Look Externally Not Internally for Innovation

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:
Thank you for joining us for another exciting episode in our Biotech Deal Makers podcast series. I'm Yaron Werber, Biotechnology analyst at Cowen. I'm super excited to be joined by Dr. Sophie Kornowski and Doug Giordano in this episode called Look Externally, Not Internally for Innovation.
We're going to be discussing the importance of sourcing innovations and [inaudible 00:00:48] externally, join win-win collaborations, not being afraid to do M&A, and taking on risks when doing deals.
Dr. Sophie Kornowski joined Gurnet Point Capital from Roche where she was executive vice president, global head of partnering. In this role, Sophie developed and maintained over 200 external partnerships and completed over 550 deals per year. Sophie was a member of Roche Extended Global Executive Committee and a member of the board of [inaudible 00:01:14]. Previously she was general manager of Roche France and spent 11 years at Merck.
Doug Giordano is managing director at Perceptive Advisors. Prior to joining Perceptive, Doug was senior vice president, Pfizer World Wide Business Development Group. In that capacity, he deployed over 125 billion in capital, leading Pfizer's evaluation, negotiation, and execution of all strategic deals including the IPO and split off of Zoetis, carve out of Cerevel, SpringWorks and Allogene, and the spinoff and merger of Viatris.
Doug previously held position of increasing responsibility at Pfizer's U.S. Pharmaceutical Group in finance manufacturing and commercial strategy.
Sophie and Doug, thank you so much for joining us. It's always great to see you. Really appreciate it.
Doug Giordano:
Pleasure to be here.
Sophie Kornowski:
Yeah, we are happy to be here.
Yaron Werber:
So, Sophie, maybe I'll start with you. I have to start by asking the obvious question, and Doug, to you as well. You're both very successful at your roles at Roche and Pfizer. What was the secret sauce? What made you successful?
Sophie Kornowski:
Yeah, so thank you for the question, Yaron. Maybe a lot of things have to go right for success in partnering. I would say the first thing was a great team with experts in various disease areas. So, they would really go deep into the science, into the business, and not keep it at the general [inaudible 00:02:41] level which is really not the way to do deals.
I would say that's the first one, and the second one is I think mindset in Roche that I learned there and I kept of building friendship with future partners. I think being with Doug today is an example, because Doug and I, we did a lot of things together. And I remember one day after, I don't know, nine months of working on a deal Doug, I call you to tell you it's dead, and you are the most elegant and friendly person I can think of. And we kept a relationship going. It existed before, it existed after, and I think that's essential. Partnering, this is in the name, and I do think it's a recipe for success, because you build trust and positive relationships that go beyond the deals. And people want to work with you again and again. That has been just a wonderful journey for me.
Doug Giordano:
Yeah. Thank you Sophie. I think it's an interesting point. I mean, I think in our industry in general you have to be the eternal optimist, don't you? I mean, there's so many ups and downs that we'll see, whether it's as we pursue something in the discovery lab, or as we pursue something clinically. And as we pursue something from a business development perspective.
So you can't get too high when things go well, and you can't get too low when things aren't going quite as well. You have to kind of believe in your strategy, believe in your mission, believe that what you're doing is important to patients, important to stakeholders, important to your company. And then really, look to focus a drive.
I think for me, I tried to instill within Pfizer a spirit of collaboration, creativity, and responsiveness, which I thought as a potential partner was going to be critical to the companies that we were going to be interacting with, to the professionals, to the clinicians that we were interacting with. So it's probably true in business as well as in your personal life, if you can collaborate with people, if you can think creatively, and if you're responsive, right? You're going to build trust, to Sophie's point. And that trust becomes the foundation of being able to accomplish things. You kind of take that creativity, collaboration, responsiveness, you wrap around honesty and integrity, and then you put some hard work and focus and I think you can accomplish a lot.
Yaron Werber:
I really love that answer. It's about relationships, being optimistic, collaborative, creative, responsive, and obviously trustworthy.
When you think about some of the biggest challenges to incorporating external transaction when you're developing a pipeline, and you're both coming from big companies, innovative with longstanding legacies that have their own internal pipelines as well, how do you foster the external view versus the internal drive to the not invented here syndrome and how do you combat that? Maybe Sophie let's start with you, especially coming from Roche.
