Navigating Biotech Mergers and Acquisitions | Steve St. Onge, Paratek Pharmaceuticals

This transcript was generated automatically. Its accuracy may vary.

[00:00:12] Mike: Steve, for those that haven't come across you online, introduce yourself and tell our listeners what we're talking about today.

[00:00:20] Steve: My name is Steve St. Onge. I head up corporate development and corporate at Paratech Pharmaceuticals, which is now a privately held biotechnology company. And today we're going to talk about the challenges of mergers and acquisitions in the biotech space. And what we've perceived on the horizon in terms of whether there'll be activity picking up or slowing down in the mergers and acquisitions space in general.

[00:00:44] Mike: Steve, break that out a bit. What do you guys do? What is your product and what do you mean by merger? Do you mean? Companies would join you and it doesn't seem like you'd want to deal with somebody else trying to make an acquisition or you're out of the job.

So what does that mean? The merger and acquisition for a company like yours?

[00:01:07] Steve: Yeah, so Paratech has a novel tetracycline compound, an IV and oral called NuZyra. It's FDA approved for the treatment of community acquired bacterial pneumonia and acute bacterial skin and skin structure infections. The product was approved in October of 2018, so over five years now. And we launched the product in February of 2019.

We've been incredibly successful in our launch of the product and we see it as one of the most successful antibiotic launches of the last decade. However, as a single product company there are challenges in today's interest rate environment being a single product company who needs to raise additional funding to support operations. And so there have been, you've probably seen a number of mergers and acquisitions. In the last year of smaller companies being bought up by bigger pharma, the Pfizer's, the J& J's, the Novartis's of the world have been quite active in M& A in the last 18 to 24 months.

And that's really as a result of companies, on the smaller or middle size, having difficulty raising the capital that they need to continue operating in this environment. Similar to what homebuyers have gone through in the last 12 to 18 months, the interest rate environment is no different for biotech.

[00:02:18] Mike: Your company has one product and you either want to Attract maybe somebody else that has a product like yours.

So now you have two products or you keep the welcome door open for some of these bigger companies that might buy you guys and then bring your product into them.

[00:02:44] Steve: It's what we call the buy side and the sell side. So the buy side is where a company is actively going out and exploring additional products, either commercial stage already on the market or development stage products to add to their portfolio. This is one of the important factors in terms of setting a corporate strategy.

Kind of, you know, what do you want to be in future? as a company. And so for single product companies, it's difficult in the long term to make it financially viable to build a wide ranging infrastructure across all the functions, manufacturing, regulatory, legal, finance, commercial, marketing and to continue.

continue to support all of that with a single product. So many companies look to diversify. So for Paratech, we've been in the infectious disease space. And so, ideally for us to go out and find another antibiotic or antifungal that matches the profile of the healthcare providers that we're currently selling our existing product to makes a lot of sense, because you would add additional revenue to the top line.

Without incurring significant operating expenses to support a second product. And, that is certainly very beneficial, from the investors. So, previously, Paratech was a publicly traded company. And so, we have a fiduciary obligation to do what's in the best interest of our shareholders.

So, it's not just commercial stage products that we look at. We also look at development stage products as well. Companies oftentimes are fully integrated from very early stages of preclinical development all the way through commercialization. So that allows them to look at very early phase 1, pre IND products all the way through phase 2, phase 3 as well as NDA ready or commercially approved products.

But usually, from the top down, from the board level down, from the leadership level down. There's a corporate strategy around, okay, what makes sense next? Now, if you're a five or six product commercial portfolio company, and you have the resources to take on earlier stage development, that probably makes a lot of sense, 

to diversify your portfolio because you may have products that are. nearing the end of their exclusivity are going to be coming off patent and you want to have some pipeline assets of your own that can go and fill that void. Alternatively, if you don't have pipeline assets of your own that can fill that void, you could go out and acquire other commercial stage compounds that maybe have 8, 10, 12 years of regulatory exclusivity or IP life left to fill that void.

