Strategic asset search and evaluation in biopharma

Introduction

Biotechnology companies are primarily built around platform technologies and focused on asset specific value creation. The risk to reward ratio in biotech is particularly high, as funding is finite and dependent on clinical progress in an industry where failure is the norm.

Transitioning from a research and development driven company to a commercial organization requires a significant cultural shift, as it involves moving from early stage development to late stage development and marketing. Many biotech firms seeking to evolve into fully integrated biopharmaceutical companies often target rare diseases, where commercialization can be managed by a small team through direct engagement with patient advocacy groups. Asset partnering remains a crucial growth strategy, especially for biotechs with innovative platforms or multi-asset approaches.

The traditional goal of acquiring and developing blockbuster, multi-billion dollar drugs has been abandoned and shifted towards achieving a “best in class” or “only in class” status, aligning with corporate strategic objectives while ensuring shareholder value. Therefore, it is the need of the hour to select and develop a product that has a potential to address these challenges head on with the cleanest path to market.

Driving growth: Evaluating internal and external factors for asset selection

Internal considerations: Strategic and operational fit

The first step in evaluating an asset is determining how well it aligns with the company’s broader goals. Companies must possess a clear corporate vision of having focused expertise and a fueling desire to maintain a differentiated position in the chosen space. It must direct its efforts on a focused area of disease, targeting a specific patient population with a specific technology thereby giving it a meaningful competitive advantage in the market. In evaluating if an asset is a strategic fit to a company, it must assess whether the asset complements their existing portfolio and strengthens its market position.

The following factors must be considered:

• Could the asset drive the strategy to be a leader in a particular disease area?
• Could the asset be co positioned with other portfolio assets in different lines of therapy within a similar indication?
• Does the asset compete with other therapies in the portfolio, (which would likely be a negative)?
• Does it enable the company to reach more patients within its therapeutic areas of focus?

Operational fit of an asset is equally important. From an operational standpoint, an asset has a tendency to propel a company’s growth forward as it may reap higher profits and rewards from optimum utilization of the asset. A poor operational fit will likely curb a company’s value while driving up costs and slowing down the commercialization process.

The following factors are to be considered:

• Is the asset a good fit for the company’s sales force and target prescriber base?
• Is the company familiar with the new asset’s mechanism of action?
• Does the new asset fit with the existing manufacturing synergies of the company?
• Is it a good cultural fit?

External considerations: Market and asset evaluation

External factors can be divided into two types namely asset based and market based factors.

In determining asset based factors, one needs to consider whether an asset has a meaningful value to the market by looking at its attributes. Firstly, the mechanism of action (MOA) of an asset is critical. MOA must be disease modifying to give it a competitive edge in the market. Convenience, site of care and safety are a few factors which can be key drivers or barriers for an asset.

The next consideration is the market environment in which the asset is going to participate in. This includes the share an asset intends to capture, how payers (insurance companies) view the asset, its product profile, price points and unmet needs. Moreover, site of care dynamics is equally important which encompasses inpatient vs outpatient and their impacts on access.

An assessment of both factors is critical in aiding decision makers to understand the value drivers behind a potential asset for a company.¹

Finding the right partners and managing the asset search process

Biopharma companies actively search for assets for several strategic reasons. These include seeking growth opportunities and de-risking their pipeline, complementing existing products or therapeutic areas and expanding their portfolio into new or adjacent markets. Additionally, companies often acquire assets to establish a presence in new geographic locations or shift focus to emerging product areas. This proactive approach helps ensure that they stay competitive and relevant in the marketplace, preventing missed opportunities and maintaining a strong foothold in an ever-evolving industry.

The search for the right partners and assets requires a structured and thorough approach. Companies need to carefully evaluate potential partners ensuring the asset complements their pipeline, aligns with their development goals and clearly defines the commercialization strategy.

Unlocking potential: The strategic science behind asset selection

The process of asset selection is influenced by several key strategic considerations that help define specific criteria for evaluating potential opportunities. During the project initiation phase, selection criteria such as the development status of the asset and its geographical relevance are assessed.