Sophie Kornowski:
You have to partner internally as much as you partner externally. You are not going to be successful in bringing something new to the R&D folks or to the business folks if you don't fully understand what they're doing internally. What are they focused on, what is the budget situation, and what keeps them up at night?
You're actually going to be a disrupter that's going to be very unpleasantly perceived. So once you understand they're looking for something, and they understand that you're going to bring something that they're going to full own, you have to also team up with them on how they make room for that project or product. In Roche it's quite simple. There is no money available. If you bring in something, you have to stop something. So clearly, if you're not on their side, nothing is going to happen.
That very close relationship, in such a way that when deal comes, or decision to be made, the partnering folks are embedded with the R&D or the commercial guys. You wouldn't be able to say who works where. I think that's a recipe for success. Not every company works like this. Some companies do deals that are more disruptive internally. I would say the way we did it at Roche was that way, and that is absolutely essential to be able to work that way.
I also want to add, there is a dark side to deals which is most of what you sign and invest in will fail. That's R&D. So it's better to not get into a deal anxiety and drink your own Kool-Aid. Staying really very objective and listening to the warning signs is also something that people will build respect on you if they see you do that. That's extremely important.
Yaron Werber:
Yeah. That's a great point. We'll come back to that in a minute. Doug, what's your view?
Doug Giordano:
Yeah, no as usual I agree with Sophie on what it takes. I mean, it really trying to create any type of adversarial relationship between the business development team and the scientific team or the commercial team is not a recipe for success. It needs to basically be framed within the context of the strategy of the company, the strategy of the chief scientific officer, the strategy of the commercial team that's pursuing something. You need to understand those strategies, you need to, in the same way that I talk about creativity, collaboration and responsiveness to external partners, internally you need to be collaborative with that internal partner, you need to understand their business, you need to help to create the opportunity to ideate and move forward on their strategy.
And then response. Response to what their budget needs might be, respond to where some of the issues might be on the science, understand the diligence, and really frame things in the context of what the business is trying to do.
If you're actually trying to do things orthogonally, it could meet with a lot of resistance. And to Sophie's point, many things are going to fail, right? So you want to be in this together, and you want to make sure that it's not about getting the deal done, right? It's about actually taking what that collaboration, what that partnership, what that deal provides and actually bringing it to patients, right? And making the business decision that's going to be constructive to patients, constructive to the business.
When you get a deal done, it's the beginning, not the end, right? I always say that the big run up to the deal, that's the end of the beginning, and now the real hard work starts, which is continuing to develop the product, commercializing the product, getting the reimbursements, getting the awareness of patients obviously. And those are the things where, together, we need to be in the right place to start the relationship and then follow through.
Yaron Werber:
Yeah. You know, one of the elements that I think is not as clear or visible to the outside world is how are deals actually getting done? In the beginning of the year or on a two year basis, is there sort of a detailed landscape mapping that's done between strategy, be the R&D clinical finance and go get them? Here's the world, here's what we want, go get them? You know, time is ticking, or are they done based on relationships or are they opportunistic based on ideas from a senior leader at the company or based on a bank calling you because there's a process. Maybe Doug, let's start with you.
Doug Giordano:
Yeah, well you know I'm an engineer by training, so I think of things even from a perspective of a liner programming equation when I think about deals and I think about strategies. There's multiple variables that you're trying to control for, and you're trying to [inaudible 00:10:38] around value, right? Around bringing in science and bringing in technology that's going to move the strategy.
So it starts with what are your financial goals, what are your strategic goals? And then what are the different variables that are a part of this process? So, certainly you need to have a strategic framework to evaluate which areas of science you want to pursue, which areas of the business that you're really looking to try to advantage through your deal-doing.
Opportunism probably is not a good strategy for doing good deals. I think what you want to make sure is, okay, where are the areas that you believe you have a differentiated ability to understand and conduct good science? Where are the areas that you feel you have a portfolio that's already very robust and probably well-budgeted? Where are the areas where you feel like there are some opportunities to trade up and improve? Where are those areas where you have that expertise?
And really then trying to balance, okay, we know we have certain budget and P&L constraints. We know we have certain ambitions in terms of growth, in terms of value creation. How do we bring all that together and allocate scarce resources? Both resources including money, but also resources including the time of scientists, the time of the commercial team, the field force potential, right? So, the bandwidth that a field force might have if you're looking to do a commercial deal.
