“Twenty five years ago, if someone had said to me that I’d go on to do good work in business development, my response would have been, ‘What’s business development?’” jokes George Golumbeski who has a Ph.D. in genetics and did his post-doc work in molecular biology. But today he is SVP of business development for Celgene and is often considered the biopharmaceutical grand master of how industry deal making should be done.
For instance, he recently helped ink a deal for his employer to acquire Quanticel Pharmaceuticals for an up-front payment of $100 million in cash and up to an additional $385 million in contingent payments. Golumbeski recently shared with me his approach to assessing and developing the deals that are designed to build Celgene’s next generation of pipeline assets.
The Path Of The Deal
Since his arrival in March 2009, Celgene has executed more licensing deals than any other biotech (e.g., 10 in 2014). When asked for a step-by-step approach as to how he assesses a potential deal, he says it begins, simply, with focus. “Celgene is an oncology and a chronic inflammation/ autoimmune company,” he states. “We have just those two therapeutic areas, and we look at everything from pre-clinical, early-stage science and molecules all the way up to large M&As in that space.”
From there he says the process includes incoming nonconfidential disclosures, which typically include data embedded in a corporate PowerPoint presentation. This information is then reviewed by a group of people from various disciplines. Depending upon the asset’s stage of development, the review team might include someone from clinical, research, commercial, and regulatory. Once through a first pass, if the deal looks interesting, the decision is made to sign a confidentiality agreement, which is almost invariably followed by an in-person meeting. “It is rare for these meetings to be conducted over the phone or via a webcast,” he attests. The first meeting is usually a two- to three-hour 360-degree view of the program. “We look at top-line scientific data, clinical data, manufacturing issues, intellectual property, and future development plans,” he explains. “We meet the team, and after lengthy discussions, decide either to pass on the opportunity or progress to a full and thorough due-diligence step.” If all goes well during that step, the process moves forward to a financial proposal and a legally binding contract.
How To Assess A Potential Deal
When I ask him what he looks for in a deal, he says, “You know it when you see it.” Although, he adds that, regardless of the stage of development the company is in, he and his team are looking for the potential for quantum steps forward, not small, incremental advancements.
When first assessing a potential deal, Golumbeski says Celgene applies a staged approach. “If we’re talking pre-clinical programs, it is incredibly important to know the molecular target of the therapeutic agent you are working on,” he states. “If that is a known gene product which drives the transformation of cells from benign to malignant, then that’s positive.” The second thing that’s really important at the pre-clinical stage is safety and efficacy data. “If we’re talking oncology or inflammation, there are pre-clinical animal models for all of this work.” Known as xenograft studies, in cancer these involve implanting human tumor cells into a mouse, letting the tumor grow, and then testing the drug for efficacy. According to Golumbeski, while everybody wants to see well-done, carefully controlled xenograft data for cancer drugs, he explains that these models can be erratic in their predictability. When looking at these studies, Golumbeski’s team is not only reviewing data, the biology associated with the target, and the case the sponsor makes for safety and efficacy, but also the quality of the argument and the rigor of the sponsor’s thinking. “You can see almost comparable data,” he says. “But it is clear that some teams have thought their work through and know where their data is strong and where it’s not fully fleshed out, versus others who lack the same degree of critical thinking.”
When it comes to assessing a therapeutic that is already in the clinic, while the previously mentioned criteria remain important (i.e., molecular target, animal efficacy modeling, and quality of thinking), these are trumped by a significant corpus of human data. “The further up the drug development food chain you go, the more true this is,” Golumbeski attests. “Efficacy data in Phases 1 and 2 trumps pre-clinical data. If you have a completed Phase 3 package and the drug is on the market, you really start to focus on the established profile of the drug and a rigorous sales forecast/financial model.”
