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The biotech industry thrives on partnerships, as they help to drive innovation through the sharing of knowledge, expertise, and resources. There are many different types of biotech partnerships on offer, each with its own advantages and disadvantages. Which type of partnership a company goes for is very much dependent on both its individual needs and also how much independence it wants. In this article, we take a look at eight different types of biotech partnerships. To give us some guidance, we spoke to three industry experts who explained what each one entails.
Table of contents
Research collaborations
A research collaboration is when two or more companies enter into an agreement to collaborate on specific research products with the aim of advancing the development of a drug candidate or platform technology. This type of biotech partnership is most common in the exploratory phases of research and in early-stage clinical development. It is a great way to accelerate innovation by exchanging knowledge and expertise.
According to Kaan Certel, chief business officer (CBO) at Omega Therapeutics, the primary advantages of research collaborations are that they further validate the potential value creation of the companies’ technologies, platforms, or programs, and they provide companies with access to additional scientific expertise and proprietary materials. Plus, there are also financial benefits included, as collaborating in this way reduces the costs of research through a shared structure, explained Certel.
Research collaborations do not generally come with too many downsides. This is perhaps largely because, as Mihaela Vuksic Munitic, Vice President of Strategic Alliances at Er-Kim, pointed out, they do not involve the direct procurement of products or services from an external entity. “Instead, they are involved in the exchange of knowledge that ultimately results in the creation and commercialization of novel pharmaceutical products.” This means that the partners remain independent.
However, Dave Latshaw, former lead artificial intelligence (AI) scientist at Johnson & Johnson and current chief executive officer (CEO) of BioPhy, noted that this type of collaboration could potentially result in disputes over intellectual property (IP) ownership and there could also be some difficulties when it comes to managing timelines across different organizational structures.
Strategic alliances
A strategic alliance is essentially an arrangement between two or more companies to undertake a mutually beneficial project while each retains its independence. A company may enter into a strategic alliance to expand into a new market, improve its product line, or develop an edge over a competitor. Furthermore, partnering with an established firm can really help validate a company’s technology or product.
“The partnership represents a significant, often critical portion of each organization’s business and is built on a high degree of transparency and trust,” explained Vuksic Munitic. “Partnerships range from very basic supply agreements to complex investments in production facilities that the partners jointly build and run. Strategic alliances have a predefined end-point (time duration, level of investment/return, etc.).”
Latshaw explained that strategic alliances are beneficial because they combine the complementary strengths of different organizations, spread risk and costs across multiple parties, and increase innovation potential through diverse perspectives.
However, he also pointed out that potential conflicts could arise regarding decision-making and strategic priorities and there could be challenges in aligning different corporate cultures. The process of managing shared projects can also be complex. In fact, Latshaw said that a strategic alliance “often involves complex contracts defining roles, responsibilities, and profit-sharing arrangements.”
Licensing agreements
A licensing agreement is a common type of biotech partnership in which one company (the licensor) grants another company (the licensee) rights to use its intellectual property. This is typically in exchange for upfront payments, milestone payments, and royalties on sales, based on the success of the product. Vuksic Munitic explained: “This structure is suitable when a licensor wants to focus on a particular drug or technology and may lack the resources or expertise to develop and commercialize it.”
She noted that this type of agreement requires less collaboration than other types of partnerships and is used extensively by universities and research laboratories to generate revenues from their research activities, as well as by biotech companies that own underutilized intellectual property.
Latshaw added that the licensor is often a smaller biotech company or academic institution with promising early-stage assets, while the licensee is typically a larger pharmaceutical company with extensive development and commercialization capabilities.
With licensing agreements, companies can decide to enter into either a non-exclusive agreement or an exclusive agreement. “The choice between exclusive and non-exclusive rights can significantly impact the value and strategic implications of a licensing agreement,” commented Latshaw. “Exclusive rights provide the licensee with a stronger market position but typically come at a higher cost, while non-exclusive rights offer more flexibility for the licensor to maximize the value of their IP across multiple partnerships.”
Essentially, Latshaw explained, in an exclusive agreement, the licensee is granted sole permission to use the intellectual property within the specified scope (e.g., territory, field of use), the licensor cannot grant the same rights to any other party within that scope and typically cannot use the IP themselves in the specified area, and this arrangement often commands higher fees and royalties due to the exclusivity.
Meanwhile, Latshaw continued to explain that in a non-exclusive license agreement, the licensee is granted permission to use the intellectual property, but not on an exclusive basis. The licensor retains the right to grant similar licenses to other parties and can continue to use the IP themselves. “This arrangement usually involves lower fees and royalties compared to exclusive licenses,” said Latshaw.
Joint ventures
A joint venture is a partnership between two or more companies pursuing a defined goal or project while preserving their distinct identities.
With a joint venture, two or more companies collaborate to create a new company in which each owns shares. It is often a good partnership to get into when the companies involved are trying to enter a new field that they are not currently active in, or when an asset is so unique – and therefore risky – that the best option is to spin it off.
“Often formed to leverage each participant’s strengths, joint ventures tackle objectives that might be formidable to achieve independently,” said Vuksic Munitic. “These collaborations manifest in various forms, such as shared research and development efforts, market entry strategies, or the execution of large-scale projects demanding diverse skill sets.”