And really, take that all into consideration and see how you're going to prioritize. And certain companies look at these things differently. Within Pfizer where I came from, we liked to be very specific about the therapeutic areas that we were looking for, about what would constitute good science, breakthrough, first in class, best in class, how that might therefore differentiate from a patient perspective and ultimately, allow you to be reimbursed and be successful in the marketplace.
So all of those things have to come into play. It can't be, "Gee, we got a call from banker XYZ, this seems like it might be good. We've always wanted to be in that space, maybe we should take a shot." That is truly a recipe for failure. Instead you want to lean in, right? You want to create those relationships. I used to say to my team, "I want to make sure that we're in the best position if something is going to happen to either make it happen or to be able to respond when it does happen because we've built relationships, we've built an expertise, and we're then able to really seize the moment."
Yaron Werber:
Right. There's a lot there. Sophie, your thoughts?
Sophie Kornowski:
Yeah. So I think, I mean Doug touched upon a lot of things which make a lot of sense. I agree, be able to cover the opportunistic things, the banker calls. I mean, most of the time if the banker calls, it's probably not for you. It's very different in investor world, Doug. I think you see it as well, it's a whole different story now.
Doug Giordano:
Yes. [crosstalk 00:13:46].
Sophie Kornowski:
So there is a strategic plan. It's not a small thing to get a strategic plan out of your R&D force or your commercial people. So we should not ... I mean, it sounds on the paper great. Wow, to get there is extremely challenging. So I think in Roche when I was there, and it may very well have evolved, there was a balance between get a strategic plan on what you ... the areas of interest that are the most attractive to the folks internally. But you also have pushback, and the partnering team should be also driving a new way of looking at things. This happened in gene therapy, this happened in gene therapy actually where partnering, push forward on ... Look, there are areas where we should be looking, and even if we don't think it's there, if it's not there today, it's there tomorrow and complimentary to what we have. So a healthy dialogue with internally so that we dent a bit the way they look at the strategy.
And then after that, budget is complicated because you're going to have to stop project, and if you knew you're going to stop them, you should probably stop them now. But nobody ever want to say they have a project that should be stopped. So there has to be a bit of flexibility and fluidity into that partnering roadmap. And then have people be out there, and as I said, teaming up with internal folks to meet interesting companies and develop the science knowledge. The big danger of our big companies is that at the end they don't progress into their understanding of science. They are worried to take risks, and partnering can prove this in a balanced way, right? Because when things fail, it never feels good with anybody.
So be proactive, have a strategic mapping, have very competent scientists internally, complementing with the internal scientists from R&D, and remain opportunistic, not through banker calls ... I mean banker calls, yes, why not. But mostly biotech meetings. You know? Just making that effort to [inaudible 00:16:04] biotech, because something may come out of it. So I think that's the way I look at it.
Doug Giordano:
One thing I just wanted to add because I always like to say that luck is when your opportunity meets the preparation. So you want to be prepared to make your own luck. And I think to do good deals and to be in a position to close those deals, you want to "get lucky", right? You want to be prepared. So when I talk about putting together that linear program, putting together that plan, the one thing you know is you're not going to actually execute on this plan. You're not going to say, "Look, these are the three companies this year that we're going to buy," and everything's going to go the way you want it to go. You want to really just be in a position where this is the science that we really like. These are the companies that are in that area, these are the key catalysts that may trigger us being even more interested.
You look at the value, you look at the science, you look at where it's going, you think about your own budget and the in-flows and the out-flows, and you got to put yourself in this position where okay, I like the science, I like this company, there's some things that are going to happen. Bang, something happened, now maybe it's time to take that conversation that we've been having to Sophie's point, because we've been developing a relationship with this company, to another level. Because now they're mature, we're mature, we have the budgeting, we have this. Boom, let's try to make this a little bit more mature.
And you know, an example of that in the Pfizer history might be the deal that we did with Array. It was a large acquisition, but you know, we had been working and in communication with Ron and that team for a long time. We understood where they were, we understood their science, we understood when the data that we were interested was going to be reading out. So, it wasn't like, "Gee, that study read out, that looks interesting." Somebody called us and said, "Do you want to talk to them?" No. We're leaning in, right? We're trying to put ourselves in that position that when that opportunity presents itself, we've already been prepared.