Indeed, no matter what clinical phase the company is in, it is very possible — and important — to make financial projections as to what the product might do commercially. “Once we have proof-ofconcept data, commercial and financial projections become two of the top three to five things we look at,” he explains. Though Golumbeski has seen potential partners make reasonable commercial forecasts, he also has been witness to ones that are overly optimistic. “How accurate or inaccurate those forecasts are doesn’t drive our decision, because, in the end, we are going to look at our forecast,” he explains. “When you’re talking about an M&A of a company with an on-market drug, most acquirers have very sophisticated financial models. When you are offering ‘X’ up front, and the partner thinks it should be 2X, the key isn’t that there is a gap but figuring out ways to bridge the gap.” If Golumbeski’s team thinks the data and the employees of the company being acquired are really exceptional, an over-the-top forecast alone will not induce Celgene to walk away from the deal. “You need to get into a discussion with your potential deal partner, so you can find out if they really believe their forecast, as well as if they are flexible in trying to bridge any differences we identify,” he says. For example, Golumbeski recalls a situation in which the Celgene BD team had a long, protracted disconnect with a potential partner on valuation. “We tried hard for about a year to work out a financial arrangement that could be the basis of a deal,” he recollects. Unfortunately, this company had a structure in mind that was driven by extremely high expectations. Despite Celgene’s best efforts, the two weren’t able to get a deal done. However, it has been his experience that these types of situations are usually able to be resolved.
Having killed a few deals throughout his career, Golumbeski estimates less than 5 percent of the time this happens as a result of unreasonableness about financial parameters. Deals are more often derailed by the quality of the data not meeting Celgene’s scientific goal for a nonincremental medication. “We don’t always have to be first in class,” says Golumbeski. “But if we’re not first, we certainly want to be best-in-class, and we’re really not interested in being third, fourth, or fifth in class.”
The Wisdom Of Teams Versus Committees
Since joining Celgene, Golumbeski feels there has been a pretty consistent process for bringing deals forward — continuous communication and small teams. “When we went to buy Abraxis BioScience [a deal valued at $2.9 billion], the key “deal owners” were myself, a BD colleague, a very senior clinician who reviewed all the data, Mark Alles [president and COO], and the head of the commercial oncology business [at the time] who made the case,” he explains. As to whom they were making the case, Golumbeski says, “At Celgene it involves the people you would expect: the CEO, Bob Hugin; the CFO; the head of the oncology business; the head of the inflammation business; the head of business development; the head of R&D; and the corporate counsel.” This group meets every one to two weeks. As a result, senior leadership has a clear understanding of what is happening as a deal is being built. “When we think we have acceptable terms, and it’s time to get approval from our board, the conversation is very collegial because of the ongoing dialogue,” he states.
Golumbeski views this process as being more efficient than the formalized committee review, primarily because everyone has bought into Celgene’s pipeline-building approach. “When you have a formal committee, it’s a different dynamic,” he attests. “One person raises a significant issue, such as the deal being too risky, and the committee can go negative rapidly.” In his view, one of the primary reasons such situations take place in committees is the lack of deal familiarity. “When a committee members’ sum total of familiarity is what they read in a memo or a PowerPoint briefing just prior to walking into the meeting, it is much easier to say ‘no,’” he says. (For more on Golumbeski’s personal experience with this, be sure to check out the sidebar, “Do You Empower Your Employees To Challenge You?”)
Golumbeski prefers a “lean and scrappy” staffing model for the business development and alliance management team (Celgene’s consists of 14 professional staff). Not only does this foster more of a smaller biotech culture, it avoids that traditional approach of bifurcating the deal business to people who prospect for opportunities and conduct the due diligence, and people who conduct the final negotiations. “I prefer a structure in which people run a deal from A to Z and are responsible for evaluation, due diligence, and ultimate negotiation of the financial agreement.” Last, but not least, Golumbeski prefers small teams because he thinks they help promote focus. “As a company, we don’t want to be looking at 300 (M&A, partnering) opportunities,” he explains. “I try to move projects as quickly as possible to either signature or decline, and I think a small group helps achieve that.”
The Power Of Flexibility And Empowerment
When Golumbeski embarks on a deal, he applies a few basic principles. First, he wants everyone involved to have a deep understanding of standard deal structures. Second, he suggests “to really listen to what the other side is saying, and if you can give them what they want, then give it to them.” In other words, be flexible when crafting a deal. For example, when Celgene bought Abraxis, it started out as a fairly typical acquisition of a publicly traded company. “The company had a market cap, and we negotiated how much over that we would have to pay,” he recollects. “In addition, the drug was sitting with a possible lung cancer approval in the relatively near term and a possible pancreatic cancer approval in the medium term.” The team created a purchase price and contingent value rights (CVRs) based on Abraxis’ lead compound, Abraxane, receiving approval for lung cancer. “We made another CVR based on Abraxane’s approval with a certain label claim in pancreatic cancer,” he says. “These got us and the seller close to a deal.” However, Golumbeski recalls there being a difference between the two sides regarding the ultimate peak sales of Abraxane. “So we worked toward a number that was somewhere in the middle in order to bridge the gap and eventually agreed that if sales exceeded that number we would pay a royalty on the sales above that threshold,” he states. “What really made this deal unique was it was one of the first times that CVRs had been put on the acquisition of a public company, and those CVRs were tradable on the stock market under the ticker CELGZ.”
