LONDON - With more than half of all collaborations ending in failure, companies should structure agreements that aim for the best but prepare for the worst, panelists advised during a session at the BioPartnering Europe conference held here.
About 1,000 registered attendees, recognizable by their florescent green tote bags, gathered for the two-day event at the Queen Elizabeth Conference Center overlooking Westminster Abbey. On Monday afternoon, most seats were occupied in the fourth floor Abbey Room for a partnering workshop titled "The Good, the Bad and the Ugly," which featured a discussion on what to do when a promising alliance fails to live up to its potential.
Most small biotech firms yearn for the big deal that provides up-front cash, up to hundreds of millions in potential milestones and a large partner to help with product development. But with such lofty ambitions, it's easy for many companies to forget to include in the contract ways to deal with failure and termination, said Debbie Allen, business development consultant with Andiamo Biotech, a firm that offers strategic advice to biotech companies.
Firms can be "so driven by the thought of success, they don't really think about failure," she said.
That lack of planning can hurt companies in the form of costly and lengthy litigation that puts the development process in limbo while the issues are resolved.
Alex Lewis, a principal consultant with Wood Mackenzie Ltd., said that "more than half of all late-stage deals with big pharma will fail before they get to market," so laying out a way to manage the risk of failure is critical of firms that aren't anxious to shell out big bucks to resolve a dispute that could have been foreseen when the original agreement is drafted. Those include specific mechanisms for handling any change during the collaboration, such as a shift in market conditions, merger and acquisition activity, management change at either firm, refocusing pipeline priorities and a change in either partner's cash position.
That advice takes on more importance as the number and size of collaborations continue, driven largely by big pharma, which is facing the prospect of patent expirations within the next few years and looking for ways to add new products to their dwindling pipelines. Biotechs, in turn, are looking for help with late-stage development and commercialization, as well as non-dilutive capital, especially since the cost of getting a product through development and onto the market has increased fivefold in the last few decades, Lewis said.
The average cost in the 1970s was about $150 million. In the 1990s, that average rose to about $1 billion. And, with "very few good Phase III products out there," he said, competition also has driven up licensing costs, which have increased sevenfold in the last five years.
For companies involved in long-term collaborations, Lewis provided a list of warning signs for those deals, including a lack of investment from either party, changes to external or internal factors and a lack of understanding concerning responsibilities.
If either company has to "constantly look back at the contracts to see what they have to do and their partner has to do," the deal likely will falter before it begins, he said.
But the key to forming and maintaining good collaborations - agreed upon by all three panelists, Allen, Lewis and Daniel Pavin, a partner at London-based Taylor Wessing - is communication, both internally as a company and externally with the partner.
In the event that a dispute cannot be resolved, the parties have several options, the most costly being litigation, which can run companies in the UK around £1 million (US$1.9 million) to £2 million to take matters to court under the Civil Procedure Rules. Litigation also is conducted in the public eye and can be a time-consuming process, which is "paralytic for a small company," Pavin said.
Arbitration and alternative dispute resolution both offer private solutions, though companies would have to pay for an outside arbitrator or mediator. If the outstanding issue is purely technical, Pavin recommended that firms hire an expert to come in, review the matter and make a decision. It's a method that is "less adversarial" and can preserve the overall relationship.
The downside of going that route, however, is potentially higher cost. There's also the chance, Pavin said, that one firm might use the resolution process as a guise for a fact-finding mission in preparation of litigation.
The conference ended Tuesday.