So it really all depends on what a company can afford and the in-house capabilities that a company has to execute on those various stages of drug development. But there certainly are times when we are approached by Other larger companies who are looking to do those same things, 

to diversify their portfolio, add to their portfolio, and they may express interest in buying the company as well. So we call that sell side. Now, sometimes that inbound interest is totally proactive from the interested buyer. Sometimes it's reactive. So there are, I would say in the last 18 to 24 months there have been an increased number of biotech biopharma companies that are trading below cash or have, had to go out and potentially raise significant amounts of equity capital in order to continue Funding their ongoing operations and with the market environment that we've seen across the last few years, in many instances, it made some of those companies with near term capital needs made a lot of sense for them to explore other strategic alternatives for their company, including.

the sale of or merger into another entity with a larger balance sheet that could support their operations ongoing. So that's really the difference between buy side and sell side mergers and acquisitions in the biotech space.

[00:06:46] Mike: And I think you said, Steve you guys, if you merge, it might not be this product we're merging. It might be you're buying some stage of that, some early stage of something. So it might not always be someone merged with you and now we have two products. It could be anywhere in that development of the drug.

[00:07:04] Steve: It could be, yeah, so it doesn't always have to be a whole company merger and acquisition. There can oftentimes be licensing where you will take a single product. So say the target company has five products, you're truly only interested in one, instead of doing a whole company merger and acquisition, you would simply license the rights for a single product from their portfolio.

And we see that quite commonly in the pharma space as well.

[00:07:27] Mike: It seems to me that if I invent a product in the garage, figuratively some Amazon or some Apple thing or something like that. It seems that I could make it into a company closer to maybe what you guys are, or right off the bat, I could try to sell it to a company like you, 

so there's people that are maybe offering things up that aren't even a drug company yet. More like a researcher kind of thing. 

[00:07:56] Steve: yeah, that does happen from time to time. We actually get a fair amount of inbound interest from. Large research universities that have very early stage technologies that are interested in licensing those out to, pharma companies that have more robust clinical experience and expertise and moving those assets from very early stage discovery into the clinic.

So historically, your large academic institutions don't get too involved in the clinical studies. Now they may have a very strong expertise in early stage development, but then. Look to license those products to more capable entities like ourselves and typically the way those types of deals would be structured is there may be a small licensing fee.

But then the university or academic center would be entitled to a royalty on net sales should that product eventually be approved, commercialized, etc. And then there's usually some other development milestones along the way. So there may be a development milestone for successful phase two results or a development milestone for FDA approval.

So that's very common as well.

[00:09:06] Mike: I Always think Steve, it always seems to me like, let's think about, oh, top gun pilots. Okay. I've always thought that it was always really an official conversation between, let's say the two pilots on a team, or let's say the back pilot and the front pilot in a plane.

And I always thought it was going to be all this official, vernacular between these guys. But sometimes it's just as simple as Hey, Bob, the guy's over there. Turn your head and look at them. Or in a football huddle, I always think it's like real official stuff.

But sometimes it's like our fifth graders playing outside at our school on the blacktop. It's like, Hey, uh, Ricky, you go that away. And Brian, you go that away. Sometimes it's just common stuff. So. When you approach one of these people or a company approaches you, is it as simple as hey, you guys got a pretty cool thing, go in there and let's talk.

Or before you even do that, is there more of a database or something official? How do any of those first conversations even take place?

[00:10:10] Steve: Yeah, that's a really good question. So, I, in the biotech M& A space, really, relationships are everything. And, having those relationships with, it could be investment banking, financial advisors, it could be a company's legal counsel. Those are really where a lot of these conversations start.

So, I may get a call from an investment banker that's... Representing company X and so they, and tells me, Hey, company X is exploring strategic options. We believe it's a really good fit given your current portfolio and your corporate strategy. Would you be interested in having a discussion with them about the current state of their business?

That's not uncommon. Sometimes public company boards are quite powerful. And there's a lot of connections there amongst board members. So sometimes it will be board member to board member crosstalk that gets things going. And then, eventually that trickles down to the leadership team who puts together a small group that may go and do some homework on company X first before they decide.

Hey, yeah, let's give them a ring and see if they're interested in getting together. So that's, I would say between the board and between just other connections and general corporate development and banking, that's probably where two thirds of all these conversations initiate.

[00:11:32] Mike: not only might it not be official. Quite often, it's probably not. It's probably just sitting and watching a game or something and they say, Hey, we got this going on or they have that going on. It's probably between two just almost casual conversations.

[00:11:48] Steve: Yeah, and most pharma Companies have a corporate development or business development team. Their remit is really to keep an eye on the competitive landscape and understand what opportunities might be out there that would fit within the portfolio strategy or pipeline expansion strategy.

