In late spring when apple trees are filled with young fruits, the best way to ensure a healthy harvest in autumn is to thin out the fruits, which in turn strengthens the tree and helps the remaining fruits grow and ripen. While the gardener knows that the autumn harvest will be stronger for doing it, the thinning out process is painful every time.
The process of pipeline management has its (admittedly vague) similarities. Senior management and board members of emerging biopharma companies continuously debate whether and when specific projects should be partnered to maximize value creation. In many cases, the answer is derived from discussing the value to a specific program, of partnering that program. However, the source of value creation can come from a myriad of consequences of partnering a program both directly and indirectly. Thus, the question of partnering a particular program should always be part of a broader portfolio management and corporate strategy discussion.
Early or late?
This is one of the more typical questions that are asked. Should the program be partnered while in preclinical development, perhaps at candidate selection, or should it be developed to clinical proof of concept (POC) first. Clearly the economic terms will be better if partnered at POC, but to get to POC many millions of dollars will need to be invested at risk – and raised, to begin with.
With a portfolio of more than one product in development the broader decision to partner needs to consider a number of key questions:
- Do financial resources exist to move the entire pipeline forward?
- Do the right human resources exist within the company to further develop the pipeline (e.g. into late stage clinical development) or can they be cost efficiently accessed?
- With limited financial resources which pipeline programs make sense to advance in-house when considering costs, risks and value?
- What strategic value will a good partnership deal generate for the company; for example, external validation of core science? What are the optics of the deal?
- What trade-offs are reasonable to accept, concerning governance about the fate of the product or technology in question?
The answers to these questions can also depend on the type of collaboration being considered. Formulas exist that relinquish different levels of control and consequently the financial and strategic consequences of each different structure vary dramatically.
Overview of Partnership types
- A Material Transfer Agreement (MTA), not really a partnership in the strictest sense, usually provides a prospective partner the possibility to perform some confirmatory experiments. The results can validate the value of the program or chase the prospective partner off.
- A simple collaboration agreement may involve both parties investing in product development. Thus, the originator has leverage through a partner and usually retains some commercial product rights.
- An option agreement may involve a partner paying a fee (which can be used to fund further R&D) to guarantee access to selected set of rights once certain milestones have been achieved. The originator would develop the program to the milestone agreed after which the partner takes over the project development expenses. The economic terms of the agreement, which would be in force if the option were exercised, need to be pre-negotiated. This has its advantages (e.g. clarity on value from an early stage), and disadvantages (e.g. limited ability to negotiate higher value if the results of the collaboration exceed expectations, and negative signalling if an option is not exercised).
- A direct license or full program acquisition, usually involves offloading the program in exchange for clear economics with a significant proportion paid upfront. Under these circumstances an originator may be faced with minimal rights to contribute to project governance, at times having only the contractual obligation (or, rather: promise) of the partner to perform development to commercially reasonable efforts.
Resources and capabilities
Partnering is a primary approach to monetizing some of the value created in the product development process. Partnerships provide non-dilutive financing (from a purely equity perspective) and provide originators access to capabilities and perhaps even technologies that they do not have in house. The further validation performed by a partner may then also have a value accretive impact on other pipeline projects. If this were the case partnering earlier may make significant sense. Thus, partner capabilities play a key part in decision making.
Quantifying value inflection points
Take a look at value inflection points. How much value is created as specific milestones are reached and what is the effort to reach them. This paints a road map of investments-in and value-out that helps identify the path of least resistance for value creation and will help validate hypotheses regarding partnership options for the pipeline.
Build an equity story that reflects partnership
While numerous tools exist to help manage portfolio and pipeline, a key way for a biopharma company to think about programs to partner is to consider the impact of partnership on their equity story. This means putting yourself in the shoes of an investor and viewing your company from that perspective. What will move an investor and what are their expectations? What is their perspective of your probability of success and do they buy into the therapeutic approach? Not all investors are hard core scientists, but most have been immersed in drug development for many years and their instincts can often be a good reflection of what makes most sense from a partnership perspective.
The big difference between thinning apples and deciding to partner a project is that thinned apples are of very little use. The tree is stronger only because of the focus that it places on the remaining fruit. In biopharma, the partnered programs bring in financial resources, capabilities and expertise in addition to allowing a company to focus on the remaining in-house programs. Defining which program to partner and when to do so warrants significant analysis and reflection and, clearly, any biopharma development situation is so particular (and stakes involved are so large) that the question “when to partner” needs to be assessed afresh.