And sometimes companies aren't ready to have that conversation, so they ... even though we have a good relationship with these companies, they're not ready for some type of change of control or some type of large partnership, that board isn't ready. They want to see the value seasoned more. But that doesn't mean we shouldn't be having these interactions, we shouldn't be in a situation where we're prepared, we understand the science. And then take advantage of those opportunities when they present themselves. Or, try to create those opportunities by using the relationships that you've already developed to say, "Hey, maybe now it's time. What do you guys think?
Yaron Werber:
And maybe Sophie, if you were to go back and do your old role again, what would you change? What would you do different? And same question to Doug.
Doug Giordano:
Well I'm glad you're asking her first.
Sophie Kornowski:
I would ... I mean, I would try to be smarter. I would try to probably dive into projects more deeply, even if I was not needed. There's one thing when you head partnering is that basically you're called in for the big deals or for the problems. And I really liked to learn about the project and the science and the commercial models. So I was very respectful of the teams, I didn't want to hinder anybody's work. I think I could have been a little bit more pushy to be looking at things inside. I have to say, that's what I really enjoy today, because I own the deals I do and I am the chair of companies and I'm an investor, and now I know every single little detail. So I think I would have enjoyed my role a little bit more if I had been deeper into more projects.
I did this in, I was seven years in my role so it's long time. And I started digging at the beginning because I had to learn. And then, towards the last few years, I could dig more. But in the middle, I was very much into processes and teams and I think if I had been more in deal, I would have more enjoyed it. Would we have done better? I don't know. I think a lot of times I should be really humble about the performance. It was, I had a great team reporting into me and I had wonderful stakeholder, and I think that that made the results of partnering. So I don't know it's about performance, it's more about enjoying the ride. I am someone who doesn't enjoy rides as much as I could.
Yaron Werber:
Doug, what about you? What would you do differently?
Sophie Kornowski:
He would do more deals with me?
Doug Giordano:
Absolutely, absolutely. You know, I think the challenge for folks that have the roles that Sophie and I have had is this balance between the internal and the external. Right? So, the stakeholders that you have to interact with internally can be complicated, and there's multiple stakeholders and there's different perspectives on different things. You've got your CFO and the balance sheet that you have to balance against the commercial team, against the science team. So, that tends to use a lot of energy, especially when you're leading a group and you're trying to help move the business.
Sometimes, that's at the expense of being outward facing enough. I feel like I tried to face out and interact as much as I could with biotech CEOs and with others, but I feel like I probably could've done more, and certainly if I were to do it again, I might change that balance, but I think as you come up through a company, and especially as the company is going through changes, you end up spending a lot of lot of time managing kind of internal. And since the business development function can be a great source of competitive intelligence and competitive strategies, it's important to not neglect facing outside.
So I think I tried to do the best I could in terms of that balance. I think as I was more longer in my role, I tended to have the ability to face out more. I would have, if I were to go back and do it again, I'd probably try to even emphasize more the outward facing component. And really trying to tell the Pfizer partnering story in a way that would really reflect what I think is a great company that works exquisitely well with partners, both from a scientific perspective as well as from a commercial perspective. I think that's manifested itself in many successes including the vaccine success with BioNTech most recently. But telling that story, I think, was a good story to tell. I would've liked to have spent a little bit more time doing that.
Yaron Werber:
What about, let me ask you, investors are going to be listening to this podcast as well, and one of the things they're always trying to wonder are what are some of the tell-tale signs ahead of time that a collaboration is particularly going well or really going off the wrong direction, going off the skids? You're not exactly invited at that point to see what's going on inside. What are some of the signs?
Doug Giordano:
Well I mean again, it's going to depend in many ways on what type of collaboration, because if you think about the whole spectrum of things that a company like Roche or a company like Pfizer will do, it goes from pre-clinical partnerships all the way through to late-stage commercial and commercial stage partnership. I think the metrics on each of those are going to be different. If it's a commercial partnership or a near commercial partnership, it's pretty clear whether or not the companies are working well together and performing based on the diffusion of the product out into the marketplace and how well it's doing.
I think it's a little harder, and it's probably a bit more opaque to look inside an early platform collaboration and truly understand. Certainly, it's going to be milestone driven in trying to understand are the companies hitting their milestones? Are they laying out a plan? Is the appropriate spending in progress happening? And you can probably see that through the companies that you're investing in in terms of how they're reporting on their catalysts. But that's going to be, right? The proof is always going to be in the pudding. If the collaboration was around XYZ technology and to get it into the clinic, or to get through the clinic to the patient, how well is it tracking? And what is the justification or the rationale behind the slippage?