And so, so many times, uh, like I said, these, inbound interest to a company such as ours can be entirely unsolicited. It's not uncommon for big pharma to approach small biotech. Proactively and say, we've done a bit of work on you. We're interested in learning more. So that's again, there's a multitude of different avenues in which we explore potential options, but there typically is a team that their specific remit is.

Go out and find products or companies that will allow us to execute on our growth strategy.

[00:12:41] Mike: What's your personal biggest letdown of your job? Maybe not? Talking to someone you think should be reaching out to you or you're getting along with a deal and somebody drops out. What are some of those frustrating times in your position?

[00:13:00] Steve: Yeah, biotech M& A is not for the faint of heart. It takes an iron stomach like no other and yeah. I often say, you have to, especially in this business, you have to kiss a lot of frogs before you find a prince, and, as a deal team, you may look at 50 to 100 opportunities before you even think one is worthwhile bringing forward to your leadership team , your board, for a more formal presentation of the business case, so, there's a lot of different areas to diligence across the any M& A opportunity.

Now, I'm a former clinician, so, coming from a clinician's background, my first seven years out of pharmacy school clinical practice and academia, I had a lot of assumptions, that a drug just gets manufactured and shows up in our pharmacy. What I learned when I transitioned to pharma eight years ago, there are so many other points in the process that we as clinicians totally take for granted every day.

I, I would say. A large number of deals in the M&A space may fall through just based on the manufacturing or supply chain or something along those lines. It's not always dollars and cents, Mike. It's not always is this drug safe and efficacious. It could be. How do you market this product? It could be, how do you manufacture it?

It could be, well, the supply chain comes from China and that gives us issues in terms of how we operate as a company or supply chain integrity. So there are a lot of factors to consider along the way here. And I think that's probably one of them. The tougher part of the job is you can get so close to the finish line.

So close that you can taste it only for at the 11th hour. You find a skeleton in a closet somewhere. Your diligence team finds something that's a showstopper and suddenly... The deal is off. And that could be after months of working up an opportunity, multiple presentations to the leadership team, to the board, millions of dollars invested in your financial and legal advisors. So it's just all part of the process.

[00:15:14] Mike: Yeah, and most of us, most of the listeners aren't really associated with that, We might've bought some property or bought a car, bought a house. There's a little bit going back and forth, but you don't have those months and months of decision, whether you're going to buy the house, in this neighborhood or the car, that kind of stuff just doesn't exist, but with this stuff, it's a whole nother ball game of levels and contingencies and things like that.

[00:15:43] Steve: Exactly.

[00:15:45] Mike: Steve. What skill did you find lacking in yourself coming in as a pharmacist that you really didn't know it was lacking, and maybe you couldn't have done anything about it, but it was something that kind of hit you hard that it's I don't have this yet,

[00:16:03] Steve: For me, I think being able to effectively read a room in M& A and in negotiations, body language is really important. And I think it's something as pharmacists, we don't have that opportunity every day. We're not sitting across the table trying to hammer out a deal with someone.

Like you said, we may have bought a car a few times. We may have bought a house. This is an entirely different process and, trying to create relationships with the party on the other side and, finding out who the key decision makers are, something as clinicians that are practicing pharmacists we've never really done.

So I think it took a while for me to have good instincts and read between the lines of conversations and comments. And you may. You may come out of a meeting thinking, wow, they said all the right things and this seems really positive, but there was just something off about the body language.

Or there was one small comment that they made at the close of the call to suggest that, geez, maybe they're not really interested as much as we thought. So that, I think, was the I don't wanna say the hardest part for me to adjust to, but I think took the most time to just become savvy in those discussions.

[00:17:12] Mike: I imagine going into those M&A meetings you walk out and you're thinking like, this is done.

It's not like you learned your lesson at that meeting. You didn't learn it until one of your higher ups said, Well, that doesn't mean anything, Steve. Just watch. And then sure enough, two or three weeks later the kibosh comes on the whole thing.

And that's probably when you learn your lesson. It's not in that initial meeting.

[00:17:36] Steve: No, it absolutely is. And I think it, and a mentor of mine has said it to me best, if you've seen 10,000 deals, you've seen one. Because each one of them is unique, each has their complexities. You can get to minutes from, signature pages and announcing a transaction only for the financing to fall through or the board to have some indigestion around the transaction.

every one of them is a unique experience and it is not a cookie cutter process 

by any means. 

