As a regular reader of PharmaDeals Review you will appreciate the increasing importance of deals and alliances to the biotech and pharmaceutical sector. Second only to equity financing, strategic alliances and licensing deals provide crucial cash flow to biotech companies. According to our PharmaDeals® Agreements database, in 2004 a record number of deals (3094, of which 2625 were licensing related) were signed. The key question is how many of these will be successful for both parties - and in any case how do we measure success? Inevitably, most of these deals will fail owing to natural attrition of the products involved as they progress through clinical development. Others will fail because of poorly constructed or inadequately considered agreements. It is this last issue that still needs the greatest attention for those who live and die by these deals, i.e. those in the pharmaceutical industry!
The key issues of partnering success, and in particular of negotiating position, often only become apparent to companies when they start the process of negotiation itself. In particular, it is only when they are in discussions with their potential partners that they discover that the options for negotiation can be limited. In fact, negotiators can find themselves being hostage to fortune. Typically, they find that they have few alternatives to the terms and conditions of the agreement under negotiation, which can leave them in a very weak negotiating position.
"The key question of partnering empowerment should be addressed on the day the biotech company is formed and in every business plan and strategy document generated by the company from that day onwards."
So who is responsible for empowering - or even disempowering - negotiators? Can companies change the circumstances or environment in which they negotiate?
The answer to this question lies in the past. The key question of partnering empowerment should be addressed on the day the biotech company is formed and in every business plan and strategy document generated by the company from that day onwards. In essence, it is the duty of the CEO and the Board of Directors. Partnering should be considered in light of other company cash flow issues, including future equity financing, and the balance and timing of each of these events ought to be orchestrated to achieve the maximum position for negotiation in each of these rounds.
Unfortunately, many companies have not thought through the negotiation environment that they will face, and have left themselves with very few options for flexibility in negotiation - or even the prize that most negotiators wish for: the ability to walk away from an unpalatable deal.
Fintan Walton
Chief Executive Officer
PharmaVentures Ltd