Partnership break-ups don’t cause even damage!
For most emerging bio-pharma or medtech companies, establishing a development or commercialization partnership is a core component of their strategic plan, and, sealing the deal is cause for much celebration. While hard work and a number of all-nighters may go into signing an agreement, ensuring the partnership achieves its objectives and sails across the finish line is often harder, and often a bumpy ride.
Business Development professionals are focused on the hunt. When the deal is done the project team and alliance managers need to manage the actual partnership as it moves forward. The focus during the hunt is to find a partner who, by virtue of entering into the partnership, validates the company’s science, paying for access to a specific project or platform and thus sustaining the continued investment into other projects. When a partnership goes well it is usually win-win. However, when partnerships go the wrong way the result is destruction of value and, unfortunately, the destruction disproportionately affects the technology provider in the relationship. Many times, when this happens, looking back in retrospect, clues may be found already in the earliest team discussions. Consequently, best practice when seeking and negotiating with potential partners is not just to facilitate their diligence of your company but to perform your own.
Looking for the signs early.
Love is blind. We see all the wonderful aspects of a potential partner but often none of the flaws. These become visible later in a relationship and are aggravated by other problems that arise. Differences of opinion, competition, new opportunities for one of the partners but not the other. In business development it is important to step back during the dating process and take another look at a prospective partner to identify those flaws that may undermine the value that your company is seeking from the relationship. All projects may fail, so it is not just about what happens if failure occurs. It is about what might precipitate failure with a prospective partner. Consequently, prospective partner diligence should be a core component of every partnership search and a capability of every BD team.
In the beginning, the focus is to support their diligence of your technology. Detailed presentations, access to the data room and third-party consultants calling to ask further questions. Soon the conversation needs to turn to planning the future of the partnership. These discussions represent the first real opportunity to diligence them. Ask questions, understand their aversion to risk and what their development philosophy is. Establish the key milestones that need to be reached to transition to the next development stage and get commitment to those transitions as much as possible. If there is resistance to any degree of commitment, maybe that is a signal that they want to keep all of their options open. That is not a win-win mentality.
Decision making agility
It may seem like not your problem, but it will become one. How empowered is the team to make decisions and what is the corporate culture with respect to accountability? Can the prospective partner team commit to development plans and investment proposals? Who is the champion and does the CEO fully back the partnership? Is the CEO empowered or does the CEO need to validate every decision with the Board? All of these questions can be answered by careful observation of the interaction between the two scientific/clinical teams. Often, the BD lead does not participate in these technical discussions, at least not in detail, leaving it to the experts, but the BD role in these meetings is precisely to diligence the posture and behaviour of the prospective partner.
Negotiation is the last opportunity to identify concerns. Perhaps it is late, but better to leave a person at the alter than start on a terrible partnership together. If during negotiations the counterparty is seeking to cover far flung risks and painting unreasonable scenarios, forcing the agreement to bulge into an epic document, that is a clear warning sign. In one negotiation one may be in parallel discussions with two companies for the same asset. With one company the agreement may expand to 100 pages covering scenarios that were remote at best, while with the other company the agreement may be half as large. Clearly the writing would be on the wall.
The final word
It has been said that “Love is giving someone the power to destroy you…but trusting them not to”. Fair enough, but in business it is worth doing diligence of your prospective partner and not just of their capabilities and track record.
Last not least, the strategic importance of striking “a” deal should normally not overweigh the importance of striking the “right” deal – which includes “with the right partner”.