[00:18:07] Mike: And it's certainly just numbers. I've never thought of myself as a salesperson, cause in pharmacy, really none of us pharmacists have, especially the old farts like me, people just came in and they did their thing, but just for example, though, when I had to put my sales hat on, even like inviting people to be guests on the show when it first started and I'd be reaching out to people, it's amazing the mathematics behind Sales or the stuff you're talking about.

And it truly came down to 20%. I would throw out five people, if they wanted to be a guest on the show and one person would. Accept it. 

So then you throw out a couple more and nothing happens. But then finally you wise up and you say, Oh, I got to throw five of these out there. You throw out five and someone picks it up. It's very it's very much the average. And so. In sales and M&As, you could really get down for a big one, but you just have to, I'm sure, say to yourself, this is all part of the ballgame, and it's all part of the numbers, and in the end, it all averages out.

[00:19:18] Steve: Yeah, it's definitely all part of the ballgame and the more you do this, the smarter you get about it. I mean, I often think back to when I transitioned from the R&D side of pharma into corporate development. And I have to laugh because looking back at, inexperienced, transactionally naive Steve.

I probably wasted a lot of time with my management team and my board talking about things that were never going to go

anywhere. And, to your point the hit rate was really low at first, but then, as time went on, you start to understand, hey, this is a better strategy and these are all the things you need to look at.

And I think the one lesson that I learned is you have to be. capable and willing to engage every ounce of expertise in your organization when you're looking at one of these deals because it is very easy to leave out a certain component that could leave out a 15 million dollar expenditure on the P&L every year and that could be what makes or breaks the deal.

being profitable. It could be something as simple as the drug having some type of large post marketing commitment in pediatric studies or adult studies, something that You just missed along the way that ended up being really meaningful. So I work with every single key stakeholder in the company.

That's finance, legal, manufacturing, clinical, non clinical. It's just amazing how much expertise you need to bring one of these things together and get it closed.

[00:20:49] Mike: How many people do you figured that you interact with one of these sales on your side and whether it's email or dropping by their office or something like that, how many people are you getting either input from, or you're sort of reporting to before one of this stuff happens on your side?

[00:21:08] Steve: Yeah. It's a team of about 20 of us. When we're working up a deal or getting it close to the finish line and that's just internal. That doesn't include external legal advisors, external financial advisors. When we were going through. They take private transactions for Paratek.

There were, I think, 19 lawyers from our outside counsel group that were working on the deal. Now, I may have only interacted with 3 or 4 of them, but behind the scenes that group of 3 or 4 lead lawyers had a team of 14 or 15 working on this transaction. And that's just one side of the deal.

That's not counting for the other side of the deal. That's not counting for our financial advisors. So there's, yeah, a lot of resources and touch points going into all this.

[00:21:51] Mike: When you're watching a football game and. Someone screws up in the field and of course afterwards everybody on the team is saying well this is a team effort and we you know did our best and so on. But those guys are not having that conversation when they get back to their wives at night you know they're saying damn it Joe did this or that. 

Come out as good as you guys thought it would. Across the board, you're going to say, well, the whole team, that's just one of the things, but in the private conversation, Steve, with the husbands or the wives. Who takes the hit on this emotionally? I mean, the CEO is always going to say, well, the buck stops here . Do you take it personally if something doesn't go through or is it truly spread out? And if it's not spread out, if it's not you, can we throw stones at somebody?

[00:22:48] Steve: Yeah, we have the mindset that most M&A actually doesn't work. I mean, 80 to 85 percent of these deals,

even the ones that are executed, you look back on five years down the line, Mike, and you just think, Gosh, what were we thinking strategically or organizationally here? How did we miss the long term forecast on this?

And sometimes it's things that are in your hands that you can own, and sometimes it's external factors that you just can't. Think of any company that did a significant M& A in 2019 or early 2020. They paid a premium for companies at the peak of the market.

And then had a external non controllable event occur, 

I mean, COVID set the launches and commercialization of hundreds of biotech companies 18 months behind schedule. And some of them have been and nor ever will be able to recover.

