Embracing External 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 our exciting Biotech Dealmakers podcast series. I'm Yaron Werber, Biotechnology Analyst at Cowen. I'm super excited to be joined by Doctors Tom Daniel and George Golumbeski 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. I'm thrilled to welcome Dr. Tom Daniel. Tom is Venture Partner at Arch Venture Partners, following a long tenure as President of Global Research and Early Development in Celgene. He previously had scientific and discovery roles at Ambrx, Amgen and Immunex. Dr. George Golumbeski is a partner at Droia Ventures Genetic Disease. Prior to that, George was President of Grail and served as a long tenure as Executive Vice President of Business Development at Celgene, and Vice President of Business Development at Novartis Oncology. Both Tom and George serve as advisors and on boards of many biotech companies. Gentlemen, always great to see you, and thank you so much for joining us.
Tom Daniel:
Thanks for having us, Yaron.
George Golumbeski:
Yeah, thanks. Good to be here.
Yaron Werber:
So I have to start by making a reference that you've both been called Batman and Robin, and I think you were very well aware of that. What was the secret sauce that allowed you to be so productive in doing collaborations at Celgene?
Tom Daniel:
So, George, do you want me to start?
George Golumbeski:
Sure.
Tom Daniel:
This in no way implies I'm Batman and he's Robin, we just take both those roles together, I guess. The magic sauce, if you will, or the secret sauce, that I think we shared, was a very deep understanding of both small and large company attitudes about collaborations. We had each led all companies and been in large companies. And somehow that shared perspective along with a really deep love of science and getting science applied to therapeutics was both a bond between us and a great catalyst for to listen carefully to potential partners, and to get the deal structures and motivations, and, ultimately, the follow-through on those deals correct. George, do you agree?
George Golumbeski:
I do agree. And the longer now I have to look back on the time at Celgene, I think there's a fairly long list to answer Yaron's question. I'd to add to your list, Tom. You and I, very quickly after my arrival at Celgene, and you were already there a year or two before me, but very quickly after our arrival, we kind of naturally, without any negotiation or kind of rational discussion, we go into a very, very kind of unique and productive collaboration mode, which our respective teams followed suit. And that was a key element of the secret sauce because I've been in other organizations where Business Development and R&D didn't get along all that well, because they were competitive in some ways. We blew past all that by our personal, and then our groups collaboration.
And the other thing, which I... The longer I look back on this, the more important I think this is. The organization was behind us almost all the time, and whatever they weren't behind us on after a year or two of doing a lot of collaborations, the entire organization, from the board to the CEO, to the assistants, were supportive and understood what we were trying to do. And that's something that one shouldn't underestimate, because I think our collaboration, our knowledge of small and large companies in a different environment wouldn't have had the same result.
Tom Daniel:
Yeah, I can't emphasize that enough. I think we were remarkably well positioned to be able collaborate in a way that we did and to have the impact. The other sort of final point that might be worth making is that George and I both agreed that we would necessarily have to expand the pipeline beyond what we could grow internally in order to fill the shoes that Revlimid was creating for the company. And that made me commit to building an external research organization that was explicitly focused on identifying fostering and delivering collaboration value. And we had a very, very talented leader for that, and great people in that organization that partnered with George's organization. So the collaboration was very much up and down from the board all the way down, as George said, to the assistance. It was really quite palpable and was felt by everyone in the organization.
Yaron Werber:
I really love that answer. And there's a lot to unpack there. And, in subsequent podcasts, we're going to talk about some of the challenges to creating this kind of a culture to your point where R&D and BD really are collaborative and integrative, and in many bigger companies, that's not always the case. How did you get that culture at Celgene? And how did you prepare the board and your colleagues in the C-suite and the organization in general to take risk?
George Golumbeski:
So, for me, you have to go back to the beginning, my recruitment to Celgene, where everyone that I spoke with, particularly Sol Barer, who was CEO at that moment, and Bob Hugin, who was COO, and then became CEO when Sol retired. They all said emphatically, "We're in a unique position. We have this great revenue stream from Revlimid and we need to build the pipeline. We need to build the future of the company." And I think they even use the cliche, but we got to make hay while the sun is shining and the money is rolling in. But the difference was, to be frank, I had heard that when I joined Elon Pharmaceuticals as the head of BD. They meant it, but they got into financial difficulties and deals kind of went out the window.
