Legal Forum: Putting the "Co" in Development and Promotion: The New Biotech-Pharma Collaborations - Companies considering partnering arrangements must do financial and operational due diligence to ens

ADVERTISEMENT

Legal Forum: Putting the "Co" in Development and Promotion: The New Biotech-Pharma Collaborations
Companies considering partnering arrangements must do financial and operational due diligence to ensure the success of the collaborations


BioPharm International
Volume 19, Issue 8

The deal flow in recent years demonstrates an increasing trend away from the royalty model toward 50–50 shared economics, with the smaller company actively participating in the project and retaining equal control over critical development decisions, including determining where clinical trials will be conducted, deciding who will provide the clinical supply material, and who will take the lead in interacting with the regulatory agencies in the US, Europe, and other major markets.

If a copromotion arrangement (usually in the US market) is added to the mix, then the deal becomes more complex, but also more exciting for the emerging biotechnology company. In a copromotion agreement, the small biotech company can bargain for the right to participate in the marketing and promotion of its drug product in the largest pharmaceutical market in the world—the US market.

Fifty-fifty codevelopment arrangements or copromotion deals represent attractive options for smaller companies who want to control their product's destiny. However, these types of deal structures are much more complex than those based on the larger pharma partner taking full responsibility for product development and commercialization. Consequently, these evenly split collaboration agreements require extensive planning and detailed negotiations.

Companies considering such a partnership or alliance with pharma or biopharma must consider a number of critical factors, including:
  • Financial modeling and forecasting
  • Control over development
  • Relationship between partner companies
  • Planning for a range of outcomes

FINANCIAL MODELING AND FORECASTING

Can the smaller company afford a 50–50 cost sharing arrangement? This type of structure means, not only sharing product revenues, but also the expenses, which can be considerable. Companies contemplating shared development cost arrangements must do their financial homework in the form of cost models, a risk-adjusted net present value analysis, and a detailed cash flow forecast. At each step of the analysis, be sure to identify the assumptions embedded in the financial forecasting. Remember that each assumption about the product's development path, launch time, and commercial market potential will be tested by the larger pharma partner during its due diligence.

As part of the analysis, companies should consider the size of the market opportunity, potential market share over time as well as development, marketing, and other commercialization costs. Product pricing and pay or reimbursement issues should also be factored into the analysis. Finally, the analysis should incorporate realistic development, approval, launch, and peak sales time lines. Of course, the competitive environment, and its potential impact on these time lines, also should be included in the analysis.

The long-term nature of life sciences collaborations and strategic alliances makes these arrangements inherently unpredictable. It is important then to consider multiple scenarios when completing the financial analysis. The small biotech company should perform a sensitivity analysis varying the ramp-up period, market share attainment, and cost scenarios. Biotech companies also need to carefully consider the timing of cash inflows and outflows because cash availability often is the most significant limiting factor.

In a copromotion deal, negotiations will need to cover, among other things, financial issues such as allocation of promotional costs and expenses, number and quality of detailing, responsibility for sales force training, and monitoring and auditing of promotion expenses. Historically, biotech companies have wanted to play a key role in promoting and marketing products to learn from the process and to build their own commercial infrastructure. But a key question that biotech companies should ask before making any decision is, "Do we know what we're getting into?" It is easy to underestimate the cost and resource requirements associated with a copromotion structure. Building a sales force and a marketing team, and establishing the brand for the product can cost a company millions of dollars—before any product sales revenue is ever recorded.

The PDL BioPharma (Fremont, CA)/Roche (Basel, Switzerland) global asthma collaboration is an example of a biotech or pharma deal that includes both a 50–50 shared economic structure and a copromotion arrangement. This deal amply illustrates the complexities that a biotech company must address to successfully negotiate and execute such deals.


blog comments powered by Disqus

ADVERTISEMENT

ADVERTISEMENT

New Tax Rules May Deter Future Pharma M&A
October 1, 2014
NIH Seeks to Improve Vaccine Response with New Adjuvants
September 30, 2014
New Report Details Players and Pipelines in the Biosimilar Space
September 30, 2014
Baxter International Plans to Open R&D Center for Baxalta
September 30, 2014
FDA Releases First-Ever Purple Book for Biosimilar Characterization
September 26, 2014
Author Guidelines
Source: BioPharm International,
Click here