Another example of being flexible involves Celgene’s recent deal with Quanticel Pharmaceuticals. The founders of the company, two Stanford professors, Dr. Mike Clarke and Dr. Steve Quake, along with the investors who had seeded.
Quanticel, Versant Ventures, all had a certain view of what they wanted the collaboration and capital structure to look like. “The only way this could be accommodated was to go through an option to acquire structure (aka ‘build to buy’),” Golumbeski explains. Celgene agreed to put substantial operating capital into the company (i.e., $45 million initially) and let Quanticel work for three and a half years on its technology. “Then, as we always do, we built an extension, because we never want to be at the end of the option period and have the science trending in the right direction but not have clarity on whether we should or shouldn’t buy a company,” he states.
Beyond the flexibility of a deal, Golumbeski has become quite a fan of what he refers to as an “empowering escalation clause.” “The fundamental issue which underpins almost every non-M&A agreement between two companies, such as R&D collaborations and in-licensing deals, involves the ‘C’ word — control,” he attests. “Every agreement typically says something like, ‘The two parties will attempt to reach agreement via a joint project or steering committee.’” He says all companies have various governance mechanisms for escalating and resolving disagreements. However, most default that if consensus can’t be reached, the company paying the bills has final say. “At Celgene, we will do everything we can to reach agreement,” he says. “If consensus isn’t reached, until that point in time where we have opted to internalize the program, we give the partner company final decision-making authority.”
You may wonder how this became a standard practice at Celgene. Golumbeski says the first time the company did it there were two drivers. “Philosophically, we wanted to partner in an overly collaborative and empowering way. And, there were specific accounting rules that make a difference for how payments can be attributed. Giving final control to the other party helped us get an accounting treatment we preferred.” But having done it once, Golumbeski says there was no turning back. “This was such an empowerment of our partners that, I can tell you today, whether we got the right accounting treatment or not, we would land on this idea.” He says that most of the partners comment openly that they feel they are not only at the steering wheel, but also really driving the collaboration. “If you’ve been very assiduous in picking your partners in the world of ‘technology X,’ why would you want to do a deal and then turn around and tell them what to do in the very early stages of whatever ‘X’ is?” he says. While Golumbeski believes this approach to be a fundamental difference and something that has helped Celgene build goodwill with its partners, it isn’t the main driver behind the company’s partnering success. “I believe it’s a strong indicator that we’re willing to take a team that we think is scientifically great and managerially very strong and trust them to be the experts we perceive them to be and drive the program forward,” he shares. “I believe that our thinking on this has been correct, considering that in the six plus years we have been taking this approach at Celgene, not once has the collaborating company had to exercise this clause.”
Do You Empower Your Employees To Challenge You?
A little over two years ago, there was a nonconfidential summary being circulated throughout the Celgene business development (BD) team about some work being done by VentiRx Pharmaceuticals. “I had looked at this, and based on some history with Toll-like receptor compounds, I just said, ‘No, this mechanism makes no sense,’” George Golumbeski, SVP of business development at Celgene recalls. “Today this is now a super-hot area, broadly defined as immuno-oncology.” So why did Celgene end up putting together a $35 million deal with an option to buy VentiRx? Dr. Kristen Hege, a member of Celgene’s Phase 1 translational medicine unit, who has worked in cancer immunotherapy for a long time, thought Golumbeski and Celgene’s head of R&D, Tom Daniel, M.D., were not giving the opportunity adequate consideration. Hege convinced Golumbeski and Daniel to sit through a presentation by the president and CEO of VentiRx, Robert Hershberg, M.D., Ph.D. “He took us through a whole series of pre-clinical and clinical experiments that really turned the tide with respect to our collective thinking,” Golumbeski says. Though he initially attended the meeting out of respect for Hege, the presentation helped educate the Celgene team on an opportunity, albeit relatively risky, that had significant merit. “So, we funded a pretty significant program with an option to buy at the end of Phase 2,” he states.
