I'll show you my idea if you show me yours

8th November 2007.
Hello,
welcome to an online business discussion blog. I primarily intended to start off a discussion about how and when it would be possible to set up a social networking site for Biotechnology companies (and big pharma). That was >three weeks ago although it seems like it was longer than that.
Since then I have discussed the idea with over twenty people and had some very excited and worthwhile input. Here is the original concern that I had.

The Problem

I believe that the current system that allows for the buying and selling of drug-rights and the companies that make/develop them is basically archaic. In fact it is a bit like buying property was a few hundred years ago in that buyers and sellers have to rely on 'putting the word out' and they also have to rely on someone else being in the market who also wants to either buy or sell accordingly. There is a genuine need for some kind of formal and, perhaps most importantly, transparent exchange.

The intent of this professional/business based networking site would be to swap information, market companies and ideas and to allow the exchange of contacts that would enable companies and investors to evolve and work with one another productively. The nature of the proposed website and the important nuances regarding its content, confidentiality, access, revenue sources etc will all be debated here and hopefully at the end of it all we will arrive at a worthwhile business concept and also we may have encouraged some investors and customers along the way.

Initially the biggest problem that we have to get over is that of disclosure:

Caveat Emptor; Caveat Venditor

1. A fundamental issue within any intellectual property-based industry is that oftentimes companies are unwilling to disclose what exactly it is that they have got



2. Biotech companies work hard to generate intellectual value and they are often not willing to tell just any old person how they did it and what the result was



3. But, to use an analogy, who would buy a car from a vendor that wouldn't let you pop the hood to look at the engine?



4. in other words investors and customers however will not invest in ideas that they don't have insight into



5. Therein lies a fundamental problem within the industry. You are damned if you disclose and damned if you don't!



6. Informal networks and good old fashioned relationships have been the traditional solution to this problem in that they allow for a more careful, sensitive and controlled approach to the uncomfortable business of disclosure



7. Through judicious use of networks sellers and buyers can gain something of a view of one another before revealing everything



8. A network might even allow for a partial 'reveal' or some trusted 'whispering' to take place before anyone has overly committed



9. Networks are intrinsic risk managers when they work well in that a network can manage partial bits of information and risk and a network allows people to operate in discreet and considered ways

Against Networks. Networks can-

1. Stifle creativity and punish transparent behaviours



2. Tend to strongly favour the establishment and larger players



3. Allow for abuse and corruption of information flow

Your turn

I'd like to hear from you on topics such as

• how does such a network pay for itself (there would at most be a few thousand contributing companies and investors)



• Would you value the concept of 'surveyors' who could independently offer valuations/second opinions of summary packages on what a company has to offer



• Should access be private or open



• Would you value themed pages or communities such as an online Monoclonal antibody community or online VEGF community?




• what would companies display that they don't already put on their website?



• would you value the concept of inviting people to join your community at different levels of access?

Since I posted this idea several other postings have pointed me towards the fact that there is a very active community of licensing professionals out there working predominantly at a local level with the occasional foray into global markets. They all, broadly speaking, seem to be of a consultancy ilk. Many have websites and some even post IP opportunities on these websites.

Some have viewed this blog as a non-starter. Some a threat and some a joke but most people tell me I am on to 'something'. The agencies and consultancies out there all do a similar and apparently productive thing. They help people in the early stage of their business. Very few provide what I can see is a functional, usable, searchable 'shop window'. In fact they could help me, they could help the businesses that they intend to help and they could help themselves (more of this later).

The main problem is one of confidentiality. Let me correct myself- the main problem is one of perceived confidentiality.

In fact there is considerable irony here in that many people have gently criticised me for revealing my business idea to 'all and sundry'; they would have preferred at the time that I kept it confidential. But the truth is that revealing my idea has been incredibly helpful and the initial business idea that I had would almost certainly have failed had I not worked it through with others and researched the possibilities (of course it still might fail so 'that's not all folks').

The good news is that I believe that a viable business still remains. Not one offering too much consultancy though - I now have lots of people to refer on to for that. The central idea that an open, transparent exchange should be set up still continues to preoccupy me. The concept has evolved so that this exchange would need to include several (but not too many) layers of access (most of which could be melted within a day or so if required) and a degree of 'chaperoned' confidentiality would have to operate in order to buy peoples' confidence.

I'd like to thank Alex Frost VP of research opportunities at sermo (http://www.sermo.com/) for introducing the idea of arbitrage. Basically the business idea remains the same - a networking website founded with the idea of exchanging drug business credentials. But the participants would receive some of the commission for any referrals that they made. Also the numerous consultancies out there would, as well as receiving commission for their referrals, consider giving me commission on all the work that I referred to them. In the meantime the site would become the focus or centrepoint of all in-licensing/out-licensing activities - a sort of 'first thought' activity. The CEO should think 'Put the business/IP on the site and see what happens - after all it would be posted for free so what harm?'. In the meantime I'll be there to tell him that others will try to discourage him from telling anyone anything. That's right- all biotech CEO's should take a big spade, go out to the parking lot and bury all their ideas.

Customers?

The site will Proceed with caution. Policed user-generated content will be allowed along with the all important 'ratings' of the operators so no sharks please. Of course the ratings will be highly contested and I will not just allow some sort of on-line deformation tool.

This is going to have remain a widely cast net at the moment but I see four main customers

1. start ups looking mainly to sell
2. big/medium cap pharma and biotech looking to both buy and sell
3. in/out-licensing consultancies looking for somewhere to market or gain their clients
4. Banks, funds and investor relations firms looking for a market for their clients

That is about the sum of it so far - still not completely cooked as an idea but I am, I believe, beginning to come to some sort of more refined view. And yes thanks to everyone who told me there is no money out there any more. I'd like to know where all the money has been buried but for sure it looks to be disappearing. Thanks for all the great postings and please keep on generating input - it's working!