Sophie Kornowski:
It's always about delivering on the milestones. It's not a small thing to actually get those milestones right when you do an agreement. Thinking it through about the scenarios and making sure the agreement you have is going to foster collaboration and results is essential, and it's incredibly hard to do because in the middle of the deal, I mean, you really want the deal to happen in a smooth and positive way, and you can't pull out every five minutes yet another road block. So you probably have to pull out all the road blocks at the beginning but no one was organized enough to get this done well.
So, thinking through ahead of time and getting everything in the agreement and then you know if the collaboration is going well, this agreement stays in the drawer. If you have to pull out to the agreement every five minutes and start arguing or what is your product profile, is this really this or is it really that, or did we reach a milestone, yes, no? I mean, that is just a recipe for a lot of anxiety which will go against a productive collaboration.
Doug Giordano:
That's totally true.
Sophie Kornowski:
And then monitor. And oftentimes you have to reset if things are going off rail. It's a bit like in the family, every now and then there is a little healthy reset that needs to happen, but you should pay attention in that time, so this is where the alliance manager is essential because sometimes the R&D people are so busy blaming each other between the partner and internal, that then the alliance person can say, "Hey, wait a minute. Are we really serving the purpose here?"
Doug Giordano:
The problem is, that's not very visible to investors, right? So inside baseball, you know internally if a partnership is starting to go off the rails because of that type of intervention. It's harder for investors to get any really visibility into that, because a lot of that is going to be like the duck. A lot of that is happening underneath the water. On top it still looks smooth, and when you start to see the milestones getting missed, then you have to wonder whether maybe it's not quite as smooth as you think underneath that.
Yaron Werber:
Maybe we need to start a blog where scientists and alliance managers can blog about what's going on, just like in baseball when they're negotiating their contracts with their agents.
What about, a lot of times it's how a big company will talk about the collaboration with a small company. Whether there's ever a mention of it or whether there's never a mention of it. Isn't that a big sign as well?
Sophie Kornowski:
I remember going crazy because our collaboration wasn't mentioned or the deal was not mentioned in some release from Roche. And then the CEO of the company was upset and I was upset and everybody was upset. It was just that it wasn't the time and Roche doesn't like to communicate things that are not really tangible and making sure they get to the market. I think it truly depends on the culture of the company. I think trying to get everybody to calm down when things are not communicated is a healthy thing. I would be very careful as for the investors to think if they talked about it's big, if they didn't, it's small. Maybe, maybe not. I don't know.
Doug Giordano:
I totally agree. You know, it's interesting because you know, in my new role, being around more investors, I appreciate just how focused the investors really are on everything that's coming out. All the different information that's being put out into the marketplace. There's always this assumption that the bigger companies are being so thoughtful about everything they say, and everything's so carefully crafted. And it's not always the case, right? So, to Sophie's point, sometimes you put out this release, and the people who decided to put out the release didn't necessarily check or decided that they didn't really see make mentioning that partner as being that critical to what they were really trying to say. So it was completely unintended, right? But yet, I know other people are looking at it, so trying to gain any type of insight into what might be happening that they almost overemphasize something that may be relatively trivial.
I always was surprised, people would say, "Oh, you guys did something like this because you must've been thinking that." And you say, "Oh gee, I wish we were that smart. But we weren't thinking that far ahead. But thank you for giving us credit for that."
Yaron Werber:
You're busy running a business and not everything matters. There's a lot of debate and discussion, and you know spoken with both of you about is it better to do a late-stage "de-risk" deal, late stage clinical or pre-commercial or bio-commercial company, typically you'll pay a lot more but the asset is "more de-risked". Or going earlier, usually the assets are a little cheaper and you flip the card and you take all the risk and you take all the credit and you take all the upside.
There's a lot of discussion. Is it better to do five four billion dollar deals or better to do one 20 billion dollar deals. Maybe Sophie, let's start with you? What's the answer?
Sophie Kornowski:
I'll put my hat of a future CEO of a massive company or just a regular [inaudible 00:30:22]?