According to Golumbeski, anyone who thinks that getting a meeting with the head of a company’s BD department is the key to a deal should, instead, focus on having good data. “I get a number of requests for meetings just to introduce the potential partner and its non-confidential data,” he says. “My response is almost always, ‘no’ or ‘not until we have reviewed the data.’ The reason the meeting with VentiRx worked was that, admittedly, I had not spent enough time reviewing the data, which was really good. Weak data, whether in PowerPoint or presented in person, is going to produce a negative outcome.” Another takeaway is to make sure your people, like Kristen Hege, feel empowered to challenge you.
Why Deals Require Champions
Business development textbooks would probably tell you that BD people really can’t or shouldn’t champion deals, because if they become too attached and the deal stalls or is determined not to be a fit, they may have trouble killing it. While Celgene’s SVP of business development understands why this seems rational, George Golumbeski thinks that, regardless of the BD model you employ, it is important for your BD folks to champion deals — at least up to a certain point. “If they were doing a painting,” he analogizes, “they have to take the painting to the point where somebody can begin to see what it is.” Whether a deal has to be painted a third, half, or three quarters of the way depends on the deal and the competency of your team. But Golumbeski reminds, “Unless somebody from the appropriate function champions the deal as a lead or serves as a co-champion, it is likely to remain unfinished.”
In Golumbeski’s lengthy tenure, it is not the norm for championship of a deal to start with someone at the highest levels within an organization (e.g., head of R&D or a head of commercial). As a result, he is a big advocate of taking ownership. “One thing I coach my team on is not just the importance of being tenacious in getting a deal done, but also to know when to pull the plug,” he says. “You have to be like an ER physician when it comes to triaging which deals to champion and which deals are better off for both parties to be let go.” Like ER physicians, Golumbeski wants his BD people to be champions on one hand, yet compassionate on the other, and not to become distraught and dysfunctional when having to walk away.
Although he believes good BD people have to be painters and physicians, he also feels that being real champions requires a thoroughbred approach. “Somebody once told me that there are two kinds of horses, those you have to kick and those you have to pull back,” he says. Champion BD folk, like thoroughbreds, want to run fast and get things done. “In business development, I’d much rather have people that I have to rein in once in awhile than kick,” he concludes.
You Get What You Pay For
According to a March 2015 Bloomberg Report, Celgene paid $152 million more to partners than the industry average. When I sat to talk with George Golumbeski, Celgene’s SVP of business development, I asked him the rationale behind such an approach. “I did look at that report and won’t dispute what it said. But remember, almost exactly a year ago we paid $710 million up front for our collaboration with Nogra Pharma for GED-0301, which had completed Phase 2 for the treatment of moderate-to-severe Crohn’s disease.” The data, which Golumbeski describes as being remarkable, have now been published in The New England Journal of Medicine. “We would not have gotten to that $710 million number if the data had not been compelling and if the deal had not been frighteningly competitive. I don’t know what period Bloomberg averaged, but if you understand how to compute an average, and you’ve got one or two points in there that are large, you’re going to drive that average up.”
That being said, Golumbeski believes Celgene does things a little differently when it comes to deals. “We’ve selected incredibly high-quality partners, and you get what you pay for. If you look at our deal structures versus a lot of the other companies’, I think you would see that the norm in the industry is to pay a certain amount up front and then to pay a series of milestones as you go. We would rather give the company a larger amount of money up front and not pay as many near term milestones.” He says this is consistent with Celgene’s goal of empowering the companies it collaborates with, as well as providing them the security they are looking for from a long-term partnership. “I think one thing that has been very helpful to our success is that we have four people at the senior VP level and higher who have actually been CEOs of small, venture-backed companies, including our head of R&D and my close partner in all of our ‘deal success,’ Tom Daniel, and myself,” he shares. “If you are familiar with running a small company, you are usually funded adequately, but you are not funded with an overage. This is the norm, but it does not always allow for the unanticipated bad news or good news, either of which can take more time and money to work through.” As many of the early-stage deals being signed by Celgene range from three to eight years, their partnering philosophy is not only to empower, but also to provide adequate time to prove the science, along with the sufficient capital to fund success. In addition, Golumbeski believes funding should be enough to cover some of the inevitable “left turns” in the road companies pursuing new science often encounter.