The strategic objectives further refine the focus by considering product type and modality, including new chemical or biological entities, reformulations and advanced therapies like cell and gene therapy.

Certain exclusion criteria may also be applied to filter out less desirable assets, such as those within specific therapeutic areas, products with uncertain intellectual property rights, unattractive market sizes, high competition, potential generic entrants, existing licensing agreements or disease areas of lower interest.

If assets meet the initial criteria and warrant further analysis, an in depth assessment is conducted to better understand the opportunities and risks involved. This deeper evaluation includes examining the size of the relevant patient population, disease severity, the magnitude of unmet medical need and the asset’s ability to address these gaps.

Risks are also carefully evaluated, including the validity of the mechanism of action, development stage, trial size and duration, asset modality and the likelihood of the asset being available for licensing.

Given the complexity of asset selection, expert perspectives are often sought to assess the potential of identified assets to fulfill unmet medical needs and to further analyze their commercial viability.

Biotech companies employ three business models for asset value creation

Biotech companies use several business models to create value from their assets, depending on their financial standing, goals and appetite for risk. ²

Licensing out technology

Licensing out technology enables biotech companies to partner with giant pharmaceutical companies, with or without additional research and development services, to license out its technology platform to the bio pharma partner. This enables the bio pharma partner to commit its resources to identify, clinically develop and commercialize assets as future pharmaceutical products using the technology platform.

Although this model offers lower financial risk when economic resources are finite, it has the disadvantage of losing control over technology even before the value of platform is fully recognized.

Example: Genmab and Janssen's strategic licensing agreement for daratumumab: Leveraging technology for global commercialization

In 2015, Genmab (a Danish biotech company) entered into a significant licensing agreement with Janssen Biotech, a division of Johnson & Johnson, to develop and commercialize daratumumab, a monoclonal antibody used in treating multiple myeloma. Genmab licensed its proprietary technology to Janssen, which then advanced the drug into late stage clinical trials and ultimately brought it to market. The deal included substantial upfront payments.

This model allowed Genmab to partner with a large pharmaceutical company while avoiding the immense costs and risks associated with full drug development and commercialization, especially for a complex therapy. Janssen, on the other hand, took on the development, regulatory and commercialization risk in exchange for rights to the drug.³

Example: Moderna and Merck: A landmark technology licensing agreement for mRNA vaccine development

In 2016, Moderna entered into a licensing agreement with Merck for its mRNA technology platform. Moderna granted Merck exclusive rights to use its platform to develop vaccines for infectious diseases, including cancer immunotherapies. This was a preclinical deal, as the technology was in the early stages, and Merck later took on the responsibility for clinical development and commercialization.

Moderna received significant upfront payments, and royalties on sales, allowing them to generate revenue without directly taking on the risks of drug development. This deal proved to be highly successful after Moderna's COVID-19 vaccine (based on the same mRNA platform) became a global success.⁴

Licensing out preclinical assets

Biotech companies usually develop its own assets by using its own technology. Once the asset reaches a decent amount of development such as entering the clinical proof of concept trial, it is then exclusively licensed to larger pharmaceutical companies which will develop it into a pharmaceutical drug and take on the costly challenges of regulation, commercial and marketing. It is a highly profitable approach as the upfront payment alone brings high return on investment. However, it has its own risks such as having a longer time horizon than technology licensing.

Example: Hybrid licensing agreement: Combining technology and preclinical assets for advancing ADC development

This agreement between ImmunoGen and ImmunoBiochem can be viewed as a hybrid of technology licensing and preclinical asset licensing. While the primary focus is on licensing ImmunoGen's proprietary linker-payload technology for antibody-drug conjugates (ADCs), the collaboration also involves the use of ImmunoBiochem's preclinical antibodies. These antibodies, which are directed at specific tumor targets, are at an early stage of development and are thus considered preclinical assets. Although ImmunoGen is licensing its technology, the agreement also includes the joint development of these preclinical assets, with both companies working together on preclinical research. In this sense, the deal combines the licensing of cutting edge technology with the development and testing of preclinical assets, making it a blend of both technology licensing and preclinical asset licensing.⁵

Development and commercialization of internally developed assets

The most profitable approach, though the riskiest, is to fully develop and commercialize its own proprietary drugs becoming a full integrated bio pharma company by developing and commercializing these assets. In this model, risk of financial burden is significant.

