The Case for Europe.
This week Locust Walk announced the opening of our first office in Europe, which will initially be in Germany. Since this is a big step for our firm and builds on our success in Japan, we wanted to share the rationale for why we thought going into Europe made sense.
Typically when we approach European pharma companies about regional licensing deals for products developed in the US, we are met with disappointment. The common reason for declining interest in partnering opportunities cited by European pharma companies is the reimbursement challenges facing novel products in the EU. Reimbursement in Europe is indeed quite challenging given the constrained national health budget and associated reference pricing system. Even innovative, effective therapies have struggled to receive premium pricing in Europe anywhere close to the prices in the US or Japan. The most memorable example involved a product we were trying to partner in Europe for which the feedback from one major European pharma company was that the reference product for the product was “ice chips”. Basically, there was no market for this product because the patient could take ice as their therapy. Our takeaway from this experience is that to have a successful product in Europe, and therefore a successful transaction process, the product opportunity must address a true unmet medical need in a non-genericized market and have the potential to make a meaningful difference in patient’s lives. As such, 505(b)2 re-formulations or other “me-too” products will rarely work in Europe, neither from a commercialization nor a partnering perspective.
Compared to historical precedent, we are finding a trend that European privately-held Pharma companies are recognizing the reimbursement challenges in Europe and, therefore, have a new appetite to acquire or license US-based innovative products for both the European market and potential entry into the US market.
We are also aware of very impressive scientific innovation in Europe at companies that have good, but incomplete, management teams and are looking to access the US capital and strategic markets. To go public in the US as a European company requires US investors, a “US-style” management team and sometimes even a physical presence in the US. We hear from a lot of companies that they want access to the US capital markets because funding is so difficult to secure in Europe. We believe there is a significant opportunity here to help these companies.
Locust Walk has already executed deals with multiple European partners and with multiple European clients. Having someone “local” who understands the pricing and reimbursement system, the innovative economy, and how mid-size privately-held Pharma companies operate is incredibly important. This capability will help us serve clients looking to access European pharma markets but also European companies looking to move beyond Europe to the US and Asia, where we have robust capabilities.
One of the keys to success in finding a strategic partner in Europe is being able to understand the commercial landscape for your product. Heretofore Locust Walk lacked the expertise and capabilities to conduct a European commercial assessment without outsourcing to a third party market research shop. It was truly a hole in our offering when we could explore the value of a product in the US and Japan, but not Europe. The common assumption would be that the European commercial opportunity for a new product would be a fraction of the US opportunity, without specificity around the very different market dynamics. Without an informed perspective on the European commercial opportunity, companies often leave value on the table or are not adequately equipped to pitch their products to European Pharma companies. We intend to build this capability in-house.
We have been looking for quite a while to find the right person, who has the transaction, reimbursement and general management experience in Europe to help fulfill this important capability and market need. We are thrilled that we found this individual and recently hired Philipp von Gallwitz. We are excited to have Philipp on the Locust Walk team and look forward to expanding our ability to help European companies grow through transformative transactions. If you would like to learn more about Locust Walk’s European capabilities, please contact Philipp at philipp@locustwalk.com.
