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NPS Pharma’s Francois Nader on the Megadeal Fallout for Biotechs

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we don’t often make this decision by design, and we let it go. I heard way too long, way too often, “Don’t be concerned, things will remain as is.” So, no worries. Nine times out of 10, that’s not what’s going to happen. Unfortunately, I saw a couple of situations where they had a plan, and then communicated something entirely different. And unfortunately they lost a bunch of employees because people woke up two years later or 18 months later saying, “Hold on guys, this is not what you told me. And this is not what I signed up for, or I stayed for.”

X: How should the change in company identity be handled?

FN: When you put two companies together, you actually create a new one. And that’s very important. By creating a new one, you have to really redefine the vision, mission, values, culture, portfolio, in this order. In other words, what is this new company all about? Unfortunately more often than not, we take care of the logo, we take care of the name more or less, and then we take care of the portfolio—and we tend to forget everything in between. A new company is indeed that.

X: The job cuts then immediately follow. Where do they usually come from?

FN: Usually you lose two types of employees: your top 10 percent and your bottom 10 percent. What I mean by that is, the low 10 percent know that someone will do the analysis, draw the line, and they will be below the line, and therefore they will probably be let go. And the top 10 percent, you will lose a number of them because they will not have the same leadership position they had pre-merger, or they don’t like the new culture, or they are snatched [up] by someone else. The biggest risk, actually, and what hurts mergers the most, is losing your A players, who go, “I don’t want to go through this.” And then you’re left with not much. You’re left with your B players.

X: So how do you keep your A players?

FN: You have to put in place a very solid retention plan, you have to communicate in a very credible way. It’s all a matter of credibility. People do not stay for their paycheck. People stay because they’re excited about their job, they’re excited about the company they work for, and they’re excited about who they work for. So the credibility, communication, vision, mission, these all have to be in place besides the retention package.

X: When one pharma buys another, what happens to the little biotech with a partnership in place?

FN: The key question is, is this biotech product still of strategic interest to the company? Would it get enough attention? And if not, how can the small biotech exit? And this is something that is easier said than done, because the small biotech has to sit down and really take this very, very seriously. The future of their product is very much contingent on the attention the product will get within the new company. The worst-case scenario would be that Big Pharma keeps the product and doesn’t do anything with it.

X: How should a biotech handle a situation like that?

FN: You have to very quickly talk to the new individuals and be as involved as one could in the portfolio assessment planning, and the portfolio assessment decision-making. That’s absolutely key. Because you want to know as quickly as possible where your product ranks on this 1-to-100 list, if you will. Are you number 98, or are you number eight? There is a huge difference in between, as you can very well imagine. I think there is also an interpersonal connection that has to be established, because new relationships have to be built. And you have to re-pitch in many instances. I’ve seen it with a different company recently, where they [had] to re-pitch because the new owners, frankly, did not have any idea about the product. So the biotech had to go back in and re-present the product, re-present the market potential, and do their analysis, because the new folks out of ignorance did not know.

X: What are the contingencies in case a biotech is that unfortunate number 98?

FN: The small biotech has to put in place a plan really quickly for the ‘what if’ scenario. What if this new company would not be interested in our product? What are our options? And management and the board have to sit down with consultants, with bankers, and really think through what the outcome of the company and the product would be if the new company says, “You know something, this is not one of our priorities. Thank you very much, we’re returning it to you.”

X: When a biotech company’s product doesn’t make the cut, though, it usually gets crushed by Wall Street. How do you avoid that?

FN: I think at NPS we did an excellent job—and I’m using the word [excellent] on purpose—explaining why we took back our product. Unfortunately in most cases, the minute Big Pharma returns a product to biotech, there is a stigma that the product might not be good enough, otherwise they would’ve kept it. People don’t know that somewhere there is a line [beyond which] Big Pharma cannot manage all the products they have. At times it represents a serious opportunity for a company like NPS, because we could snatch products that are excellent but below this line that Big Pharma draws somewhere. It might have to do with market potential, competing products within the portfolio, or whatever the reason. But a small biotech has to be very, very careful how this is communicated to avoid the stigma.

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