Yaron Werber:
You know, I would say in a big company doing acquisition, this is for acquisitions, not deals.
Sophie Kornowski:
Oh. I think that senior management way prefers to pay a ton for the risk product project. Because a failure creates incredible anxiety. I do think that the right strategy is actually to go earlier, pay less, and make more bets. If you want to be in a disease area, just place a few bets, some will fail, but if you have smart people around you, eventually one will work.
There is a probability of success, of late-stage deal actually in the data you can see that an external project in early stages has a higher PTS than an internal project because it's vetted by all this due diligence and there's no reason for someone to hang on to an external project to begin with if it's not meeting the target profile. Whereas in late-stage brought in has a lower PTS. It was not developed by the right type of a company, probably if it's for sale it's a bit distressed. You know? You're going to pay six, seven, eight hundred million an up front, if not way more. So I personally believe to do more bets and a bit more risky. But I know that this is not what I have witnessed.
Doug Giordano:
So, I think a wise person once told me, you never want to solve a problem with an or when you can solve it with an and. And I think that companies like Roche and companies like Pfizer can have the resources to do both. Right? So I think you need to do both. You're managing a business, it's a commercial worldwide enterprise. You need to understand kind of where you are in your cycle from a revenue and profit perspective, and if it calls for you to try to advantage in the near term and take advantage of potential commercial synergies associated with a field force and maybe some assets that are coming off patent, then you may want to go and lean into a larger acquisition to pick up some of those commercial assets.
At the same time, it should not be to the detriment of being able to do great science. And again, picking the areas of science that you want to excel in. So if you're Pfizer and you're focused on wanting to excel in gene therapy, if you're looking specifically to advantage where you are in the oncology cycle, then you do those deals with companies that are going to give you an ability to build that portfolio. But you don't neglect, also, the idea that there may be some things that from a commercial perspective could also make sense. A collaboration. So if you take even Pfizer's history over the last year, where you take the deal with Myovant, right? Which is much more of a commercial partnership to help launch that product and grow that product, versus the deal they just did with Trillium which started with an equity investment about a year ago and has turned into an acquisition.
Again, to go after an area of science in the oncology space that has been interesting to many companies including Pfizer. So you want to look at it from that portfolio perspective. Or you take a deal like BioNTech which we all know where we've been over the last year, but that deal, that story started three years ago in a flu partnership with messenger RNA. And then, that collaboration morphed into addressing the pandemic and working on the COVID vaccine. So it could go in multiple different directions.
Doing that flu partnership which was a much smaller deal turned into something much bigger, and you want to try to do as much as you can with the budget and with the resources that you have.
Yaron Werber:
Yeah, and maybe that's a great point. There's so much variety and it's very hard to kind of model what the outcomes can be based on the different deals, different structures, different life cycle, where they are.
One of the questions that I've had is, how important, and I'm taking about acquisitions, I'm having rigid or hard MPV or DCF or return on investment capitals, so if metrics, when doing deals. One of the reasons we bring this up is we've been going back and looking at 14D-9 statements and in most cases, those numbers are not met. What's sort of the underlying pinning, and that's across the industry by and large. It kind of begs the question a little bit that at the end some deals just don't live up to what the expectations were initially, is it that to justify the deal perhaps they needed to have rosy numbers to get to the valuation? And then that leads to the natural question, should deals be based on MPV, DCF or ROIC or are a lot of deals strategic and they lead to the next deal and that specific deal is just maybe not going to be terribly accretive or returning capital quickly and that's okay?
Sophie Kornowski:
Well if you look at the analyst and the forecasts of product launch internally by companies, they also never meet their targets. So a company who says, "My products going to sell x billion," and actually sells x billion is very, very rare. So everybody's wrong in general. That being said, the value of a forecast is that you highlight the drivers of the business and you can also benchmark this analysis to how you look at your internal molecule or projects. So, I really think whenever we have to be ... I mean, there are some companies who are doing these based on the instinct. I just don't know how you do that. At the end of the day you have to get a number behind an offer and it has to be based on something.
The interesting thing is not the number itself, it's all the analysis behind it and how the fact that you are taking the same standards internally and externally. I think this is about the rigor of decision making.
That being said, you absolutely can have something that you can call this strategic premium. Once in a meeting we made the joke that it was a desperation premium, but you can absolutely say [inaudible 00:37:16] because I have synergy internally, or because this is an area I really want to be in. So you know, all this is possible, but you want to be transparent around your assumptions.