But yeah, I mean, there's the controllables and the non controllables. And I think about the controllables. mE as the head of corporate development and whoever the Project champion may have been every great M& A deal has a champion, it could be the CEO pounding the table saying we have to get something done We have to bring in another revenue generating product It could be the head of R&D who really likes the science and says, Look, this could be transformational for patients.

This could be transformational for the company. And so there definitely is some degree of ownership. But a lot of times, that time to reflect on deals that get executed is not until three, five, seven years later. And those individuals may have moved on. 

[00:24:26] Mike: I think any company, anybody that does something and success is the minority, whether it's baseball player, not getting hits 70 percent of the time, but they're good, I think of maybe Comedy writing rooms for a sitcom, you've got to believe that there's maybe 50 jokes in an episode, but probably 500 were thought of during that time.

I think any business or any goal that you can plan on more losses and wins is a good spot to be. So you don't tighten down and worry so much that you're not even taking chances.

[00:25:10] Steve: Yeah, we make a lot of assumptions in M& A in general, You can't always predict the future. I Atone it to the live win percentages that you'll see in a football game or a baseball game, I mean, you could have a 2 percent probability of winning rate, cause it's two outs bottom of the ninth and you're down by six runs, but that doesn't mean that you're out of the game. And, that's very much what we see in M&A as well. There's definitely a lot more losses than there are victories, but sometimes it's the long shots that will come through and surprise you in the longer term. Something an assumption that you made worked out extremely favorable or just a series of things worked out in your favor that allowed the transaction to be much more profitable and accretive than anybody ever thought.

[00:25:56] Mike: I've talked to some private equity guys and it's amazing their definition of success is way down there. I'm just going to throw out, 20 percent have to be successful or 10 percent have to be successful for them. To consider it a win where you'd be thinking in your head, Oh, it's 80 or 90 percent.

 They've got to get an A, they've got a bit in that percentile, but a pretty low percentile is out there for them to consider it a win because they know there's gonna be a lot of losses. It's different for every industry.

[00:26:27] Steve: Yeah. Drug development is no different. Between 40 and 60 percent of all compounds that enter phase three. Don't ever make it to market,

which is incredible if you think about the money that's been invested in drug development up to that point. And it's, for the, for big pharma, it's about how many, how can we maximize our shots on goal, 

and having a diverse pipeline, a diverse pipeline for a big pharma is not two or three products. It's 10 or 15, knowing that half of them may not hit.

[00:26:54] Mike: Now that's a percentage of the third stage. Is there a percentage earlier? I imagine a lot more drop out earlier in the race too.

[00:27:02] Steve: Yeah, I believe it's a one in 10 product that enters phase two, and ends up making it to market. And obviously the earlier stages, the odds are even lower.

[00:27:12] Mike: I don't even know what phase one means, but there's gotta be hundreds of ideas that keep getting funneled up.

[00:27:18] Steve: Yeah, that's, that's exactly the path and with each step the amount of rigor in terms of clinical outcome and safety efficacy the bar keeps getting higher. And so, that's why we only see, one in a hundred maybe preclinical assets that, come out of academia or early stage discovery company will ever make it to see the light of day on our 

pharmacy shelves. 

[00:27:45] Mike: What kind of personalities do you not like to work with? Are there any personalities?

That just bother you? 

[00:27:55] Steve: it's the people that don't have a willingness to allow a fresh set of eyes to have a perspective.

And I think this happens quite often actually. And, a lot of companies have long time legacy knowledge and a pounding the table mentality that this is the way we've always done it and that's the way it's gonna be.

And that's where I say that attitude Trump's experience eight days a week. I would rather have a self-starter entrepreneurial mindset that is solutions oriented. Go in and figure out how can we fix an asset, how can we fix a company, how can we fix a product to make it more successful because I'll promise you that, nobody wants to call their own baby ugly.

And when you've worked on a certain project, asset, or company for so long, I mean, we tend to have this tunnel vision mentality and I'm a firm believer that there's never a monopoly on good ideas. They can generate from anywhere in your organization. It doesn't have to be from senior level individuals.

Sometimes it's the most inexperienced people that actually have the best ideas because they haven't. Their well hasn't been muddied by necessarily trying and failing in the past. And so they're a little bit more innovative with their approach. But yeah, those are the, that's the mentality that bugs me the most is the one that, the 25 years of experience and I know how to do it and, we're not welcome to a fresh set of eyes giving us a perspective here.

