Getting to “Win-Win” in Partnerships

Speaker 1:
Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.
Yaron Werber:
I'm Yaron Werber, Biotechnology Analyst at Cowen. I'm super excited to be joined by Dr. David Schenkein to discuss the importance of sourcing innovation and drugs externally doing win-win collaborations, not being afraid to do M&A and taking on risk when doing deals. David really needs no introductions. He's a general partner and co-head of the Life Sciences Investment Team at GV. Previously, David was the CEO of Agios Pharmaceuticals where he remains chairman. Prior to joining Agios, David was Senior Vice President of Clinical Hematology Oncology at Genentech, and was Senior Vice-President of Clinical Research at Millennium Pharmaceuticals. He serves on the boards of directors of Denali Therapeutics and has been a board member, a scientific advisory board member, and an advisor at many biotech companies. David, I feel like I've known you for about 25 years already. It's always great to see you and thank you so much for joining us. We really appreciate it.
David Schenkein:
Yaron, thank you so much. I'm very excited to be doing this with you today. And I look forward to it.
Yaron Werber:
You've worked at highly innovative companies, including Millennium, Genentech, and Agios where your company was usually the innovator. In all cases, partnerships and transactions were key. Millennium bought leukocyte to get Velcade, Genentech collaborated with AbbVie on Venclexta and Agios was partnered with Celgene for the technology and the pipeline. What have you learned in your illustrious career about the merits of looking externally to drive innovation? What do small and big companies get out of doing deals and what are they looking for from each other?
David Schenkein:
Yeah, it's a great question. And I do think the perspective that you have, if you're in a small or mid size company is very different from the perspective did you have, when you sit in a company I did when I was at Genentech. I think you have different perspectives. Certainly on the small and midsize company. And it's a question I ask myself and I ask other CEOs all the time when they're thinking of doing business development is really pushing them on, why are you doing this deal? Are you looking to do this deal as a source of capital? Or is there a capability that you need from the large company that you don't have now? That could be a clinical capability, a research capability of commercialization manufacturing. And what surprises me, how often I asked that question and I get a bit of a blank stare back at me because they really haven't thought about that.
And we'll get into that in a bit. So for the small company, it's usually not for the innovation, it's usually for the capital or some capability that don't have. My experience on the large company side and I was part of that decision to bring in what became Venclexta from AbbVie as a partner. It really is typically either as we know, the big companies need to feed the massive engine they have and feed the beast. And so often there are no internal R&D companies just can't keep up with the pace to keep growing on their base. But it's also in my experience, when bigger companies are moving into new areas, we're going to start a neuroscience division, we're going to start an infectious disease division. And they know if they're starting from ground zero, it's going to take them a decade to get to a product. And sometimes they want to jumpstart that by either buying a company or this is something compound. So I do think that it's the perspective and that drive to fill dynamics is very different if you're a small or a large company.
Yaron Werber:
And then David, what separates successful collaborations from those that don't typically work out? Both from your view, being at the approach at Millennium and Genentech or your role now helping smaller companies.
David Schenkein:
I think, the thing that I always do when I start out a collaboration, particularly more recently on the small company side, but on both sides is really put on the table and it doesn't always fly. Are we looking to create a deal where when we put the signatures on there, we both feel we won. It usually means I'm not talking to the right [inaudible 00:05:00] partner where they really feel they need to win and someone needs to lose. And in that case, the deal typically doesn't work out. I mean, again, if the drug isn't out of the park home run, it usually whitewashes some of the challenges, but it really is asking, what is it going to take to make this at the end of the signing ceremony, we both feel like we won? And to me, it usually comes down to two main issues. Control who really has control at various stages of development or commercialization and decision-making.
For me, I see deals that don't work out. There hasn't been enough clarity over who really has control and who is making the decisions. Particularly when there's a small company, their company as you know, a small company, the decision-making can be three people in a room, they do it in an hour. In a large company it can be four months of 12 committees. And so understanding those dynamics before you sign a deal, I think determine whether or not it's going to be a win-win or it's not going to work out even if the drug makes it or doesn't.