And then the fact that the buzz outside is going to be, "You did better or worse," or whatever is not so important. Hopefully you have a better understanding of your needs and your internal way of evaluation than what you would read in the newspaper. I think that has to be the standard of a quality work for a company.
Doug Giordano:
Yeah, I think Sophie says it very nicely. I do think you have to think about it's a segment because are we talking about platform deals, are we taking about pre-clinical, are we talking about phase one, phase two, pre-proof of concept, or are we talking post-proof of concept? And I think in each of those different stages you have to be flexible in terms of the analytics you might apply. I do think if you're looking to do post-proof of concept deals then you should be looking at the MPVs, the IRRs, the return on invested capital, payback period, those kinds of things, accretion, dilution, in when something's actually going to become accretive. But that's for later stage deals which are going to be much more commercially oriented. So you have to make a decision about what do you think that label's going to look like and when do you think you're going to be able to launch it? How are you going to be able to sell it and will you make money?
I think if you're pre-proof of concept, or especially if you're not even in the clinic, I think it's a little harder and there's a false precision built in to some of those analyses, so you may want to rely on diff analytic methods from a valuation perspective. I think hygienically, you'd like to maybe pressure test it with some level of forecast and discounted MPV and try to understand what the implied returns might be under different commercial scenarios.
But since there's so much in terms of risk that you're going to have to try to characterize, whether it's the risk, your probability of technical success, probability of regulatory success, the pricing in a market that may not be yet mature five, 10 years from now, what the competitive landscape is really going to look like, I think you can talk yourself in or out of anything. Right? It become like an inkblot test. You can see whatever you want in those types of analyses, so you really then have to come back to what are the core principles of why you're doing a deal, right? You believe in the science, you believe in how it's going to impact patients, you think if that science and that impact is there that it's actually going to be big and if it's going to be big, you'll get the appropriate returns and then you have to be comfortable.
I've seen even within Pfizer, an evolution on how we go after that, because this notion of, "Gee, we're looking at a pre-proof of concept or we're looking at a pre-clinical platform or pre-clinical assets or set of assets and we're going to try to do a discounted cash flow of products that aren't going to launch for seven or eight years," I mean, it's an exercise in just futility quite frankly. It's a false precision, a crystal ball that's completely foggy, and so if that makes people feel better, I guess that's good. But that's not really why you want to do that acquisition, right? If you're using that type of analysis to figure out whether you should or you shouldn't do, I can tell you you shouldn't do it. Because you should be saying, "Gee, I really want ... This space is important, we believe in this space, we think it's going to make a difference to patients and we think that this type of price is an appropriate price and an appropriate investment for what we think we can get." But there's a lot that goes into that.
Yaron Werber:
Yeah, no that's a fantastic question. And let me maybe segue next into, as you think about giving advice to smaller companies, when they're working to foster collaborations, enter into collaborations, or sell their companies with a big pharma, what advice would you give them, Sophie?
Sophie Kornowski:
You should really listen to what the company is looking for and because sometimes they don't as much as they could and then they can waste a lot of time pursuing a company that we never come to an agreement with them. So just really making sure they understand what is expected, and to see if this is what they are working on truly.
Second thing is to be extremely clear on what they have and what they don't have and take advantage of the future partner, or at least those conversations to understand what are the Achilles heels of their projects. You know? Lot of companies have an enormous amount of knowledge and are pretty transparent about what they are looking for, and if you're a smaller company maybe sometimes it's appropriate, maybe it's not appropriate, but at least listen, hear them out, and then sort things out. But don't just believe what you're doing is perfect because that's a bit of a loss. It's [inaudible 00:42:27] for a larger company as well by the way, in deal-making between two large companies.
Every interaction is an opportunity for learning, and the likelihood of a smaller company having to learn more is high just because they have less people and possibly less experienced people. Not always, but sometimes. So, I think that would be very much of my advice. And then manage cash, because deals never come as fast as you want them to come. Now that we are investment world, I can see managing cash is so crucial. I would recommend that.
Yaron Werber:
And what advice would you give them when the deal was signed yesterday, now what they should do to make sure the partnership really is successful long term?
