When looking for partnerships, research-stage biotechs and other small/medium-sized enterprises (SMEs) should consider all the options, not just look to big companies andbig disease indications, writes Robert Thong
The benefits for biotech in a successful collaboration are huge, with the temptation to tie up with big partners or in big disease areas hard to resist. Yet, with so many factors to consider beyond the obvious financial and scientific ones, SMEs need to think hard before taking the plunge.
With big partners, the benefits are obvious and substantial. Not only can they offer a depth of resource and market reach that SMEs simply cannot have, you have greater leeway to negotiate higher up-front and milestone payments while gaining access to a much larger pool of scientific, regulatory and commercial know-how. What's more, an enhanced media footprint validates your company and technology with investors, the medical community and future partners.
However, there are dangers too. Your project may be one of hundreds in your big partner's portfolio, at constant risk of being put on hold through a shift in corporate priorities. Once it has contracted 'orphan project syndrome', your project may lose visibility and, as one biotech CEO put it, "just sit there, neither dead nor alive, starved of the best resources, attracting little management attention".
You must fit into your big partner's way of working, even though its standard approach may not suit your project's specific needs. Also, projects can become bloated by well-intentioned risk management: "When we internalise partners' projects too early, our people can spend much time addressing perceived risk while coming up the learning curve, adding extra work and costs without necessarily adding a lot of extra value," said one pharma executive.
In spite of its scale, a big partner may lack specific expertise in the precise technical, clinical or regulatory challenges your asset faces. In one recent example where a big partner had a strong commercial franchise in the indication, it lacked the know-how to resolve a challenging CMC issue thrown up by some unusual chemistry in the SME's compound. "They've been making drugs a long time, this shouldn't be an issue," said the SME, whose project was delayed several years and led to financial difficulty from delayed milestone payments.
In the high-stakes partnering game, some projects may benefit more from a smaller, highly committed partner with specialist capabilities and a closer cultural fit. Collaborating with a smaller or more focused company could see your project being a major cog in your partner's strategy motivating it to ensure the joint project succeeds.
The benefits of playing in a big disease indication are equally substantial. High profile, they generate very substantial contingent payments if the product reaches the market, however, the probability of success is, at best, unrelated to market size, and, at worst, negatively correlated if all the low-hanging fruit has already
Yet, big indications often require extensive clinical programmes, limiting the breadth of potential partners and lengthening time to market. They may also require a large primary care sales force, again limiting the range of partners and requiring you to share more of the pie. On the flip side, smaller indications may have faster and cheaper clinical validation and could eventually support your own specialty sales force, if that is an ambition.
Big indications attract more competitors – even if your project shows clinical efficacy, it may be commercially uncompetitive – and they tend to worry payers more, making it more difficult to agree reimbursement and pricing.
Partner, indication and deal size are all important considerations, but SMEs can stack the odds against their partnerships if they do not consider many other factors. Given low industry success rates, anticipate failure and nurture your assets to find the best applications. In pre-deal discussions, is your prospective partner interested in a very specific indication to fulfil a particular business requirement? If so, you could negotiate termination provisions that return your asset quickly and cleanly if that indication fails. Alternatively, if your partner is betting on the overall scientific premise, negotiate a partnership that explores multiple indications or even diagnostic applications.
Carefully negotiate milestone payment definitions; in theory, precise definitions simplify monitoring and contract management yet they can also discourage the project team from looking at other possibilities if the original scientific premise does not pan out. In one recent case, overly tight definitions triggered arguments about whether a milestone payment was actually earned even though the project team on both sides knew the prospective drug was better than anticipated.
Big partners must consider a range of factors beyond the financials, science and application too. The behavioural impact of the financial structures should be fully thought-through; for example, high back-end loading – the practice of paying most of the money in the later stages of the collaboration – incentivises rapid progress by the SME partner in theory. However in some cases, it has had the opposite effect when initial scientific progress was slow or the read-outs ambiguous, leading the SME to prioritise efforts on other partnerships with higher prospects of earlier cash flow.
Big partners need to be sympathetic to their SME partners' underlying business aims. For example, SMEs may need frequent news flow or want their people involved in certain day-to-day project decisions in order to build know-how. Failure to recognise these needs early can lead to energy-sapping misunderstandings later on.
Synergistic day-to-day working arrangements that exploit the relative strengths of both sides and reduce potential for conflict are also worth investing time developing. For example, many partnerships involve shared leadership with each side appointing parallel responsible persons for each functional area. If these pairings are misaligned or incompatible, the resulting tension retards progress and generates suboptimal decisions.
Robert Thong is the author of 'Biopharma R&D Partnerships: From David & Goliath to Networked R&D'. He can be contacted at firstname.lastname@example.org