Yaron Werber:
I really love that answer because it really encapsulates what happens in a small company and the view point from a large company. What about the meshing of relationships, alignment and prioritization and the importance of the asset? And to the certain degree that in a big company, there's obviously a whole portfolio, for a small company it's their crown jewels and meshing over the personnel and making sure that to your point are being able to align timelines as well.
David Schenkein:
Yeah, I think there are two components to that. First, and it doesn't happen that often, but it does happen. I've seen deals where on the big company side, the deal is being driven by the BD team completely. They usually have a corporate goal and their R&D team. And this happened to me, even at Genentech, the R&D team is not all that excited. And so what happens is as soon as the signing ceremony is over, everyone goes out for the dinner. They feel great. Then the big company R&D team says, "We don't really want this." And that becomes pretty problematic as you can imagine. So I think that's a watch out. Then there's no question. And again, it comes back to decision making and control. When you're working with a big company and you're a small company, you have your one or two or three drugs, it's going to be hard and you want to try as hard as you can to understand sense of priority.
Does your compound fit into the big company's portfolio? And we know that big companies change their strategy, like most of us change our shirts. And as a result, what could have been the most important drug for you turns out to be something that's not important for them anymore because they just eliminated that therapeutic area. And so trying to understand where you fit in that paradigm, I think is really important. And I can dive deeper into some personal experiences with that, but I think that's... And again, it comes back to control. For me, when I'm doing a deal big company, as a small company, I want to... What is the beauty of a small company? We can make decisions quickly. We can be nimble. And so I want to make sure that the small company has the ability to make all the important decisions until we get pretty far down development, or maybe the best would be even towards commercialization.
Because on the research side, you want to be able to make real, nimble, fast decisions. And you don't want to go through 12 committees. Now, many of the big companies just say, "Well, thanks. That's not the kind of deal we do," and that's good to know early on. And so one of my first questions when I'm talking to a big company is, "Do you require having control over all decisions from the beginning? Because if you do, we're not the right partner for you."
Yaron Werber:
What do you think large companies do well that small companies need help with? When it comes down to control, one party shouldn't have this control on all decisions. What's a healthy balance?
David Schenkein:
Yeah. I think it was down to why is this deal being done? And that should drive which company is best suited to make the decisions. I'll give you the example. When we did the deal at Agios and Celgene, we were 25 people, we had no development candidates, we had very little chemistry, but we had built an expertise around cellular metabolism as it relates to cancer. Celgene was very interested in that area of biology. They had no internal expertise in that area. And so we made the argument, "We expertise in this area, give us all the decision-making until we get the phase one." We can go, "Sure. We have the internal expertise. You have a huge machine in terms of late stage development and commercialization. And so decision-making will shift over to you as we move into the later stages of development and then eventually commercialization." And so it plays on each of our strengths. And so that's where decision-making should be aligned. Unfortunately, some of the larger companies insist on holding on to decisions, the whole process. And for me, that just doesn't work.
Yaron Werber:
Yeah. I love that answer. You speak to the strength of each company and you marry them together, but to having on collaboration. As you think about maybe touching on your last point, some large companies, and for that matter, some smaller companies are particularly adapt to doing collaborations or small... Bigger companies doing acquisitions while others sometimes struggle with that process. What separates the ones who really have it down well, and those who are still grinding their teeth through it?
David Schenkein:
I think a lot again, has to do with the mindset of these organizations. And I've seen the struggle, particularly on the big company side where... And I experienced this even at Genentech 15 years ago, where Genentech felt, "Look, we have an amazing research organization. There's really nothing a small company is going to tell us." And so there was a touch of arrogance there and attended to complicate partnerships. So it really is, what is the mindset? Why are you doing this deal? What are you looking for? And how can we maximize the benefit between the two organizations? I think too many small companies dive into these deals because of the allure of the upfront or the biobucks. And they haven't asked these questions around how the big companies view partnerships enough early on. And I think it's really important to do that.
