The deal flow in recent years demonstrates an increasing trend away from the royalty model toward 50–50 shared economics,
with the smaller company actively participating in the project and retaining equal control over critical development decisions,
including determining where clinical trials will be conducted, deciding who will provide the clinical supply material, and
who will take the lead in interacting with the regulatory agencies in the US, Europe, and other major markets.
If a copromotion arrangement (usually in the US market) is added to the mix, then the deal becomes more complex, but also
more exciting for the emerging biotechnology company. In a copromotion agreement, the small biotech company can bargain for
the right to participate in the marketing and promotion of its drug product in the largest pharmaceutical market in the world—the
Fifty-fifty codevelopment arrangements or copromotion deals represent attractive options for smaller companies who want to
control their product's destiny. However, these types of deal structures are much more complex than those based on the larger
pharma partner taking full responsibility for product development and commercialization. Consequently, these evenly split
collaboration agreements require extensive planning and detailed negotiations.
Companies considering such a partnership or alliance with pharma or biopharma must consider a number of critical factors,
- Financial modeling and forecasting
- Control over development
- Relationship between partner companies
- Planning for a range of outcomes
FINANCIAL MODELING AND FORECASTING
Can the smaller company afford a 50–50 cost sharing arrangement? This type of structure means, not only sharing product revenues,
but also the expenses, which can be considerable. Companies contemplating shared development cost arrangements must do their
financial homework in the form of cost models, a risk-adjusted net present value analysis, and a detailed cash flow forecast.
At each step of the analysis, be sure to identify the assumptions embedded in the financial forecasting. Remember that each
assumption about the product's development path, launch time, and commercial market potential will be tested by the larger
pharma partner during its due diligence.
As part of the analysis, companies should consider the size of the market opportunity, potential market share over time as
well as development, marketing, and other commercialization costs. Product pricing and pay or reimbursement issues should
also be factored into the analysis. Finally, the analysis should incorporate realistic development, approval, launch, and
peak sales time lines. Of course, the competitive environment, and its potential impact on these time lines, also should be
included in the analysis.
The long-term nature of life sciences collaborations and strategic alliances makes these arrangements inherently unpredictable.
It is important then to consider multiple scenarios when completing the financial analysis. The small biotech company should
perform a sensitivity analysis varying the ramp-up period, market share attainment, and cost scenarios. Biotech companies
also need to carefully consider the timing of cash inflows and outflows because cash availability often is the most significant
In a copromotion deal, negotiations will need to cover, among other things, financial issues such as allocation of promotional
costs and expenses, number and quality of detailing, responsibility for sales force training, and monitoring and auditing
of promotion expenses. Historically, biotech companies have wanted to play a key role in promoting and marketing products
to learn from the process and to build their own commercial infrastructure. But a key question that biotech companies should
ask before making any decision is, "Do we know what we're getting into?" It is easy to underestimate the cost and resource
requirements associated with a copromotion structure. Building a sales force and a marketing team, and establishing the brand
for the product can cost a company millions of dollars—before any product sales revenue is ever recorded.
The PDL BioPharma (Fremont, CA)/Roche (Basel, Switzerland) global asthma collaboration is an example of a biotech or pharma
deal that includes both a 50–50 shared economic structure and a copromotion arrangement. This deal amply illustrates the complexities
that a biotech company must address to successfully negotiate and execute such deals.