[00:29:20] Mike: My wife always complains that I'm so skeptical about things. She'll say something and I'll be at dinner, I'll have my phone down on my lap, I'm looking it up just to see if she's right or not. She does it to me too, but I don't call her out on that all the time.

 But one of our guests, we were talking about pharmacists by our nature, we're trained really to find the negative, to find the problem, to not let something go through us. Nobody congratulates us when we authorize something. That's our job to find problems. So I tried to explain that to my wife and how right that comment was but

[00:29:59] Steve: Well, I think that it was actually a shift in mindset for me too coming from clinical practice, where there's a lot of, there's a lot of black and white in what we do. There's not always a tremendous amount of gray area, and I agree with you, I think, as scientists and clinicians, we're trained to, it's either a decision to move forward or not.

It's, it's a very binary decision point in most of the 

ways that we practice. So, I'll give you an example. When I used to look at... development stage products I would think about, okay, what's the likelihood that this product gets approved? And let's say it's a one that has positive phase three data.

It's maybe 75 percent likely. I mean, I would use to look at the 25 percent of, okay, why is this product going to fail? And what risks does this put against the organization? But I think my mindset now is to be more solutions oriented, and okay, we can still take a look at that 25%, but if we acquire the product, even if we got the no from the FDA, we got a complete response letter, what would it take for us to fix it?

Is it a simple manufacturing issue that can be solved with a, 500, expenditure? Or is it a more complex problem that would require another 50 phase 3 investment in a follow on study? So I think That's the mindset that when you're a deal maker, you have to think, how do we get this to work 

and kind of work backwards from there?

[00:31:22] Mike: And if it was so easy, maybe everybody would be doing it and then you couldn't compete with supply and demand and all that stuff. So there has to be calculator risks going on.

[00:31:34] Steve: Yeah. Not every company has a checkbook like Big Pharma. We don't have the checkbooks of the Pfizer's and the J& J's of the world. For small and mid-size companies that are trying to do corporate development, our budgets are forcing us to look at a product that may have a award or two on it, and for us to figure out, okay, it may not be a billion dollar product, but you know what, Mike, at the end of the day, that's okay because every product that gets to market doesn't have to be a billion dollar product to be successful. 

[00:32:02] Mike: Steve, I'm not bragging at all here, but I got a number of kids and our company's got a couple cars for delivery or now we have one. But at one point, I had nine cars that I had to get for a number of my kids and a couple at the pharmacy. The total value of those nine cars was like 18, 000.

I mean, these are like 2, 000 cars, not anymore. Now at 2, 000 cars, like 8, 000 cars, especially with the strikes and stuff going on, but I always. Asked my wife. I'm like, where's the good rust spot or where's this or that because that narrows out the people that are buying those cars So I want to see some of those words on things that I can live with that I know is going to be a decent enough deal for me

[00:32:49] Steve: Yeah. And some companies' strategy is they will pay a premium for products that are de-risked. So to take some of that uncertainty out of it. So, some of the private equity groups function like that, actually, that are looking to acquire biotech companies, they focus on de risk programs.

They don't always entertain a lot of earlier stage clinical development risk, but with that, they are willing to pay a premium. I think about my mindset. I'm also a residential real estate investor, and my strategy is to buy and hold those properties. Well, because most of the properties that I hold are 700, 800 miles away from where I live now, I'm willing to pay a premium for something that is turnkey that I'm not going to have to sink a bunch of, time or money into, in the near term.

So, some of the corporate strategies in biotech and M&A are no different.

[00:33:41] Mike: Have you seen these? One unit Apartments in New York. They're really tall and they're so skinny. I forget the ratio. What is it like? What's the ratio they use like 1 maybe that's rise versus run kind of thing. Like how wide 

[00:34:01] Steve: Yeah, 

[00:34:02] Mike: and There's people I understand that buy these as Investments without Even going into them because here's what they can do if you've got one of those units and For the listeners each story is a full apartment only there's only one apartment per story What they like about those is when you lock the door There's nobody that can Enter that.

There's nobody that can even be in your hallway or doing anything unless they were, Spider Man that went up your window and did something like that. So, there's a case there. You want to risk them and not have that thought the less control you have over it.

[00:34:51] Mike: I know Steve, you're a farm D and you have your MBA.

[00:34:55] Steve: That's right.