Yaron Werber:
David let's circle back and double click a little bit on what you said early on that even as a board member, an advisor to companies, there is a tendency to go down a path to doing a deal, doing a partnership, a collaboration. And when you really dive into why you're doing the deal, the answer doesn't crystallize well. Why is that? What lies behind the scenes? Is it just lack of experience on the management team? Is it just feeling like they need to get to an early validation for whatever they need to do in their growth trajectory?
David Schenkein:
Yeah. The two most common things I hear as a board member and my antenna go up immediately. They say we're talking to X, Y and Z companies about doing a deal and because we think it'll be validating for us. Okay, I'll come back to that in a second. And the other thing I hear all the time, this is a great deal because it's non-dilutive. Okay. So my personal bias is that most of these deals are way more dilutive than taking capital from equity players, because you're going to lose commercialization rights. You're going to lose control over your product. And most small companies, as you know, make one product or zero product. Look, I'm very proud of the fact that Agios has made in its 11th year and we're about to make our third product, but still our first product Celgene runs.
So it is very dilutive to do these deals. You don't feel the dilution right away. You feel it six, seven, eight years later when you finally make a product. But if that turns out to be your only product, it has been way more dilutive than selling some more equity. And the second is this validation thing. I don't know what your opinion is, but my opinion is that maybe a decade ago, it was "Validating for Wall Street," that you did a deal with Roche or Genentech or Celgene, et cetera. At this point, I think what's validating is how good is your science? And can you make a drug? And I'm not sure that's a reason to do a deal. Which brings me back to, why are you doing the deal? If you need capital... Every deal, no matter how great the partner, Celgene was a great partner, we had our challenges, but they were a great partner at Agios.
Every deal adds complexity to your system. It distracts your management team. You have to set up alliance management, that will make a lot of slides. You got to go through the big company mechanics. And so there's a price you're paying for that deal. And that's why I think it's critically important to really ask yourself if you're doing this just for capital, what are the other sources of capital you can get? If there's a capability you need, and where do you see that the most is manufacturing, commercialization, commercialization outside the United States. When I was at Millennium and we were developing VELCADE, well, we took that drug from first in human to on the market in less than four years around the world. We didn't need J&J's development capabilities. What we needed from J&J was commercialization outside of the United States.
They were an unbelievable partner because they knew exactly the role they were playing. We knew the role, what we needed, and they were a perfect partner for that. I just don't think I hear often enough at the boardroom people articulating why they want to do the deal. Oh, and the last thing I'll say really important and I always say this as a board member, and this comes down to how you structure the details of the deal. Who's making decisions? Who's paying for different aspects? Big companies will often love to do a deal and will shift the deal dynamics so basically the small company becomes their CRO. That's the last thing you want to become is the big company CRO. And you'll also don't want to be in a situation where they bought the company, but didn't pay for it, where they've just basically locked in most of the value you're eventually going to have, but they didn't buy the company.
Yaron Werber:
This audience is going to be both retail and obviously boards, C-suites, business development entrepreneurs, et cetera, investors in biotech. When you talk about control versus decision-making, maybe for the people who are not doing BD, and again, based on your experience doing BD, it's very much too subtle differences in decision-making versus control. What do you mean by that? How are they different?
David Schenkein:
Yeah. So when it came to control and in part decision-making, again, I'll turn to the Agios Celgene deal, which I think it's in the public domain. This is a Harvard Business School review on it as well. And I think it's a good example. What we said is during the research and early development phase, Agios will decide what targets we're going to work on. Obviously you can give us your opinion, but we will decide what targets we're going to work on. We will decide how many people are going to work on those targets and how much money we're going to spend. We value your opinion. We want to hear that, but you can't tell us what to do. And therefore we're in control up until early development. And then with respect to decision-making, we laid out what decisions can Agios make without even consulting Celgene. What decisions do we consult them, even though we're the final decision maker and what decisions the joint research and development teams can't make and escalates up to the CEOs?
