FRANK REFLECTIONS ON BUILDING A BIOTECH PARTNERSHIP
In July 2006, ARYx Therapeutics, a private drug discovery and development company, joined forces with Procter & Gamble Pharmaceuticals to develop and commercialize ARYx's proprietary investigational compound, ATI-7505.
Reporter Brian O'Connell spoke with ARYx Chief Executive Officer Paul Goddard about the partnership, now, symbolically, in its ninth month. He asked Goddard how the process of giving birth to the strategic alliance is going and what it means for the future.
O: What is ARYx's niche in the biotech industry?
G: We focus on addressing the safety concerns that arise with drugs that are already well-established and commercially successful. Our technology is targeted at retaining the known therapeutic mechanisms of these drugs while engineering out the metabolic problems that cause the toxic side effects.
O: Tell me about ATI-7505.
G: ATI- 7505 is modeled on the product cisapride. Cisapride is a drug that was used for a variety of gastrointestinal disorders such as gastroesophageal reflux disease often characterized by the symptoms of heartburn or gastroparesis, a potentially serious complication of diabetes. When it was withdrawn from the market in the year 2000, the revenues for this product were $1 billion and growing quickly. Serious side effects had been identified with the drug which could lead to heart attack and, in some cases, death. With our product, we have sought to retain the same efficacy but to eliminate safety issues associated with cisapride.
O: Why did you decide to license ATI-7505?
G: We were fortunate in that we'd raised $100 million in venture capital to help us develop our business model. However, as a private company, it is impossible to complete the expensive development and commercialization of a pharmaceutical product. Therefore, once we completed proof-of-concept studies, we decided to seek a partner.
O: Was your decision to partner mostly about economics?
G: Actually, no. Sure that's important, but we also wanted a partner with a strong focus in the gastrointestinal area who had significant consumer experience and the willingness to give our drug priority.
O: Why did you finally choose P&G as a partner?
G: They gave us a place at the table and an active role to play. We had a meeting of the minds with our objectives and fundamental priorities. One of P&G's three therapeutic areas of focus is gastrointestinal, and their expertise in understanding the patient base, as well as physician relationships, and their track record in developing, launching, and marketing prescription drugs were important to us. We were comfortable within their smaller pharma division we wouldn't get lost - and neither would 7505.
O: Why did P&G stand out?
G: They offered us the best of both worlds - the impact of a big player with the mind-set of a smaller, more nimble partner.
O: Was P&G your only option?
G: No, but in my mind, they were the best. That said, we also looked at two other potential partners during final negotiations.
O: How would you characterize your relationship with P&G before and after the contract was signed?
G: Well, it would've been easy for P&G to drown us out since we're small with only 65 employees. Not only did we get a place at the table, but our input was and still is taken seriously, which makes you want to try even harder. After we signed the contract, we spent two days in Cincinnati to get to know our corporate personalities better. That served both parties well.
O: Is that typical for a larger company?
G: Not necessarily. I've lived through alliances before, and have seen how quickly they can wind up in conflict. Yet right from the beginning, we felt comfortable being candid with P&G leaders and expressing our viewpoint. Today we have a very collegial and productive relationship.
O: Describe the negotiation process with P&G.
G: Negotiating with P&G is a journey, whereas with some companies, it leads nowhere and turns more into a day trip. We spent a lot of time getting the term sheet in place. It gave us a framework on which to build the final contract. Both parties should always have points at which they are willing to walk away. It became clear where those points were for both of us, so it served to get us to the endpoint a lot quicker. For example, we wanted to retain the ability to, eventually, co-promote our drug. A lot of companies would begrudgingly agree to that. But P&G was very amenable. They knew that if we were to share long-term success, it would mean growing together.
O: What were some of the challenges of the partnership?
G: There are always unexpected twists and turns, like partners learning how to balance their risk comfort level. Navigating P&G's infrastructure was the biggest challenge since their processes and procedures are well established. ARYx, on the other hand, is only five years old. We're much more used to inventing our processes along the way.
O: Beyond the challenges, what have been some advantages to working with P&G?
G: They understand sales, marketing, and more importantly, who the customer is and how they use the product - that's absolutely essential. Our drug couldn't be in better hands since it needs very careful positioning. If you give 7505 to five pharmaceutical companies, you'll get five different strategies with five different outcomes. We like that P&G execs see what we see in ATI-7505 and its potential.
O: I noticed you didn't mention the balance sheet.
G: Well, of course. Companies like ours will always think about economics and the value of near-term milestones because we have to. But going there first in a negotiation is never a good idea. It's better to address the other issues, and then let the economics fall into place. Again, with P&G we wanted a place at the table and we got it. And that spirit continues nine months later.
O: So you'd describe the experience as positive.
G: Very. We learned everybody's idiosyncrasies early on - which served us well in setting the stage for how our relationship would develop.
O: Knowing what you know now, would you work with P&G again?
G: Oh, yes. In fact, we've already initiated some other programs, and I told P&G execs that, while we're in the very initial stages, if they're interested, we'd love to partner with them.
