Key Considerations for Negotiating Strategic Partnering Transactions

The biopharmaceutical industry is a powerful engine of innovation, developing groundbreaking therapies for intractable diseases based on cutting-edge science. In order to facilitate and expedite the development of these therapies, biopharmaceutical companies rely upon strategic partnering and collaboration transactions to undertake research, development, and commercialization efforts with each other, often in the form of an early-stage company partnering with a more experienced development and commercialization partner.  Doing so provides capital and development and commercialization expertise to early-stage companies while increasing the research capacity of the partner.

The transactional documents that govern these strategic partnering transactions, often called collaboration agreements, are technically complex, bespoke agreements that reflect the scientific discovery underpinnings of the therapy. An agreement governs all facets of the partnership’s lifecycle, which may include the following: 

• The research and development activities undertaken to discover the therapy

• The technology platforms used to conduct these research activities

• Administration and coordination of clinical trials undertaken to obtain regulatory approval for the therapy

• Manufacturing pre-clinical, clinical, and commercial supply for the therapy

• Intellectual property protection of the therapy

• The granting of exclusivity and license rights from one party to the other to develop and commercialize the therapy

• Economic terms for the sharing of costs and profits for development and sale of the therapy.

Adding to their complexity is the lifespan of these agreements, with terms that match the typical therapeutic development cycle of 10–15 years. 

Given the importance of collaboration agreements to the biopharmaceutical industry and their technical intricacies, below are a few key themes and good practices to keep in mind when negotiating these agreements.

Giving and receiving: “tension” in collaboration agreements

In a typical collaboration agreement, one party is performing the majority of the research activities and granting rights to the fruit of these research and discovery efforts to the other party.  These rights are often packaged up into one or more “research programs” and exclusively licensed to the other party.  Research programs may consist of biological targets, compounds discovered and developed to modulate the activity of the biological targets, and the intellectual property rights (such as patents) that cover the composition of matter of, and method of manufacturing and using, the compound.

The counterparty or partner receiving the benefit of the research programs has an interest in negotiating for as broad of a range of rights to these research programs as possible in exchange for the payment terms.  However, all rights that are exclusively licensed or granted to the partner may no longer be utilized by the granting party. This is important, because while the economic value for the rights that are granted is “capped” at the economics received from the partner (often in the form of upfront, milestone, and royalty payments), retained rights are available to the granting party for further monetization under other licensing or collaboration agreements.

In addition, the granting party may at present have, or be contemplating future, internal research programs that they do not wish to be subject to the partner’s rights. 

Finally, early-stage companies with desired technologies may enter into more than one collaboration agreement, under which they have agreed to grant rights to other research programs to another partner.

Scoping these categories of research programs is critical to the granting party not being found between the proverbial “rock and a hard place” with its collaboration partners, and to preserving its rights to its internal research programs. 

It is a good practice to internally reach consensus on the rights the granting party is willing to give up in exchange for economics, and the research programs it wishes to retain, prior to initiating negotiations with a partner. If the granting party has already entered into a collaboration agreement and is contemplating an additional transaction, rigorously comparing the rights that have already been granted versus the rights that are contemplated to be granted to the new partner is also imperative.

“Under construction”: collaborations involving active clinical trials

Many collaboration agreements are entered into when companies are nascent in their development. Often these companies have an innovative biological target or drug discovery platform which will be, but has not yet been, interrogated in order to find therapeutic molecules.  At this stage, while the precursors to what will become a therapeutic agent may have been discovered, it will be some time after the collaboration agreement is entered into before a therapy is actually administered to humans in clinical studies.

That said, these companies often undertake initial clinical studies to validate their therapeutic compounds, which de-risks them from the partner’s perspective and can increase their value.  However, handing an active research program over to a partner for which patients are being administered the therapeutic raises particular logistical and regulatory issues that need to be addressed and coordinated to ensure a successful collaboration.

Ongoing clinical studies

If a clinical study is ongoing, the sponsor of the study has, and will continue to have, ethical and regulatory obligations in the conduct of that study. Negotiating a game plan as to how the handoff of ongoing clinical studies from the party conducting the study to the partner will occur before the definitive collaboration agreement is executed reduces the risk of misalignment of expectations and, more importantly, of not fulfilling ethical and regulatory obligations.

Regulatory filings

Regulatory filings and materials, such as permissions and authorizations from regulatory authorities to administer a therapy to humans in a clinical trial, are often assigned under collaboration agreements from the filing party to the partner. However, holders of these regulatory filings have regulatory responsibilities that need to be fulfilled. Coordinating the timing of this assignment with the handoff of active clinical studies is imperative for the parties to each fulfill their respective regulatory obligations.

Supporting agreements

Companies conducting these programs often enter into agreements to support the clinical studies they undertake, such as clinical trial agreements with medical institutions administering the therapy to patients, and manufacturing and supply agreements for the supply of drug for use in these clinical studies.

It is important to align how these agreements will be handled as part of the handoff (e.g., assignment to partner; innovator activities for retained agreements) in order to ensure continued, uninterrupted performance of the clinical trial, which will support the granting of regulatory approval for the therapy. 

The “rest-of-world” shuffle: regional transactions

Many early-stage companies consider licensing an asset to a regional partner for development and commercialization in that region (e.g., Europe or Asia). For some such companies, a regional deal is an adjunct to their own continuing development and commercialization that optimizes the asset’s global reach; for others, the regional deal may be a precursor to licensing rest-of-world rights to another partner.

These transactions often have tension points that are outgrowths of:

• Regional partners wanting control in designing and conducting clinical trials in their territory, because they are most familiar with the regional regulatory pathway and commercial considerations that can influence clinical development strategies

• Concern from the licensing company that regional, clinical, or regulatory activities can adversely affect development in rest-of-world and that later rest-of-world partners will want veto rights over those activities.

While balancing these competing incentives is often challenging, a path forward may be forged by focusing on the development pathway in the licensed territory: What do the initial clinical studies look like; where will the clinical trial sites be; what will be the initial indication?  Focusing on these operational matters often paves the way to resolution.

In addition, term-sheet stage agreement on the initial regional development plan, and a governance structure for how that plan can be changed and supplemented, can help alleviate this tension point during agreement drafting.

Show me the data: data sharing in artificial intelligence (AI) platforms

Collaborations continue to emerge that harness the machine learning capabilities of one partner for drug discovery or development. In these partnerships, data can be ingested and analyzed at volumes and speeds previously unheard of in life sciences. These innovations are upending models for ownership and control of such data.

While the AI partner often desires rights to use collaboration data to “train” its platforms and improve efficiency and efficacy, therapeutic partners want access to the predictive power of these platforms.

However, therapeutic partners also often want to safeguard against competitors’ accessing and gaining the benefit of collaboration data, which presents a challenge to the innovator: These machine learning platforms are built to leverage data contributions and analysis from prior engagements, which provide for continuous process improvements and better accuracy. In other words, this business model depends on the creation of and access to a common data pool, which is a concept unfamiliar to many therapeutics partners.

Careful consideration of these control and exclusivity of collaboration data issues at the term-sheet stage can help avoid derailment, delay, and added expense in negotiating definitive agreements.

Good Outcomes

Keeping these points in mind, along with what positions and negotiating postures lead to the successful development of groundbreaking therapies and, as a result, good outcomes for patients, will increase the chances of successful collaborations.

About the authors

Stephen Abreu, Tom Duley, and Joshua Hofheimer are partners at Sidley Austin LLP. They can be contacted at sabreu@sidley.com, tduley@sidley.com, and jhofheimer@sidley.com.

This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and the receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. The content therein does not reflect the views of the firm.