So clarity on all those things is critically important. Then I would say for early companies you want to hold on to as much of the control around how you're spending your capital, capital allocation, what targets you're working on. You want to hold onto that for as long as you can. Big companies and Genentech was classic at this, wants to control everything. And so that's where the balance comes in. And that's really what I mean by control in decision-making. And the last thing on decision-making is I always want to know for the decisions in which the big companies, either going to make the decision, or is going to have an input that I need before I can make mine, what's their process? How many committees is it going through? Who's making the decision? Who's the champion for my deal within your organization? At Celgene I knew it was Tom Daniel. So if I had a problem, I'd call Tom and I can say, "Tom, well, what's the decision?" So getting clarity on that, I think is really important.
Yaron Werber:
David, what about some advice and your learning as a first time CEO doing the collaboration with Celgene that you would want to impart to other first time CEOs and not so much from a governance and dynamics and deal structure that you just alluded to, but operationally with their own team? A lot of times maybe the Chief Medical Officer or Regulatory Personnel might or might not have been involved in other collaborations in the past. And a lot of companies these days have management teams that might not be that experienced, but what advice do you have for them?
David Schenkein:
Yeah. I would say there are two or three things that I found extremely valuable. Obviously you rely on your board and you hope you have expertise around the table, on your board to help you understand what are the important attributes of doing a deal, your management team as well. I found it really valuable to turn to external advisors, colleagues, former colleagues of mine, who I really trusted. Who've been through more of this than I had been, to be able to walk them through and ask them, "What am I not thinking about?" And so I would just say, "Don't be shy and tap into anybody who you think can give you important advice and is willing to do so." I think what's beautiful about our ecosystem in biotech is the willingness of most of us, if not all of us to help anybody who's in a situation... Obviously no one's worried about competition.
They're worried about just keeping the ecosystem vibrant. And so I think that's the most important advice. And I did a lot of those phone a friend calls to other CEOs who were further ahead of me or people I had worked with at other companies to really get their views on what am I missing here and make sure you have experienced people around the table to really help you. Make sure you have a superb legal team. Interview a bunch of legal teams, find a legal organization. There are some biotech lawyers I've met with who, when they get in the middle of a deal, they have to feel like they won and before you know it the deal is about to fall apart. But the senior people in the two companies are very happy with the terms. So make sure you're aligned with your legal team in terms of, "We're not looking to win and they lose, we're looking to do a win-win deal or we're looking to win and they lose." Pick the right lawyer.
Yaron Werber:
As you think in hindsight to the Celgene Agios collaboration. And if you could change anything, knowing what you know now, what would that be?
David Schenkein:
Yeah, obviously it's a lot easier going backwards. It was very hard to see our first drug. The deal was that the first drug that we made at Agios, Celgene would eventually have worldwide commercialization rights. We would have a co-promote, but it would really be Celgene's medicine going forward and that's Idhifa which is on the market now for acute myeloid leukemia. And you work as a small company. It's an amazing feed to create a drug from a blank piece of paper. And to then see it go to your partner is really hard. Now there's no way we could have done the deal without that happening. So I understand that. And I think the challenge with co-commercialization with big companies is, Idhifa was a relatively small drug in Celgene's portfolio and they did a great job until Revlimid had a hiccup one quarter, and then they said, "Yeah, we can't worry about Idhifa now. We just have to focus on Revlimid." And your drug suddenly gets deprioritized and there's nothing you can do about it. And so I wish we could have held on to our first drug for commercialization.
I know that wasn't possible given the deal we did, but there really isn't anything else I really would have changed. They were a fabulous partner. It definitely got more complicated when we got into commercialization. That's tricky.
