By Randall Osborne

SAN FRANCISCO ¿ What makes deals work enduringly well between small biotechnology companies and major pharmaceutical firms cannot be fully analyzed, but it¿s worth a try, said Josh Lerner, associate professor at Harvard Business School in Boston.

Lerner sparked some debate when he presented results from his study of 200 agreements between research-and-development firms and major corporations between 1980 and 1995.

¿Really unbundling it . . . one can get a certain distance and then one gets the shades of gray,¿ Lerner allowed. Still, he said, his research showed the importance of contract structure: Deals that assign the most control rights to small biotechnology firms perform better.

But Joshua Lederberg, professor emeritus of molecular genetics and informatics at The Rockefeller University in New York, said he ¿couldn¿t help but look at your correlation studies with the eye of the epidemiologist, wondering how in the world you could unconfound¿ cause and effect.¿

The structure of a given agreement ¿is going to depend on the relationships of the parties, and what they see as their comparative advantages, and so forth,¿ said Lederberg, who had addressed the conference earlier.

¿So, [the success of the deal] may be more symptomatic than causality-driven,¿ he said. ¿How could one get answers to that? Have you talked to capital providers about circumstances under which they would voluntarily forbear control rights? Do they have any insight that they might do better by grabbing less? That might be a good avenue to see which comes first.¿

Lerner said the ¿variety of tools¿ used in the study did not allow for that. The exchange came during Allicense 99, a biotechnology partnering conference here.

Mark Edwards, managing director of Recombinant Capital, which sponsored the conference, acknowledged the difficulty of such research.

¿I haven¿t seen so much recently, but for a while I saw quite a bit that said, These deals will all go away,¿¿ Edwards said. ¿And there are reasons from an academic perspective they would all go away,¿ he said, citing the ¿the unknowns, the uncertainties, the imponderables¿ in collaborations, the ¿bad things that weren¿t anticipated in the contract¿s formation.¿

Nay-sayers largely have gone away themselves, Edwards added.

¿Those academics have sort of wandered on to other places, because we¿ve been at it for so long,¿ he said. What remains is to determine why and how the ongoing alliances ought to work.

¿That¿s what [Lerner¿s] research is trying to get at, and with some success, given the data we¿ve been able to give him so far,¿ Edwards said.

Lerner said the ¿entrepreneurial¿ way biotechnology companies often approach decisions, compared to the more measured ways big pharmaceutical firms go about them, can create challenges all around.

¿Some of the biotech companies I¿ve had the pleasure of interacting with have been unstructured to the point of perhaps being on the verge of chaotic,¿ he said.

But the study was able to rank the matters important to control, Lerner said. Pace of development, choice of targets and prioritization related to the research and development were more critical than the issues around control of patent litigation, he said.

Also speaking at the conference was Louis Lavigne, executive vice president and chief financial officer of South San Francisco-based Genentech Inc., whose topic was ¿A Biotech Agenda for the New Millennium.¿ Edwards said that expressed the general theme of the conference.

A tighter financial market, he said, will drive the industry even harder to join its forces.

¿Cash is still the key to remaining in our industry,¿ Lavigne said. ¿One product is not enough to succeed, in virtually every case in this business.¿ Early-stage biotechnology firms need partners to survive, he added.

¿What¿s the message for them? My feeling is that it¿s, Plan a date to consolidate,¿¿ Lavigne said. n