And I heard this when I joined Novartis Oncology, and they meant it, but there is, and that subject for a different day, but I think there is a difference between large-cap biotech and large-cap pharma, and one of those fundamental differences is risk tolerance, a view of what are capital assets, specifically money. Therefore, biotech is willing to take risk and spend it on the future and pipelines. It's a little more difficult to do that at big pharma that was just more conservative, more analytical about every deal. So, what I'm trying to say here is, some of that culture was there from the beginning, Sol and Bob actually meant it there. When I met with Tom in my recruitment, he meant it, but it got even better because I think the organization saw some results that were positive.
We acquired Gloucester in a competitive bidding process. [Stadex 00:08:11] never was a blockbuster in terms of sales, but we got the drug, it got approved. It made to the market. We beat out in a competition, a banker-led process, a large farmer who was bidding against us. We did the Agios deal, and that was well received by the market and by analysts, and everybody held their breath, wondering if that would be well received or not. And then, honestly, most of our tenure doing this was under Bob Hugin's CEO term.
And Bob was always supportive, but honestly, in the early days, I remember a few times where, as we were getting ready to sign a big deal, he'd get the team together and say, "Now, if this doesn't work, who's responsible for the plan? If it gets two years delayed, who's responsible?" And he rapidly evolved from that to actually going around the halls of Celgene and saying, "Look, this is the program and not everything's going to work. And when it doesn't work, we just have to move on." And that small incremental shift in Bob's outlook was huge, even though things were frankly in pretty good shape before he made that transition.
Tom Daniel:
I might add a couple of points that first emphatically agree with George on the big picture. I think there was also a powerful, cultural norm set within the organization that was first deeply respectful of external partners, and collaborators, and assets that were brought in. And secondly, the interpersonal relationships that people developed both within our organization to manage the expanding pipeline with the collaborators were genuine and grounded in excellent science and led by the science rather than by some deep commercial motive that was vulnerable to secondary problems within the science. So I do think that the culture was enriched by the quality of the people, both at the top and all the way through the organizations.
George Golumbeski:
And final comeback. Look, I do think the executives who are involved in this in biopharma do have to do some teaching of the organization. Tom and I did that in our respective ways and brought the organization along, but two anecdotes to give you a sense of what we came him into. And it was wonderful, actually, relative to other places I've been that weren't deal friendly. So when we were blocking down the Agios deal, that was north of a hundred million total investment upfront. And this hadn't been done before by Celgene, or perhaps by anybody else for an early stage deal. The biggest pushback that we were getting internally, and I was hearing a lot of this was, "It's too much money for an early stage research collaboration. It's just..." And I remember talking to Sol Barer in the hall, and Sol was always, usually very calm and thoughtful.
And he asked me if he could help the deal at all. And I told him, "It's too much money." And he got this look I'll never forget, he was just amped up for a moment. He goes, "George, we've picked this as our number one project for doing a deal. We're making something like, after all bills and taxes are paid, we're pulling down something like a hundred million a month. You tell those people that this upfront is nothing to us. It's nothing to us." And he was impassioned and adamant. And when we presented it to the board, one board member said, "This is new research. I think it's great, but isn't it possible nothing will come of it?" And I remember I answered the question. I said, "We just spent 30 minutes telling you why we don't think that's going to happen, but it is possible." And, remarkably, relative to other companies, this individual said, "That's what I thought, but I think we should do it anyway." Tom, and I, and the organization evolved, but frankly inherited a pretty deal friendly attitude.
Yaron Werber:
That's terrific. And that's really... What's so unique about Celgene is how this was really integrated from the ground up all the way to the top and back down. And again, maybe to the two of you, how did you separate the dynamic of that push and pull and internal versus external? And Tom, maybe that to you first, because usually R&D will sort of play defense on their own assets. And there's a little bit of a not-invented-here syndrome at times. How did you coordinate budgets and even align incentives in that way?
Tom Daniel:
Well, several I aspects worked and some things didn't, but I'll emphasize the things that did. First, I was very fortunate to have within my organization a leader who was scientifically respected, capable of being influential under situations where he didn't really control the external partner. And, as a consequence of his willingness to take the role as External Research Leader, I was able to put that on a plane equal to our internal research effort. And then all of the subfunction leaders within the organization recognized that our pipeline was unbiased, that we had to advance the best opportunity based upon what we were seeing in our governance structure meetings.