Example: Gilead Sciences and Harvoni: A case study in fully developing and commercializing proprietary drugs

One of the most notable examples of a biotech company fully developing and commercializing its own proprietary drug is Gilead Sciences with Harvoni, a drug for chronic hepatitis C. Gilead developed the drug entirely in house, from discovery through clinical trials and commercialization. The company did not license out its technology to a larger partner, instead taking on the full risk and responsibility for the drug's success. The result was extraordinarily profitable, with Harvoni becoming a best-seller for Gilead, generating billions of dollars in revenue. However, the development costs were massive, and Gilead had to make strategic decisions about pricing and access, which involved significant market risks. Despite the challenges, the reward was high, as the drug became one of the top treatments for hepatitis C.⁶

Example: Regeneron Pharmaceuticals: A strategic approach to internal drug development and market success

According to Wall Street analysts, Regeneron Pharmaceuticals, Inc. holds a strong footprint as it is the eighth among the most promising stocks. The company directs its efforts on creating life-changing medicines for diseases like eye conditions, cancer, inflammation and rare genetic disorders. The company’s cutting-edge VelociSuite technology, which speeds up drug research and genetic medicine development and aids in converting scientific discoveries into practical therapies, is what sets it apart. Using this technology, it was able to bring a powerful treatment, Eylea, to treat blindness in older adults. Additionally, Regeneron was also able to develop Dupixent, an anti-body based treatment to treat diseases like asthma which again led to the corporate’s expansion. This is a notable example of a company strategizing and developing its own drugs and commercializing them into the market.

Development and commercialization of internally developed assets yields greater success and profitability. For instance, Regeneron Pharmaceuticals, Inc. reported US$3.8 billion in revenue in Q4 2024, a 10 percent increase over the same period the year before. With US$14.2 billion in revenue for the entire year, it earned US$1.4 billion in net income. The company’s strong financial position was demonstrated by its US$3.7 billion in free cash flow and its remarkable 86 percent gross margin.⁷

Attracting strategic partners: Key factors for asset evaluation and engagement

To attract potential buyers, an asset’s information package must meet specific threshold criteria to engage potential partners in initial discussions. During the early assessment stages, key characteristics that investors or partners seek include compelling animal data that closely mimic human disease states, human tissue or genetic data and transcription expression-related insights that could inform biomarker selection strategies in later development. Additionally, differentiation from the current standard of care is crucial if a program successfully progresses to clinical trials.

A licensor must be prepared to address fundamental questions, such as whether their company offers a disruptive technology or platform, the novelty of the biological mechanism of action and the rationale behind it. They must also clearly define the unmet medical need, current treatment options and patient satisfaction levels with existing therapies.

Demonstrating the benefits of the asset, its competitive positioning in terms of efficacy, safety, dosing and cost and identifying the potential target audience or future customers are equally important. Even at an early development stage, licensors should provide insights into clinical development plans, commercial strategy and payer perspectives.

Partnering discussions can quickly fall apart if poor animal models are used for preclinical proof of principle, clinical endpoints are poorly defined, patient populations are not carefully selected, intellectual property strategies are weak or if there is a lack of understanding of the competitive landscape. Unsupported claims about future market potential further undermine credibility, making it imperative for licensors to present a well-substantiated case for their asset.

Conclusion

In the highly competitive biopharma landscape, successful asset evaluation and purchase require a systematic approach. Companies must consider operational compatibility, market dynamics and scientific potential when assessing new assets. By leveraging a structured evaluation process and forming strategic partnerships, biopharma companies can optimize their portfolios and position themselves for long-term success in a dynamic marketplace.

This alert does not constitute legal or business advise but it is purely for informational purposes.

Special thanks to law clerk Mariam Syed for assisting in the preparation of this article.