From FIPCO to friendships

Thanks to Bain for this. http://www.bain.com/bainweb/PDFs/cms/Marketing/rebuilding_big_pharma.pdf.

This interesting and well-researched article basically elaborates an emerging trend for companies moving from the FIPCO model (fully integrated pharmaceutical company where the company owns R&D and sales plus all other components along the supply chain) through to one of partnerships (which I have called frienships for alliterative journalistic purposes) where companies partner with other specialised companies with each partner concentrating on their core competency. In the case of many big pharma companies it can be argued that their core competency is late stage phase III clinical trials and then sales and marketing.

Somewhat entertainingly the likeness with the movie industry is made where large 'blockbuster' (see what they did there) movies are made by several partnering studios.

Amazingly this model for business operations states that the big companies should also sell early stage discoveries if they are not discoveries that align themselves with the core competencies of that company. So the buyer eventually becomes a vendor also (this is central to the model that many estate agents operate). The converse is also true I have heard that successful small cap companies may want to buy in new early phase stock once they have completed a successful sale.

The article also sounds a word of warning. At first the warning is pretty dire because they illustrate the declining productivity associated with in-licensing deals. This is however fairly explicable in terms of early adopters and low hanging fruit etc. I believe however that the examples of declining producitivity associated with in-licensing are a further argument in favour of greater transparency and a more open trading exchange. Here then I am going back to my original concern i.e. the current system is archaic and allows for all sorts of light corruptions. (apologies this graph will have to come later when the website is running properly again).

So maybe 'LinkedIn' are the answer to my prayers. http://www.linkedin.com/in/domsmethurst . I have a network setup and people from 3 drug companies currently connected directly (in less than 24 hours) to me though obviously we would need a few more than that!Also I heard from one source that auctions have previosuly been done successfully by drug companies. These auctions tend to happen electronically and typically over a few weeks- its not like everyone in a room bidding or anything so open. The other comment that I heard was that the 'claw backs' can be a suppurating feature of many negotiations. By 'claw backs' I mean clauses that allow the vendor to retain selling rights in a particular territory or in a particular indication. Whilst I can appreciate this might cause problems I also think that the willingness of a company to retain some sort of investment in a drug likewise shows thier commitment to its success. For those of you not versed in game theory I will describe the bidder's curse according to my somewhat prosaic understanding of it at least. This curse applies to any bidder who wins a bidding round in a standard auction. They are, by standard market definition, cursed because they have offered over the average bid price. The only bidders that can win against the curse are one's for whom the object of the bid is genuinely worth more or one's who have extra information about the object of the bid. The problem here is that the vendor often retains the greatest insight into what it is that they are selling and therefore has to come up with a bona fide reason for wanting to sell. When the vendor retain's 'goodwill' or retains a portion of the sale in 'so-called' shared-equity then the sale may be perceived as being more equal or less risky. The discussion goes on, thanks to everyone for thier input.

Things are hotting up

Anonymous has a lot to answer for in our society. Anonymous are most of our crimes; Anonymous are the many charitable contributions that under write society's humanity; 'Anonymous' are many on-line contributors and 'anonymous' or at least 'protected' are concepts that speak to the heart of the very nascent enterprise that we are talking about. So it was with no real surprise that I received this anonymous one-line contribution.

"http://pharmalicensing.com/"

I have my antipodean suspicions about the man or woman of few words that posted this, but they remain suspicions.

Getting to the point: This is a good website and like the other website portrays a company that seems to be doing a lot of what we have been discussing on this blog. Unlike

http://www.ixc-uk.com/ixcukaboutus this site would appear to have some concern for the bottom line (though I will come back to this).

Also pharmalicensing appear to be focused on a more narrow area therefore they would not appear to suffer from the lack of focus that "ixc-uk" suffer from (poor domain name by the way). Pharmalicensing also appear to have the necessary global reach that the self-professed ixc-uk do not appear to readily espouse (though they do seem to like travelling to Australia). Don't get me wrong IXC appear to have lots of honerable drivers and they have some reasonable successes listed in their achievements.

But, and thankfully for this blog there is a 'but', I am still not clear how pharmalicensing charge for their service. Could it be that they adopt the 'vampiric' strategy of charging regular consultancy type fees (c.f. ixc-uk)? I am hoping that these guys charge commission but I don't see that on the site. Commission has the obvious advantage that it is invested with a desire to get to the finishing line and it also carries with it a reward for getting as much for the sale as possible. Retainers and consultancy charges all carry the obvious criticism that the team gets paid irrespective of the sale, in fact 'll go further in my criticism and say 'consultancies' even have something of a vested interest in the sale not going through because they then get to extend their blood sucking charges for another term.

Also neither of these sites appears to be embracing the full opportunities of on-line networking and therefore, in the words of the ixc-uk site, they are still dabbling in ' the ancient art of the go between' reference the reason I set up this blog in the first place.

Maybe if I do nothing else I can improve these company's business models and advance their approach to business ( a somewhat grandiose claim I know). I still feel that a pharma network with on-line chat and exchanges is missing and I still feel that the trading floor for drugs and pharma companies is essentially embedded in the dark ages.

Keep up the good work everyone this is all great and thanks also for the phone calls and expressions of interest, it all really helps. I would still encourage you to post though as that is the most democratic approach and also the most beneficial/fun for everyone.