So we became very discriminating about our internal pipeline, appreciative of the external pipeline. We had our external partners present as if they were part of our organization for advancing candidates. So we really created a culture of equity and fairness. And I think people at least recognized we were trying to do that and were appreciative of that. And then, ultimately, as the pipeline expanded and our internal candidates suffered as all pipelines do attrition, everyone was quite grateful to have the expanded opportunities represented by the partnered projects. So those were key elements. George, you might have some other reflections, but I-
George Golumbeski:
Briefly I can only [inaudible 00:15:11] that in every other leadership role I've had in business development in the industry, discussions came up about, "Well, if we do this deal, we have to look at cutting this, or we have to keep an eye on that." Because, in fact, in no company that I've ever [inaudible 00:15:35] aware of that's in the buying of technology or assets, there's never been a budget where somebody can tell you that this year we're going to spend a hundred million on upfronts and not more. It's always a discretionary thing. So there have always been discussions about, "If we do this deal, we can't do that." Or, "We have to think about cutting back on this." There was never a single discussion in my memory about that topic at Celgene. Also, a lot of companies, of course, though if your asset or your deal goes south, you have to take an impairment charge.
And sometimes those impairment charges are needed out to certain departments, particularly in at least one or two companies I worked in. If an early stage research deal blew up and you paid 20 million upfront for it, the R&D team would get a million-dollar hit to their budget. And that could be very painful. And, obviously, it could be a disincentive for doing deals. That, to my knowledge, didn't happen at Celgene. Yes, we would impair assets, but it wasn't done in a way that disincentivized future deal doing. And Tom, of course, as really the owner of R&D, did a masterful job of really being agnostic to, "Was it here? Was it invented here? Was it not invented here?" A pharma CEO that I worked under at one time in my career, not at Celgene, said a very memorable quote that if you're in competition between your own pipeline and the external pipeline, it is miraculous. If you find something on the outside that's two years ahead, it's miraculous how in the last month of the deal, our internal program suddenly catches up. And we just didn't have to deal with those issues.
Yaron Werber:
So George, to follow up on that point, we're calling this specific podcast 'The Hacker's Guide to Building Innovation', and join from your experience at Celgene and at other companies. And Tom, please chime in as well. What separates companies that really do collaborations and acquisitions well from those that can still get better in the process?
George Golumbeski:
I'll take a first cut at this, and I'll only highlight one feature because I think it's so important. And in answering your question, I'm going to focus my comments without regard to how many deals somebody does. So I'm not going to comment on this is a way you can do more deals. If you want the deals that you do to be done well, it may sound ultra trivial, but I think the main thing I would put out there is really listening to your partner from the beginning of negotiations, through the negotiations, and through the collaboration. I've been in other companies where, in every case, the people in R&D [inaudible 00:18:56] on your diligence team, the people in BD are extremely smart, they're extremely capable.
But there was a difference, I think, in how we approached listening to our partners at Celgene. And again, the support we had from on high, just a couple of examples to concrete what I'm saying. I mean, in my time in other larger companies, you'd bring back a deal to a review board and well, "Why isn't it 10 million cheaper?" Well, because these guys need $30 million to make their business work for the next couple of years. And this is the best thing out there it's worth 30 million. "Well, but go back to them and get five million off." I've had those conversations. At Celgene, again, Tom and I didn't always disagree. We didn't always agree with the CEO, but more often than not, we came to agreement or a decision not to do something relatively quickly.
And I remember telling Bob Hugin, who asked me, "Was this deal going to get done in the next two weeks?" And I said, "Well, I don't know. They're really digging on this one issue." And he was like, "Well, tell me indeed the issue is." And, remarkably, only at Celgene, in those days, he said, "Why don't you just [inaudible 00:20:19] him on that point?" And I if it really comes back to Hanna's, we'll just have to renegotiate something. It's not absolutely material to the deal. I just smiled and said, "Sure, we can do that." But really, I've been [inaudible 00:20:37] in my career that the little company would say 'X', and whether they were heard, or they were just ignored, it doesn't matter. Give them what they and [inaudible 00:20:51] if you can. there are times where you just can't and you have to explain that, but I was shocked at Celgene at how just good listening skills could benefit deal doing.
Tom Daniel:
I can maybe amplify a little bit on that. There was no more valuable prototype than our Agios deal, and the outcome for both companies, and the science, and therapeutics. That early negotiation was deep, long, hard to understand explicitly what Agios aspired to do, and for them to understand what we were trying to do through the collaboration. And for me, anyway, George, you will recall this. We sat many, many hours in several different meetings to get the beginning of the deal, right? So that ultimately the terms incentivize both parties to deliver on what was true value creation rather than some sort of big answer.
