While collaborations between emerging biotechnology companies and pharma–biopharma companies are not new, these deals have dramatically increased in sheer number and deal value. Perhaps the most important recent trend to note is a structural one—a trend of moving away from the conventional royalty model toward 50–50 cost and profit sharing collaborations. Last year even small, emerging biotech companies successfully negotiated balanced deals with 50–50 economics. In spite of the resource constraints small biotech companies face and the inherent complexity in negotiating 50–50 collaborations, these partnering deals are on the rise.
UNDERSTANDING WHAT'S DRIVING PHARMATwo main factors are driving pharma's ongoing collaborative fervor. In today's market, pharma companies are experiencing falling productivity from their internal pipelines. Gaining access to new products through alliances with biotech companies allows pharma companies to expand their pipelines and increase their probability of success. Also, due to the complexity of manufacturing, biologics tend to have less competition than conventional synthetic chemical medicines, thus increasing the probability of providing a more stable revenue stream.
UNDERSTANDING BIOTECH MOTIVATORS
Biotech companies operate in an environment of significant financial constraints. One key obstacle is the ever-increasing amount of cash required to support continued drug development. Most emerging biotechnology companies do not have sufficient capital, research and development capabilities, regulatory expertise, commercial infrastructure, or manufacturing capacity to fully develop and commercialize a product on their own. As a result, collaborative deals with pharma offer biotech companies access to critical resources to fill operational gaps—global sales capabilities, regulatory expertise, R&D depth, and commercial and manufacturing infrastructure.
CODEVELOPMENT AND COPROMOTION CONSIDERATIONS
In the not-too-distant past, biotech product deals were fairly straightforward. A small biotech company with an innovative drug in early stage clinical development turned to a large pharmaceutical company to assume future development and commercialization of the product. These deals were generally structured as exclusive licenses to the pharma partner, in return for an upfront fee, milestone payments, and royalties on product sales.
While the prospect of sharing the costs of late-stage development through product commercialization can be a high-risk proposition for small, financially-strapped biotechnology companies, 50–50 economic structures provide the smaller partner with an opportunity to retain some degree of control over development and to ultimately capture a larger piece of a successfully approved and launched product. Just as important, a 50–50 deal represents a significant statement that the partners have strategic synergies and a shared operating philosophy that will be deployed by both parties to successfully drive product development and commercialization.