[00:34:56] Mike: dO people ever try to use that against you? That you're a pharmacist? Do they ever say well, that's your attitude. You're black and white because you have a pharmacy degree.

I don't imagine that would be the case, but do you ever consider that negative?

[00:35:13] Steve: So I think there's certain perspectives. I would just say overall in on the industry side of health care that us as farm bees were conscious about just dollars and cents when it comes to medications and I think this is actually a more chronic systemic problem that has forced You know, the general public or even really smart people in in industry to think that pharmacists are trained to operate just that way, just fiscally.

But if you think about the metrics that hospitals hold pharmacists accountable for, because we're an infectious disease company, I'll take antibiotics as an example, antibiotic stewardship and antimicrobial resistance are really hot topics and, at the end of the day we should be prescribing the safest and most efficacious therapies for our patients, 

If your mom was on a ventilator and got pneumonia, Would you want to start with a novel, safe, well tolerated drug, or would you want to start with one that was 20 years old? I think that the answer is quite simple. But the way that infectious disease doctors are held at the same standard too by hospital administrators, that what matters at the end of the day is how much money came out of your antibiotic drug budget.

Those clinicians are not necessarily, and particularly pharmacists, that are infectious disease trained, are bound to the dollars and cents. They're not evaluated on, how did your patients do, Mike?

Were your outcomes better?

Did you use a drug that resulted in less serious side effects, less C.

diff infections, etc.? I know it's a minority of infectious disease pharmacists in this country that I know that are held to that quality standard,

that are not held to the financial standard.

we're held to that standard, that's... That's the way we almost have to operate in principle in practice.

And I think some of that carries over into industry's perception of what the role of the farm d is. in healthcare in general. And, we certainly see it with PBMs as well. When a prescriber submits a prior auth for a more novel medication, and it goes to a DUR review, who's kind of the, who's the key gatekeeper there?

It's usually a PharmD. And at the end of the day, it may be a step edit or sequential therapy failure that has to occur in order for the more novel, expensive. product to, to be dispensed. And so I think from that view, pharmacists are seen as only focused on costs and not necessarily outcomes. So I'll say that I think that's the one thing that we do face in industry with a PharmD degree.

That 's an interesting perspective. I will tell you that when I went back to get, just turning the table here, when I went back to get my MBA, folks at the time asked me, well, what are you going to do with this? Why would you go back and get an MBA? I'd been out of school for six or seven years.

And I did it when I first came to industry because it quickly. I came to the realization that a, a business mindset, and I already had it, but I didn't necessarily have the credentials that supported it, that the business mindset in an MBA would open a lot more doors than it would close for me.

At some point in my career, I didn't know what that point in my career was going to be.

Fortunately for me, it was pretty quick.

But I look back on it as there was never really one aha moment in business school where I said, gosh, golly, I'm going to take that piece and use it to conquer the world.

But I think if you encapsulate it all together with your real world work experience I think it added a lot of value to the growth of my career. And I will say in a corporate development role, the nice part about. Having a PharmD credential as well as you always think about things from the perspective of the clinician as well, which is really important in drug development because we could have the best technology that saves the most lives and it's really well tolerated, but at the end of the day, if there's not a place for it in a clinicians paradigm.

Then, we're just throwing good money after bad. So I think that a really important perspective from corporate development is just understanding, especially with pre-approval products. Like where exactly would this fit in the treatment paradigm? And is there truly an unmet medical need that patients and providers have out there?

Because let's face it in today's day and age, a lot of the new drug approvals that we're seeing are me to products that don't have a lot of incremental benefits and therapy. over the gold standard. I think for a long time we thought of fields like oncology as ones where there was, constantly, just mind shattering innovation going on.

And I think there still is to some degree, but I think that innovation curve is slowing down a

little bit because there's only so much that we have to improve on over what, our existing gold standards of therapy.

[00:40:08] Mike: I can almost see being around like a boardroom and you've got some, let's say a marketing gal with the big, harry caray thick black glass rims, you know, the type kind of sounds like a smoker, 

and they're like, well, Steve, you don't have a big enough picture because, you were a pharmacist and you kind of got that clinical stuff, but you gotta dream a little bigger, you know, and let's say somebody else says you gotta take chances that has nothing to do with it, I'm just thinking about this.

I can almost see someone pulling that on somebody as a detrimental thing.