Yaron Werber:
Tricky, in what sense? Is it tricky from a understanding the profitability and how expenses are allocated, or is it tricky in terms of getting prioritization on the Salesforce commercially to your point, [crosstalk 00:23:49].
David Schenkein:
It's tricky getting prioritization. Where do you sit in the bag. Now again, if you're for drug that you've licensed to them is a enormous blockbuster right out of the gate, and it's going to be the most important thing in their bag, okay, that's not an issue. But as you know, big companies have multiple products in their sales forces and they're prioritizing them by sales and all different factors and understanding where you're going to fit into that. Most of us, when we do deals as a small young companies, the commercial product is eight to 10 years away. So who knows what their bag is going to look like then?
Yaron Werber:
Yeah.
David Schenkein:
It's just a reality.
Yaron Werber:
Yeah. As you think about your own career, what have you found to be fun as opposed to hard when working on getting deals identified and consummated? And then what is usually unexpected when you do deals?
David Schenkein:
The fun part is the signing, when it's done. No, the fun part is when you see that whatever reason you did the deal for, you can see those, the acceleration of your program because of the capability or capital that was brought in. And so it's just so rewarding. When a BD deal goes well, it's fun. The teams are jelling. They're having fun all the way up to the senior leadership. And it clearly is making both partners better. And most importantly, it's making the drug more likely to be successful. And that speaks to making sure you have a champion and you know who the champion is in the big company side. The unexpected thing, which quite frankly shouldn't be unexpected is I worry again, when in the big companies, when the BD team is doing the deal, or sometimes the CEO is doing the deal and the R&D team is not fully bought in and there's a disconnect between the BD team and the R&D team. You open that closet and that's a pretty ugly skeleton if you didn't know that going in. And so be really careful about that.
Yaron Werber:
Yeah. And David, to your point, the big companies, a lot of times there's turnover and the champion, depending who that might've been, might be moving on, hiring, moving on to the next role, [crosstalk 00:26:15]
David Schenkein:
And strategy changes and there's nothing you can do about that.
Yaron Werber:
Is there any way that companies can do marketing to their partner and trying to foster other champions other than the head of R&D or the Chief Medical Officer, or is that harder to do?
David Schenkein:
I think that's harder to do because usually the big company is dictating who's in the room but I always ask the question. If you're only dealing with the BD team, but the head of R&D is there before you get too far down the line, I would request, I'd like to meet with the head of R&D to see how excited they are by what we're doing. And if they're not willing to set that up, you got a problem coming.
Yaron Werber:
And I would even ask why is one meeting enough. You wouldn't expect R&D and R&D to have a real pile [follow up] of heads and several good productive meetings and a real fostering, a parallel relationship away from the BD people and the business people to really get this off the ground.
David Schenkein:
Yeah, absolutely. 100%.
Yaron Werber:
Let me ask you, a lot of times maybe for investors and frankly, even for the companies themselves, what are some of the telltale signs that the collaboration is going well, or the collaboration is slowly going off the skids and you need to tighten the screws and get back on track?
David Schenkein:
Yeah. Internally what we look for is how well are the joint committee is doing? What are the deal? But investors are not going to see that. And I think the only sign you can see from investors from the small company side are the timelines that were initially laid out before the partnership was formed to actually hitting. On the big company side, I know investors look very carefully and I used to look very carefully. "How is the big company talking about me? Are they talking about me in their JP Morgan deck? What are they saying? What are they saying in Q and A? Are we invisible or are they saying something?" And I think it's a tip off about whether or not the deal is going well or how excited they are. Sometimes they're subtle, but sometimes they're not so subtle. And I think that's the best you can do.
Yaron Werber:
Yeah. That's a great point. David, let's move into a lightning round, things that are a little bit more personal, a little humorous and a lot more interesting. What is your life hack?
