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

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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

PLANNING FOR A RANGE OF OUTCOMES

As with any other key business decisions, various scenarios and strategies should be thoroughly evaluated. In particular, biotech companies should consider the potential downside of a 50–50 collaboration with pharma or biopharma. While sharing the risks and costs can be attractive, it comes at a price. Virtually any significant collaboration means that the smaller biotech company will give up certain rights to the drug candidate and the related technology as well as relinquish significant management control. Sharing the "upside" can also be emotionally difficult for a company and its team when early sweat equity and risk-taking went into building the company and the product.

Finally, when considering any long-term partnering arrangement, companies need to have extensive internal discussions to address a number of key questions:

  • Why is this proposed deal important for the company?
  • Where do we want this deal to take us?
  • What skill set do we expect our partner to bring to the table?
  • Do we want this partner for the US only? For the EU? For a global collaboration?
  • If it is a global collaboration that is desired, should specific territories be carved out to facilitate licensing opportunities with other partners?
  • How does the proposed deal fit within the company's short- and long-term goals?

Thorough advance preparation results in better deal-making and avoids unexpected surprises during the negotiation process.

ALTERNATIVES

When considering a 50–50 profit and cost share arrangement, or a co-promotion deal, a company should keep in mind alternative structures and scenarios, including the following, to maximize long-term flexibility:

  • Retain co-promotion rights as an option, rather than a firm commitment.
  • If concerned about having the cash available to fund 50% of the global development costs, consider building in the right to seek financing, on reasonable terms, from your partner.
  • Consider an appropriate cap on the marketing budget, and mechanisms for annual "true-ups."

CONCLUSION

Partnering can be a win–win situation for both pharma and biotech. Pharma can increase its pipeline and manage its risk, while biotech may obtain much needed cash and developmental and commercial expertise. Pharma's desire to access earlier stage products provides leverage for biotech companies to negotiate more balanced partnering terms. Specifically, this leverage allows biotech to retain more control over the continued development, and ultimately, the commercialization phase, of the product, which has been a long-term goal. However, the 50–50 shared development structure deal is one that a biotech company needs to approach cautiously. Similarly, a copromotion arrangement requires a significant amount of cash and resource attention—companies can easily underestimate what is required.

Partnering deal negotiations can be highly complex, extremely lengthy and resource intensive. Companies considering partnering arrangements must do financial and operational due diligence to ensure the success of the partnership, which includes creating a detailed financial model that incorporates variable scenarios, risk-adjusted net present value calculations, and cash flow forecasts. The senior management team and subject matter experts should be consulted at critical points in the planning and negotiation process to assist in evaluating critical strategic questions and determining the best partnering approach. The key is to find the optimal path forward for continued development and, ultimately, commercialization of the company's drug compound—with a successful partnership as the means to achieve this end.

Sergio Garcia is cochair of the life sciences group, and partner, corporate and intellectual property group, at Fenwick & West LLP, Embarcadero Center West, 275 Battery St., San Francisco, CA 94111, Tel 415.875.2366, Fax 415.281.1350,

REFERENCES

1. BIOWORLD Today, October 18, 2005; Agensys, Merck Ink Potential $170M Cancer Antibody Deal.

2. Biotech 2005—Life Sciences: A Move Towards Predictability; Burrill & Company Report 2005.

3. BIOWORLD Today, November 9, 2005; Theravance Gets Telavancin Partner in Deal Worth $221M.

4. PRNewswire -FirstCall, September 30, 2005, Roche and Protein Design Labs Restructure Commercial Alliance on Zenapax.


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