And because the relationships between Agios and Celgene were so deep, not just at the senior level, but throughout the organization, we were flexible on the timing for initial payments. We renegotiated contract in our relationship with them on at least three different occasions that I remember explicitly. And, in each case, there was commitment to win-win for both parties. The other piece that George is alluding to is, really, we established trust with the partners. And we did some very difficult things, including reestablishing our relationship with Bluebird after we did the Juno collaboration.
George Golumbeski:
Right.
Tom Daniel:
Was very, very tricky. But it was, in fact, the consequence of having the relationships and the planning to understand.
George Golumbeski:
Good listening, trusting your partners, doesn't end with the deal doing and the deal signature. There was a period of time when I think I served on the [RJSC 00:23:10] and when I would go to those meetings, the Agios and the Celgene scientists would sit there talking like they were postdocs in the same lab. I mean, they obviously were in constant communication, understood deeply what was important to each other and important success fact, which is, kind of low-hanging fruit. If you can just strike out that clause and license agreements in our so discretion. And I don't mean that in the licensing deal, just in your attitude.
Yaron Werber:
That's a great point. And lot of the things that come up a lot, both in the business development community, operator community, certainly on Wall Street, is how do you measure success? Did you look at some kind of net present value or discounted cash flow? I know Celgene looked at ROIC or Return on Invested Capital. Did you have any financial metrics that sort of were holy grail that you needed to pass the test? Or did you also have more flexibility? Because you're both doing bolt-on acquisitions, you're doing pipeline collaborations, you're buying specific assets, and then you're buying companies, and you're trying to take a lead asset, [inaudible 00:24:25], it's a huge cash cow, and diversify, and grow. So it's a tall order to how do you hack a pipeline from scratch, so to speak. How important is it having financial metrics that are [inaudible 00:20:50] versus having flexibility?
George Golumbeski:
I think for Tom and I, and I think for the organization as a whole, even though we had some analysts and we had people inside the company who counted the number of deals we did per year, and I remember seeing a graph and it kept going up and, "Oh, this is great." But Tom and I, and [inaudible 00:24:58] the people at Celgene never really took a whole lot of comfort from how many deals did we do. It was, "Is this going to make a drug?" And given the time it takes to get to being an approved drug, you're happy if it progresses from preclinical into the clinic, if it progresses to phase two. But we always thought that we, I know in Tom and my view, it was about compounds that could make it into the medical armamentarium, help patients.
And then consequently create financial success for Celgene and its shareholders. I think one of our advantages in deal doing at Celgene was we did not build elaborate financial models for early stage preclinical deal. Was it one company did that, and people openly discussed, "Well, is this bearing any resemblance to reality? Or is this just a fantasy exercise?" We would do an over the thumb. Like here's how much our own R&DS cost. Here's how much this deal is going to cost us. And if we get it at market, this is what it's going to cost us, and can we get that back? And it was a sanity test. When it came to drugs that were in the clinic, like GED-0301, and certainly when it came to acquisitions, Pharmion, Receptos, Abraxis, we had very elaborate, very similar to big pharma financial models.
We looked at those to guide what we could afford to pay. And in the case of those big deals, it was just pretty obvious if they succeeded or they didn't succeed financially by any measure. Abraxis and Receptos would've been successes, and GED, which didn't make it in a phase three would've been negative, but the quick answer to your question is we only built those models with respect to deals that where you could get a view of the product, and you could therefore project revenues, and those models were rigorous and sophisticated. We didn't model super early stage stuff. And I frankly don't feel like that adds a whole lot of value. And we didn't actually have an annual exercise where we calculated, "Have we hit our return metrics or not?" I think everybody knew which deals were successful and which weren't. And we were, frankly, trying to get on and do more deals because replacing it, it's a tall order.
Yaron Werber:
When investors are looking internally, or I guess the outside world tries to look internally into a company, what are some of the telltale signs that a collaboration's going very well versus a collaboration is struggling, or maybe kind of going off the skates? What's the back to view into what's going on?
Tom Daniel:
The obvious metrics are progression and visible scientific progress. The things that are more subtle and [inaudible 00:28:16], variable have to do in watching the personnel. How effectively is the company recruiting highly talented, experienced people who want to work on these projects? I think that's a sort of a metadata point of high importance. Obviously, scientific publications lag significantly behind what's really going on in the company. But if there are tailing [inaudible 00:28:53] that illustrate that the scientific premise is sound and the data are accumulating, I think that's helpful.
