Last Updated on
March 3, 2023
By
Excedr
While a partnership between two or more companies typically refers to a formal agreement to join in business activities, often sharing assets, profits, and liabilities, that may not always be the case.
The exact structure and terms of the partnership—for example, the responsibilities of each company, the percentages of profit, the reporting structure, and the duration of the agreement—are defined through discussion and negotiation and result in a partnership agreement.
In the life sciences, large pharmaceutical and biopharmaceutical businesses often partner with smaller biotechnology and pharmaceutical companies and academic institutions to develop a drug candidate that shows significant signs of promise or already demonstrates efficacy in preclinical studies or early clinical trials.
For pharma companies, these partnerships or acquisitions give them access to a new drug, therapy, or technology that has been de-risked and can diversify or lift a stagnating pipeline and lead to FDA approval and a new channel of revenue. For biotechs, it means accessing the resources necessary to carry their candidate or technology through the later stages of its development.
However, the dynamics of these partnerships have changed as biotechs gain more and more access to capital. This, paired with the reality that they are often more productive when it comes to R&D, makes it more difficult for biotech startup founders to know whether a partnership is the best route.
So while Big Pharma is reliant on collaborative alliances with small, innovative biotechs, do biotechs really need to partner to develop a drug? With increased access to research tools and lab equipment, expertise, and a large pool of investment capital, do founders still consider a strategic partnership worthwhile? When is a pharma company partnership the best route to take?
In this article, we will discuss how partnerships between pharma companies and smaller biotechs or academic institutions can help the latter, the various types of life science partnership models, what these agreements entail, and how to find the right partner.
Strategic partnerships and licensing deals between large pharmaceutical companies and smaller biotechs have always been a part of the drug development ecosystem. There is a complementary nature to these partnerships, as each side can offer something to the other.
In fact, many approved drugs were partnered or acquired (70% of the nearly 3,000 drugs in phase III clinical trials come from emerging drug companies, with their share of approved drugs on the market growing as well).
However, the dynamics of these partnerships have shifted in recent years as access to capital in biotech has increased. Furthermore, biotechs are proving themselves to be more productive when it comes to R&D.
Biotechs often excel in R&D, and early-stage, preclinical development, and their abilities to specialize in and research a specific therapeutic or sub-therapeutic makes them quite nimble, an invaluable characteristic to the larger players in the pharmaceutical industry who often fall behind when it comes to innovation or fail to expand into new and developing therapeutic areas, such as oncology and gene therapy.
Through highly productive R&D, biotechs have continued to keep large pharma pipelines full with promising small molecules, novel therapeutics and advanced therapies, and large molecule biologics, something that these pharma companies benefit from significantly.
However, many biotechs lack the capital necessary to support long periods of R&D, as well as the resources and experience in late-stage development, clinical trials, and commercialization, to successfully get a drug candidate to the market on their own. This is where pharma partnerships prove to be the most valuable.
A pharma partner can provide the resources, experience, and infrastructure necessary to clear the hurdles of clinical development, expand the biotech’s geographical reach, and even shoulder commercialization costs, making production and distribution more achievable on a large scale.
Successful partnerships and strategic alliances have recently helped fuel significant contributions to drug development and healthcare. From drug discovery, preclinical studies, clinical trials, and FDA approval to a host of other regulatory and legal issues and post-FDA approval marketing efforts, companies have worked together to bring innovative drugs or therapy to market that help improve patients’ lives.
Partners should have the same strategic vision for your technology or assets, the right technical expertise and people to support its development and push your program/assets along, and enough capital to fund clinical trials. But finding a partner that suits you best takes background research. Once you’ve found a potentially good fit, it’ll be up to you to prepare for the due diligence processes that large pharma and biopharma companies apply to strategic partnering opportunities.
Don’t spend time trying to partner with companies that have no interest in your product or technology. Doing so will lead to wasted time or misaligned partnerships. Instead, research the company’s funding and partnering interests first. With proper background research, you can build a list of potential partners who will understand your product, know how to help you develop it, and recognize your business and operational needs.
Large pharmaceutical companies typically make it easy to find out what areas of drug development they are interested in. You can perform an online search for a large pharma company’s name and the word “partnering” and will most likely see results for a dedicated web page for partnering or business development.
For example, AbbVie has a partnerships page on their website that outlines their approach to partnering, their scientific focus, and how you can partner with them. Another example is Roche’s partnering page, where the company’s approach to partnering with pharma and diagnostic companies is explained thoroughly.
