Wednesday, May 13, 2009

Has PE-Backed Pharma R&D Risk Hedging Fizzled?

This morning we learned that former AstraZeneca CFO and current Goldman Sachs partner Jon Symonds (right) is leaving that bank to join Novartis as CFO-designate. Symonds will take the financial reins at the Swiss pharma next April, when current CFO Raymond Breu retires. Novartis' release is here.

Before joining Goldman in 2007, Symonds had been CFO at AZ for more than eight years and departed not long after AZ's acquisition of MedImmune. At the time it was considered tough luck for AZ, where Symonds had been passed over for the CEO role in favor of David Brennan. The FT said at the time:

His resignation was a blow to the company, because Mr Symonds was respected in the financial community for driving down costs – helping to maintain earnings at a time of setbacks in the company’s pipeline of new drugs – and for communicating effectively with investors.
In the two years since then the word on the street was that Symonds was working on an oft-discussed but rarely implemented model in which a private equity player would take a big financing role in a Big Pharma's development program--something they've done in small and mid-sized companies. Like TPG/Lilly/NovaQuest's Alzheimer's asset financing arrangement (one of our Deals of the Year! candidates), only on a grander scale.

Symonds was supposedly putting together a pool of PE capital for developing Phase I and II Big Pharma (and maybe other) compounds, which could be pulled together. The structure would have addressed one of the big problems for PE players--can you access enough projects to effectively hedge the intrinsic risk of drug development? (Let's face it--not every compound that Big Pharma is willing to part with is going to be a winner, right? There are only so many ... iloperidones?)

There's a fundamental tug of war here: Pharma co's, despite their recent rhetorical embrace of all things out-partnering, don't like giving up control of multiple assets en masse--Pfizer's recent HIV deal with GSK notwithstanding. For PE backers, though, the more the merrier.

Symonds--and others have hinted to us about these kinds of funds too--was allegedly going to pull something like this together, according to remarks he made at last year's FT Pharma conference, essentially creating a new hybrid model of R&D.

Only it hasn't happened.

So what might have impeded, if not specifically the Goldman project, then the model more generally? Why hasn't private equity found a way to play nice with Big Pharma, in an everybody-plays-everybody-wins kind of way? We noted in our January 2009 look back at last year in IN VIVO that this kind of risk mitigation might lose its sheen because a lot of people who are supposed to be the experts in this kind of thing are bankrupt, unemployed--or begging the taxpayers for assistance.

Or perhaps the sticking point has been the Big Pharmas themselves. Haggling over valuations and downstream rights and clawbacks has to be expected, and maybe for now these issues are insurmountable. Or maybe the deal is still in the works, but delayed. And for Symonds, the opportunity to become Novartis CFO doesn't come around every day. Banking is so ...well, passe.

According to the FT's description of Symonds' strengths, above, Novartis watchers have fiscal discipline and good communication to look forward to. Should we also be expecting some innovative or experimental R&D financing strategies?

1 comment:

insider said...

Dont forget his M&A skills!