Sophie Kornowski:
Just to continue teaming up in the same transparency and engagement as they had before deal making. It's a bit like it was courting and then it was engagement, now it's been marriage. If you want to keep the marriage alive, I heard you have to do a lot of things.
Doug Giordano:
It's a great point, and I love the way Sophie says it, that it's listening, right? Because communication is two ways. It's not just what you say, but listening and then reacting to what you hear which is so important. And on that note, you want to make sure if you're a company that as you're going through the courtship process, yeah it's really nice that you'll be introduced to me and Sophie and we'll have a relationship, but we're not going to be the ones that are going to be at the lab doing the discovery, the development, or commercially launching the product. At some point in that courtship process, make sure you figure out who you're marrying. And make sure you start that relationship, right? The first time you meet the people who are actually going to be working on your project shouldn't be after the deal is signed. They should be the folks that are championing, that believe, that are going to, and you need to believe in them.
There's no substitute for making sure the right people. I know it's great that people want to talk to the CEO or they want to talk ... But who's going to be the person who's going to be day-to-day and will those teams really click? And make sure that chemistry is there.
Yaron Werber:
That's really great advice, because at the end, that's going to be ... Every deal is going to have a crisis point, so you got to make sure you have a good marriage, a good relationship with your colleagues on the other side to get through that.
Okay, we're going to go finally to a quick lightning round that's a much more personal and interesting and humorous. Maybe Doug, to you first, what is your favorite hobby and what hobby do you wish you took up earlier in life?
Doug Giordano:
So you know, this whole favorite hobby thing, it's like saying, "Who's your favorite child?" Right? You love all your hobbies. So if it's summertime my favorite hobbies are getting in the water, so I like to dive, I like to scuba dive, I like to snorkel, I like to spearfish. So that's one of my hobbies. If it's wintertime I'm going to get on a snowboard or on skis and I'm going to do that. So I like to stay active and do things like that. The other thing that I like to do in the summertime is surf, and that's a hobby that I wish I picked up when I was much younger because I didn't start surfing until I was in my 40s, and it's a little harder to pick that sport up. As I get older, surfing is tougher and maybe I'll just flip over to just doing the standup paddleboard and trying to surf by standing up first and not having to pop up all the time.
Yaron Werber:
Yeah, sounds hard. Sophie what about you?
Sophie Kornowski:
Jogging, preferably with my dog because without my dog it's not as much fun. I don't think that he likes jogging as much as I do. So that's something I do to relax, to feel good and to see landscape. So it's only outside, obviously. And I picked up piano a few years ago when I moved to Boston and I mean, it's painful I'll tell you. I wish I had done it before. I never get to the results I would like to, but at least I enjoy classical music in a way I never did before, so this has been quite fun.
Yaron Werber:
Yeah, that's terrific. And jogging with a dog is really enjoyable when a dog is actually jogging. I noticed that my dog most of the time, the dog is not jogging and I'm trying to convince him to jog with me. Doesn't work so well.
Sophie, what's your life hack?
Sophie Kornowski:
I like people. I like friends, I like new friends, I like old friends. I'm very faithful, so you know, I'm always happy. I have to resist the interaction all the time, but I just really like the friendship that exists, that's what being a human is all about.
Yaron Werber:
Especially important in COVID. And Doug, what about you?
Doug Giordano:
So, in terms of life hack, just based on my definition of a life hack, I think something that is kind of essential to life is duct tape. I think duct tape is something that no matter where you are and what you're doing, duct tape can help to fix it. So whether you're trying to fix a broken paddle or whether you're trying to figure out how to catch that fly that's flying around your kitchen, duct tape can come in handy. I recommend to people, keep some duct tape around.
Yaron Werber:
I love it. Yeah, I think one of the best Chinese restaurants in New York City that we used to go to, literally everything in the restaurant was duct taped, and that was nerve wrecking to go there, but the food was good.
Doug Giordano:
Yes, yes. It should be part of everybody's travel kit. I actually, whenever I go, when I go skiing, when I go diving, I take duct tape because you never know what you might want to fix.
Yaron Werber:
Yeah, well I'm going to have to go get some duct tape.
Sophie Kornowski:
I do chocolate. It works too. Not [crosstalk 00:48:24] me.
Doug Giordano:
Chocolate's good too.
Yaron Werber:
Well great, Doug and Sophie, always great to see you. We really appreciate your joining us and I'm sure we'll be in touch.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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