Meeting with people and making a personal connection is still one of the most powerful methods of establishing a working relationship or, at the very least, some credibility. One way of meeting potential partners this way is by presenting at a conference or dealmaking event—specifically, one that an ideal pharma partner is likely to attend.
It is an excellent way to communicate the data you have collected, the milestones you’ve hit, and the company development and commercialization goals you’ve established concisely and interestingly. You can use the presentation to establish direct contact with potential partners in attendance and pass out your contact information to any listeners who might be interested in following up.
Additionally, simply attending partnering meetings (sometimes referred to as partnering days) can present an opportunity to set up dedicated one-on-one sessions with companies that you are interested in partnering with. Numerous biotechnology industry organizations, accelerators, and incubators host pharma partnering and business development teams to meet with local startups.
Tapping into these events means you have the chance to interact directly with the teams dedicated to partnering with pharma companies.
Remember that you should still research the company to see if there is potential for partnering. Doing so will help you avoid wasting any time. But, the goal of attending a conference can be as simple as making partnering teams aware of your product or technology.
Do you have robust data that you can share? You might consider submitting a paper to a journal to see if they will publish it. Getting your paper published by a well-respected journal will showcase your product or technology and raise awareness. It can also represent validation from the scientific community of your focus area.
If there are panels and webinars you can join as a speaker, consider doing so! These platforms can be an excellent place to introduce yourself and showcase your company, its assets, and the science behind those assets. You can use the panel or webinar to answer questions that potential partners may have.
A well-designed and regularly maintained website is another excellent way to introduce yourself to potential partners. This means having a site that thoroughly yet concisely explains who you are, what you do, and how you do it. It must be easily navigable and provide a way for people and partnering teams to contact you if they want.
You can even consider investing in search engine optimization (SEO), where you create content, such as blog posts or web pages, for specific keywords relevant to what you do and what you offer. You’ll show up in Google’s search results whenever anyone searches for those particular keywords.
Although SEO is a long-term project to undertake, it can provide valuable traffic to your website and make it easier for partnering teams to find your company without going to conferences or partnering days.
Once you’ve found a pharma company that wants to potentially partner with you, discussions about the partnership agreement will follow. They will involve several questions your potential partner will want to know the answers to, so it’ll be in your best interest to prepare as thoroughly as possible.
These questions may feel very similar to those asked by venture capital firms who have considered investing in your business, so you may have a lot of these answers on hand. They often include questions like:
Being prepared to answer questions like these honestly and thoroughly, without underselling or overselling yourself, will put you in a better position for partnering. Putting together or using a pre-existing slide deck is also helpful, as it can summarize your company’s story and adequately represent all your data and goals. Having a slide deck available gives the potential partner the ability to review your company afterward.
If you enter into a partnership agreement with the company, there are some ways to help maintain a successful partnership. These include:
Do your best to understand and evaluate the partnership agreement before and after signing it, as doing so will help you ensure the terms of the contract are to your benefit. Even though you may not have an entire legal team to review the agreement, it is crucial to fully evaluate the terms. Doing so will ensure you aren’t entering into an unfavorable partnership.
Next, establish clear communication so that you and your partner are on the same page and have a designated channel to address any needs, expectations, or concerns you may have with your pharma partner.
Lastly, designate a point person that you can reliably communicate with, as managing the partnership will be a project entirely of its own. Having a point of contact will reduce the chances that something is overlooked.
There are different ways partnership agreements can be structured, which we’ll refer to as models here. These models include strategic investments, joint ventures, co-development relationships, license agreements, and co-marketing agreements, among others.
Depending on your company focus, what you’re developing, and your goals, there might be a specific partnership model that suits your goals best. Being familiar with each model can help guide you through partnership discussions.
A collaboration is an agreement between two or more companies to cooperate to achieve a specific goal while remaining independent of one another as businesses. These partnerships can cover projects in exploratory phases of research or the early stages of clinical development.
Collaborations can also take the form of open-source competition and research submissions, which can be used to attract potentially worthwhile, innovative ideas from startups and smaller companies.
Like collaborations, strategic alliances are agreements between two or more companies to cooperate on a project together (while remaining independent). Strategic alliances are formed for numerous reasons.
For example, to work on R&D together; take a drug candidate from preclinical studies or early clinical trials to late-stage clinical development and commercialization, or expand into a new market together. What makes a strategic alliance attractive is the ability of both parties to remain independent while sharing the risks and benefits of the project.
A license agreement is another type of partnership that pharma and biotech companies can make, albeit an agreement that usually requires less collaboration than collaborations, strategic alliances, etc.