This type of biotech partnership allows for deeper integration, and there is often a lengthy negotiation period, especially as the agreement requires careful structuring of governance and exit strategies. Other advantages include that it allows companies to enter new markets or develop new technologies more efficiently, there is shared ownership and governance – meaning shared risks and benefits – and it offers a flexible structure that allows both parties to achieve mutual goals.
According to Latshaw, the disadvantages of joint ventures are that they are complex to set up and manage, there is the potential for disagreements between parent companies, and there are challenges in exiting the venture if objectives happen to change.
Co-development agreements
Co-development agreements are when two or more companies collaborate to jointly develop a product. According to Latshaw, these agreements often involve a smaller biotech company partnering with a larger pharma company, or two mid-sized companies combining forces. The aim of this type of biotech partnership is to share the substantial costs and risks of late-stage clinical development and commercialization.
Vuksic Munitic said: “This structure is suitable when both parties possess complementary expertise and resources that can enhance the chances of success. They share responsibilities and costs associated with research, development, manufacturing, and commercialization. The agreement defines the ownership of intellectual property, financial considerations, and other important aspects of the co-development process.”
Latshaw said that these partnerships are beneficial due to the fact that they spread the financial risk of development, combine complementary skills and resources, and potentially offer a faster path to market. Plus, both parties ultimately benefit if a product is successfully developed. The collaboration between Pfizer and BioNTech to create the COVID-19 vaccine is an example of one of the most successful co-development agreements of all time.
However, there are some downsides to co-development agreements. As Latshaw also pointed out, they involve complex profit-sharing arrangements and potential disagreements on development direction can arise. Therefore, these partnerships require a clear definition of decision-making processes and profit-sharing mechanisms.
Manufacturing agreements
When one company produces products or components for another company, this is called a manufacturing agreement. “Manufacturing and supply agreements are traditional fee-for-service arrangements, usually between biotech companies and CMOs [contract manufacturing organizations],” explained Vuksic Munitic.”In fee-for-service, the biotech company purchases capacity on an as-needed basis from a single preferred partner or network of providers.”
According to Latshaw, the clients in this scenario are typically biotech or pharma companies of all sizes, especially those without in-house manufacturing capabilities. Meanwhile, the providers are generally specialized CMOs or larger pharma companies with excess capacity. “Clients seek to reduce capital expenditure and focus on core R&D, while providers aim to maximize utilization of their facilities,” commented Latshaw.
Vuksic Munitic explained that these types of biotech partnerships can help maximize commercial opportunities and get products to market more quickly. It also means that biotech and pharma companies can avoid the large capital investment needed to build or expand their own capacity.
On the other hand, manufacturing agreements mean that companies then become dependent on their partners’ manufacturing capabilities and have less control over the production process.
Mergers and acquisitions (M&A)
Mergers and acquisitions (M&As) are extremely popular in the biotech industry, with many of these deals culminating in bringing revolutionary treatments to market. “Mergers take place when two companies of a similar size combine to create a new company. An acquisition, which is more frequent in the biopharma industry, occurs when a larger company buys a smaller company and absorbs its assets and liabilities,” explained Certel.
He said that M&A is generally pursued with long-term value creation in mind but, in the short term, the buyer may need to manage staffing and headcount optimization when combining organizations, increased operational expenses, and the potential for increased regulatory oversight before the deal closes.
Certel added that, for the company being purchased, an acquisition provides value recovery of initial investment for shareholders. On the other hand, M&A offers significant value addition to big pharma pipelines during times when new revenue will be needed in the future. “This is particularly intriguing for global companies that have big chunks of revenue that will be affected when drug patents expire, allowing for more competition in the marketplace via biosimilars and generics.”
Vuksic Munitic pointed out that, although M&A deals are not necessarily partnerships, many of them result from a previous, successful partnership. She said that these deals primarily benefit the founders, investors, and other company owners.
Equity investments
An equity investment refers to money being invested into a company in exchange for the ownership of company shares. Vuksic Munitic explained that, in this situation, the partnership will involve varying degrees of integration based on the investment deal terms. She added that it often involves the appointment of a member of the investing company to the recipient company’s board of directors, and the investor may receive additional rights, such as preferential treatment in any future investment rounds.
Certel commented that equity investments provide a very strong indication that the investing organization or individual believes in the potential of the asset, platform, or technology. Additionally, they offer a creative way to shore up funds. “This type of investment can be a lifeline for biotech companies that are strapped for cash,” he said.
However, Certel also added that equity investments add to the existing number of outstanding shares, which is dilutive to existing shareholders.
Biotech partnerships: The road to success for many companies
Biotech partnerships are the cornerstone of the industry and bring many benefits to the parties involved. We often see large pharma and biopharma companies partnering with smaller biotechs to develop a drug candidate that shows extreme potential. These biotech partnerships give pharma companies access to a new drug or technology that can diversify or re-energize a stagnating pipeline and lead to approval and a new source of revenue. And, for biotechs, it means accessing the resources they require to carry their candidate or technology through the various stages of the development process. Ultimately, providing a platform for sharing work and expertise can help speed up the process of bringing a product to market.
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