Monday, November 12, 2001
In its Back-to-School Commentary, BioCentury this year focused on the importance of value chain management and argued that it was necessary, if not inevitable, that biotech companies integrate along the value added chain if they want to survive and grow over the long term (see BioCentury, Sept. 4, 2001).
While organic growth and M&A are obvious ways to create complete business systems, less attention has been paid to the possibilities inherent in partnering, in part because partnerships traditionally have brought together the skills and technologies of companies without necessarily leading to the incorporation of one company's skill set into that of its partner. In that sense, partnerships conventionally are more akin to the handoff of a baton in a relay race than the exchange of plasmids common among bacteria.
But many biotech companies now are focused on using deals to create assets - in the form of know-how, technology, compounds, products and cash - that they can leverage to build out their own business systems.
This is a far different vision of partnership than was the conventional wisdom in the late 1990s, in which a company does what it does best - whether that is producing animal models, targets, lead compounds, bioinformatics software or widgets - and provides them to a partner, which then does what it does best - whether that is medicinal chemistry, clinical trials or marketing.
But the conventional model is static, with no built-in mechanism for change. In its most mundane form, companies find themselves scouring for partnerships to provide working capital, selling options on their assets for small dollops of cash - or even worse, finding themselves always and only performing as a link on someone else's value chain.
By contrast, the integration model argues that the goal of corporate development is to create more assets than a company can use, which in turn will allow it to seek partnerships that can further enhance that asset base.
If designed properly, these kinds of transformational partnerships have the potential to create a virtuous cycle, building new value that makes further transformational deals possible, and creating multiple routes to monetizing a company's value.
In this continuing examination of the integration concept, BioCentury reviews the dealmaking rationales of six companies that have declared themselves as value chain integrators.
Millennium: Over-the-top partnering
Millennium Pharmaceuticals Inc. calls its version of this concept "over-the-top alliances," focused on profound outcomes over and above the specifics of the deal.