The product’s developer, otherwise known as the licensor, gives another company, the licensee, the exclusive rights to use the licensor’s technology or market and sell their product(s). Licensing occurs at many different stages of product development and generally involves up-front payments to the licensor by the licensee.
The licensor benefits from a license agreement by gaining access to the resources and capital needed to bring a drug to market, while the licensee benefits by gaining exclusive rights to a product that will potentially do well on the market without having to put in the costs to develop the product.
A co-development agreement is an agreement between two or more parties to contribute various resources, such as staff, capital, intellectual property (IP), and other assets, to the co-development of a product or technology.
Typically, the agreement establishes a project team, including both companies’ members, who work together to develop the product. The idea behind co-development agreements is that one company alone may not be able to bring a product to market. In contrast, the two businesses can potentially achieve much more by working together. These deals are enticing because both parties stand to benefit if a product is successfully developed.
The terms and structure of a co-development agreement can differ. In some cases, the parties agree on a specific percentage of ownership they will receive for the product. In other cases, the parties will decide who gets the rights to commercialization in a particular geographical area, giving rights to another geographical region to the other business.
The division of ownership typically applies when both parties assume the project will be licensed at a later time. Splitting rights geographically usually involves when the two companies are set on commercializing the drug themselves.
A joint venture, or JV, is a business entity created by two or more companies that agree to pool resources together to accomplish a specific goal. This means the companies involved contribute anything from assets to staff to IP, share in the ownership and governance of the new entity, and the risks and benefits. It is typically seen as a strong commitment between partners. The joint venture is then responsible for developing a product or technology using the assets and IP contributed.
Because joint ventures are a highly integrated, collaborative undertaking, they often involve a lengthy negotiations period. And while discussions can take some time—figuring out who puts in how much of this and who gets what percentage of what—the structure of the joint venture can be flexible, allowing both parties the room needed to achieve the mutual goals agreed upon
A strategic equity investment—or, simply, an equity investment—involves a company making an investment in another company in exchange for equity in that company. These partnerships are most often made between a large pharma company with an investment, or venture capital, arm and a smaller biotech startup in need of funding for R&D efforts.
Based on the investment deal terms, the partnership will involve varying degrees of integration. However, it can be the case that a strategic equity investment is a relatively hands-off transaction that is accomplished in good time and doesn’t involve much integration between the investor and the recipient company.
Equity investments are unlike other partnerships that involve collaboration or an alliance in that one company receives equity in another. Because of this, additional terms may be involved in the transaction, including the appointment of a member of the pharma company to the recipient company’s board of directors, as well as additional rights the investor may receive, such as preferential treatment in any future investment rounds.
Acquisitions involve one company taking complete control of another business, its assets, and several other things the business may own, such as intellectual property. While acquisitions aren’t necessarily partnerships, many of them result from a previous, successful partnership, so it’s worth mentioning these here.
For many large companies, an acquisition can be a good option for filling out their drug pipeline, expanding into a new area of interest or market, accessing an innovative technology, securing new supply and infrastructure, or even tapping into a new channel of distribution.
A buyout can be great for a company being acquired for a couple of different reasons. It’s often beneficial to the founders, investors, and any other company owners, whose shares in the company are bought out by the acquiring company, potentially leaving each shareholder with a chunk of change they can use for other endeavors.
It can also be beneficial for the company itself, depending on the goals and plans of the acquiring company. For example, startups that run out of enough working capital to keep up growth and market expansion now have new infrastructure and capital to support continued growth, expand into new markets, and beat out the competition.
A partnership may not necessarily be the key to success when discovering and developing a new drug candidate. Individual organizations are still a source of new drug discoveries and new molecular entities (NMEs) entering clinical trials.
However, while individual achievements will undoubtedly continue, drug approval success rates continue to fluctuate and, it can be argued, have even declined. Because of that, collaborative efforts between the big players of the pharmaceutical industry, smaller biotechs, and academia continue to increase.
This increase in the difficulties of drug development, as well as a continued rise in partnerships, shows the importance of collaboration and partnership in a tough industry, where it takes years and millions, if not billions, of dollars to discover a drug and get it to market.
If you’re a small biotech startup considering a pharma partnership, there’s a big chance the partnership will significantly benefit you and your endeavors. However, entering into a partnership with a large pharmaceutical company will require providing granular research and development data on your end to show them your progress and that you have something worth investing in and developing.
But, remember that it’s highly recommended to consult with a business development consultant and financial and legal advisors if you can afford it. When you enter into discussions with a partner, it’ll be essential to understand the terms and structure of the agreement. That way, you know what will be expected of you in exchange for your partner’s resources and experience through clinical trials and larger business development goals.