David Schenkein:
Oh, I'd say my life hack, I have two of them. First and foremost is my family, my wife, two wonderful children and my now nine month old grandson. So that's clearly a life hack. And then the other one is sports. I'm a racket sports person and without sports, I'm not sure I can survive.
Yaron Werber:
Do you get to go on the court every week, every two weeks, or is it a little bit more sporadic than you'd like it to be?
David Schenkein:
I'm on the Squash Court at least once a week, sometimes twice a week. As you get older, it's a little harder to recover. So it's at least once a week with some running in between to keep myself as fit as possible.
Yaron Werber:
And what's your favorite hobby and what hobby do you wish you took up earlier in life?
David Schenkein:
Yeah. I've had a racket in my hand since I'm 10 years old. So anything with a racket is my favorite sport, squash, tennis, and anything like that. The sport I really wish I took up earlier is skiing. I love going skiing. I just love everything about it. I started it in my mid 30's so I can get down most slopes, but it doesn't look very nice. And I really wish I had started as a kid. It's such a fun sport with families.
Yaron Werber:
And favorite sports team? And are you more partial to New York or Boston? [crosstalk 00:29:59].
David Schenkein:
I grew up as a Mets, Jets fan, but I've been in Boston for 35 years. And so I'm a Red Sox fan now. I don't watch much in the way of football, but I watch a fair amount of baseball and I'm a Red Sox fan.
Yaron Werber:
I'm a die hard Red Sox fan despite growing in New York. Favorite drug that has ever been approved and why, that you didn't develop?
David Schenkein:
No question for me is Gleevec. I spent, as you know, from our overlap at Tufts, I spent 20 years at Tufts, 14 years on the faculty. Most of that time doing bone marrow transplant for leukemias of all type. And I think about how the world changed when I used to take 25 year-olds with CML to an allogeneic bone marrow transplant, and some of them wouldn't survive the transplant. And two years later we were giving those same, the next generation of CML patients a pill, and that difference between an allogeneic bone marrow transplant and all its complications and a pill to me was as close to a miracle. I'm not religious, but as close to a miracle as I can imagine. So to me that's a complete game changer.
Yaron Werber:
And then maybe finally, favorite BD or M&A deal in the sector and why?
David Schenkein:
Again, as a hematologist, my specialty was lymphoma. And so when I first saw the IDEC data for Rituxan at ASH I said, "Wow, this is going to be really be an amazing drug." And I've had the conversation with David Ebersman who drove that deal at Genentech. I think the Genentech IDEC deal to get Rituxan was an incredible deal. And as you know, the commercial forecast for Rituximab at that time, when the deal was done was peak sales of 200 million. But the impact that drug has made on patients around the world is just amazing. And so to me, that's my favorite BD deal.
Yaron Werber:
Yeah. And I think actually Rituximab when it first launched was off to a very slow start and then really took off.
David Schenkein:
Yeah. Yeah.
Yaron Werber:
It was the early days when the dinosaurs were roaming in biotech.
David Schenkein:
Exactly.
Yaron Werber:
Well, David, thank you so much for joining us. As always really terrific to see you. I'm very happy that you agreed to this. You are a star as always but thanks for the interest.
David Schenkein:
I loved it and really looking forward to our continued collaboration. And I'm really glad it worked out. Thanks so much for asking me.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

This podcast should not be copied, distributed, published or reproduced, in whole or in part. The information contained in this recording was obtained from publicly available sources, has not been independently verified by TD Securities, may not be current, and TD Securities has no obligation to provide any updates or changes. All price references and market forecasts are as of the date of recording. The views and opinions expressed in this podcast are not necessarily those of TD Securities and may differ from the views and opinions of other departments or divisions of TD Securities and its affiliates. TD Securities is not providing any financial, economic, legal, accounting, or tax advice or recommendations in this podcast. The information contained in this podcast does not constitute investment advice or an offer to buy or sell securities or any other product and should not be relied upon to evaluate any potential transaction. Neither TD Securities nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed.