clients. It's just that the dotting of the I’s and crossing of the t's can be a painful experience. Each party usually has its own sensitivities that need to be recognized and met by the other negotiating party. And some sensitivities are more sensitive than others.
You have to pick your battles and go to the mat on the most important issues, while the ability and need to compromise must arise on some other lesser issues to make the negotiation work. Holding your ground on each and every point will only serve to kill the deal. Even as the party with the "upper hand" (i.e., we have the money), you simply cannot insist on your way on every issue if you want to complete a deal that is favorable to both sides. My personal philosophy is that if both parties leave the negotiation table feeling good but with some bad taste in their mouth, the negotiation was a success.
Some of the Challenges
Often the external negotiations (i.e., those with the third party with whom you are doing the deal) on any alliance are easier than the internal negotiation process that must take place within your own company to sell the deal. The internal selling of a deal involves the buy-in of many diverse groups of people beyond the original scientists who became excited by the deal finance analyzers, legal, the tax department, other business development groups, not to mention management at all levels. Because these groups have different backgrounds and are not commonly trained as scientists, the ability to translate complex scientific concepts into lay language becomes an important skill to possess for this job. I view it as the innate ability to teach. Just remember back to graduate school where the hot shot research professors were generally the very worst at explaining and spreading their knowledge to students.
Use graphs, figures, analogies, anything that will convince those who control the purse strings that the deal is truly important for your company. This also is true for the small companies and universities trying to sell the technology. However, since most biotech and university managers are trained scientists rather than business people, you probably have to provide similar data on the fairness of the deal, benchmark it against other similar deals, and demonstrate the value to your organization in order to make it fly. The financial gurus will provide you with estimates of the market value of the products that may arise from the alliance that will be an important concept to relay to your business focused management. And, of course, they will want to see that the legal and tax divisions have given the contract a seal of approval.
If an equity investment is involved, a detailed explanation of the price per share that you are paying to a biotech company will be required. Here is one area where experience in the industry will really pay off. It's easy to value a publicly traded biotech company, but producing a valuation for a private company is an art form. It involves evaluation of their "platform technologies," comparisons to comparables, and their previous financing.
By factoring in all these variables and the level of interest your company has in doing such an investment, you can arrive at a price that is acceptable to both parties. Your management may, however, take some comfort in having your valuation backed up by an external evaluation firm. In any case, you can always protect your investment against any pumped up price sought by the biotech company by instituting anti-dilution provisions in the equity document. These provisions allow you to make an investment at a set price but they guarantee that the company in which you invest will not sell additional shares to another party at a price lower than that paid by your company. If they do sell off cheaper shares, the anti-dilution provisions spell out how the company will compensate you for that transaction (e.g., they can give you additional shares to make you whole on your investment such that you pay the same lower price paid by someone else).