A third metric is often the greatest compliment to a program is competition. Where are other competitors trying to position assets in the context of a given project? And what look like in terms of the competitiveness of the... And then, finally, I think this is pretty obvious, but regulatory dialogues are the dominant stop-and-go machinery for projects, and careful attention to what is public around regulatory interactions. I think, in many cases, the role of FTA is over emphasized. I think some very creative programs go [inaudible 00:30:02] and make tremendous progress in early clinical trials, gathering data and better understanding the technical hypotheses around biomarkers and advancement. So those are some points that may be helpful, Yaron. I'm sure you are a student of many of them, but anyway.
Yaron Werber:
George, what are your advice?
George Golumbeski:
I don't have too much to add to that. I would make a couple of points. One, I actually think the bigger the company, and it may not be a perfectly linear scale, but in general, the bigger the company, the harder it is to kind of get a read on that. And you have to revert to many of the things that Tom articulated. I think if you are talking about... Celgene was, again, it was a large cap biotech company, but as far as market cap was in the time that I was there lower than some of the most massive big companies. And whether it's at an R&D day or at CEO or CFO presentations, frankly, if a collaboration is going really well and the company is... And you discount for the [inaudible 00:31:23] indicated, I think generally if a collaboration is going really well and it's a high priority for the organization, it tends to come up in some public foundations that.... And we're really excited about our collaboration with company X and blah, blah, blah.
And if there's just silence, that's less good, right? But again, it's a little bit funny because you have to discount a little bit for who is talking and how big the company is. But I still know, now sitting on the side of a lot of small companies, I'm struck by when the large company thinks it's going well, they find a way to bring it up.
Yaron Werber:
Let's get to the personal touch and maybe rapid fire, sort of humorous part of the podcast. What's your life hack?
Tom Daniel:
Discriminating the people with whom I most want to spend time in my professional career. And for me, some metrics of that are around, how creative, and fun, and engaged they are in trying to help patients get better medicines. And it's kind of a magical metric. It works for me on everything. And whether it's a sort of a nascent effort with a new company or consulting on something that I think might be disruptive, it's all about the people, Yaron.
Yaron Werber:
Right. And George, what is your favorite hobby and what hobby do you wish you took up earlier in life? I feel like I got 30 of those.
George Golumbeski:
Well, I have two very, very longstanding hobbies that go back to my teens, and those are serious photography, for many years, landscapes and more laterally with all the cool stuff that digital can do. Wildlife birds in particular. And the second one is I remain a very serious student of classical music. I tried during my graduate years to take up piano, had a wonderful teacher, but I found while I'm deeply capable of appreciating music, reading scores, reading biographies of all the major composers, I wasn't a really very good pianist.
So I gave it up and bought a good audio system, which I listened to frequently. As far as hobbies, I wish I'd taken up earlier, I guess four years ago my wife and I moved to a new residence a little bit out in the country, and this house you'd have to see it, but it lends itself well to gardening. And here, I'm actually not talking about vegetables. I'm talking about native flowering plants and I've developed a kind of obsession with certain varieties of Japanese Maples. And I wish I'd taken up gardening a hell of a lot earlier in life.
Yaron Werber:
Are you talking about red maple or are you talking about whipping? [crosstalk 00:34:34]
George Golumbeski:
No, I'm talking about Japanese Maples, which... I'm still coming up to speed on this, but like so many things in my life that I've deeply enjoyed. If not, there are probably 500 cultivars. They're all the same species, but because the Japanese going back many years, and then in more recent times, people of all nations have found that these trees, you can cross them, you can mutate them, and you wouldn't believe the variety that you have from this. It's a single species, but I have two trees in my front yard. One is red all year till it drops its leaves and has a perfect vase form. And the other looks like something out of the Jurassic period. And the maple leaves are all curled and look dried up, but they're still a tiny little maple leaf. I mean, I'm fascinated and this obsessive breeding and cultivating that's gone on has just given us wonderful variety within a single species.
Yaron Werber:
Terrific. George and Tom, thank you so much for joining us. As always, extremely insightful. Lots of contact, really rich with experience and insights. Really, really appreciate it. And I'm sure we'll continue to be in touch.
Speaker 1:
Thanks for joining us. Stay tuned for the next episode of Cowen Insights.

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