[00:40:47] Steve: Yeah, I think again, it's the mindset that is scientists, we're trained to think about what could go wrong in this scenario. Whereas our commercial colleagues, they always they usually, 98 percent of the time they mean well I don't think anybody gets out of most people don't get out of bed in the morning with poor intentions but I think again, that's the way that our minds are trained and I think You know, a lot of my closest colleagues are on the commercial side of our organization.

And when we do some of these like the Myers Briggs tests and others. The way that my brain functions is always, at a different, completely opposite end of the spectrum from a lot of my commercial colleagues.

But you know what? At the end of the day, I think it's okay. It's okay. It's okay to have differing perspectives because they, in what I do for a living, all need to be balanced out.

[00:41:32] Mike: Steve, you mentioned that it's kind of maybe inching towards similarity without any new information or ideas in our heads. Does that help mergers? Does it hurt mergers with that kind of thought pattern that some things are maybe saturated.

[00:41:53] Steve: Yeah, so I definitely think it hurts the mergers and acquisitions space tremendously with a lack of innovation and not to say that we're there by any means yet, but I think in certain therapeutic areas, we're approaching that, that point of saturation because at the end of the day

 Each company has a corporate strategy and I can promise you that the corporate strategy is not to bring in Products that don't offer incremental benefit over those that maybe have the lead market share in the market, 

it's how can we go out and capture? How can we go out and beat the competition? So I think That is challenging. The amount of near term M& A. I think the other complex factor, which we talked about a little bit earlier, Mike, is the interest rate environment today. So, when companies go out and do any size transactions, a large portion of the time, it's not an all cash consideration.

They need to leverage some debt against this to complete the transaction and In what is, an interest rate environment of 10, 11, 13 percent for biotech straight debt deals, that makes M&A that much more expensive. And so I think right now we've seen the last couple of months we've seen a lot of slowdown, 

There's still a lot of uncertainty about inflation. There's still a lot of uncertainty about where interest rates are going to go. And I think that's left a lot of money on the sidelines in biotech M& A. There's clearly been a slowdown. The second half of the third quarter, and I think we'll continue into the fourth quarter and until we get some more clarity and even into next year, until we get some more clarity about what the interest rate environment is going to look like going forward.

With that being said, I think that there are a lot more opportunities out there for buyers that are using all cash and not leveraging financing to get some really good deals because at the end of the day, if you are a. Currently a non revenue generating or unprofitable company that needs to go and raise additional equity capital to continue your operations.

You're having to do it at pretty punitive prices,

and I that offers some opportunity for their, Some good deals to be had for folks that are out there ready to buy with cash, not dissimilar to what we saw back in the 2007, 2008 real estate market, we saw a lot of folks that were sitting on cash patiently waiting and were able to scoop up things for a really good value and turn around and flip them five to six years later.

I think that there will be a good amount of that here in the 

next six to nine months to come.

[00:44:23] Mike: I have some friends that are building a house and I remind them that my dad built our family home when I was a freshman in high school, during the Carter years.

And I want to say, Steve, it was a 17 percent home loan. so I guess things can get worse.

[00:44:40] Steve: Yeah, I think you're totally right. Back in the eighties, people took out mortgages and paid them off like their hair was on fire.

And, I think look for us in biotech, we were in a zero, a near zero interest rate environment for a long period of time 

and, companies spent it like they had it and they had it to some degree, but not entirely.

And I think what you've seen. In this interest rate environment companies are being a lot more prescriptive in terms of how they're going to prioritize their portfolios, especially their development stage compounds. You've seen announcements recently, Johnson and Johnson is moving away from the infectious disease and vaccine business entirely.

That includes both their commercial as well as development business in that space. So you've seen a lot of that type of prioritization as capital has gotten more expensive

here. 

[00:45:31] Mike: Steve. Thanks for spending time with us. Very cool to hear this from somebody who's a clinician. It's been through that and then shifted over to this. And merging those two.

 So thanks for spending time with us.

[00:45:47] Steve: No, thanks, Mike. It was a pleasure being on and hopefully the listeners enjoy this. And if it challenges one person to think creatively about a non traditional career path, then I'll have achieved my goal for today.

[00:45:58] Mike: Absolutely. All right, Steve, we'll talk again soon.

[00:46:01] Steve: Thanks, Mike.

[00:46:01] Mike: Thank you.