Strategic Asset Partnering for Bioscience SMEs—Planned or Opportunistic?

Partnering assets with large pharmaceutical, diagnostic or medical device multinationals is a critical part of the business model for many small and medium-sized enterprises (SMEs) in the life sciences. But does it make sense for an SME to have a clearly defined partnering strategy or should it be opportunistic?

The Usual Scenarios

Choosing the right large multinational partners—those that have complementary strengths and goals, as well as useful skills and assets—is a critical success factor for many bioscience SMEs. The leadership teams of bioscience SMEs typically adopt one of two distinct approaches in evaluating potential partnerships:

  1. Develop up-front a detailed partnering strategy with a shortlist of target partners and specific acceptable deal parameters, and then triage all prospective deals against those criteria.
  2. Be mostly opportunistic; any prospective deal that is in their company’s broad scope is evaluated on its individual merits.

In the theory, the first approach is the most logical. And this is often the route taken if many in the leadership team had originally come from larger companies with formal strategic planning processes. This approach is also usually very appealing for those on the SME’s board with backgrounds in large multinational corporations. But in practice, the detailed partnering strategy is often not very effective, as many good opportunities cannot be foreseen and the temptation to become overly detailed—and thus overly restrictive—is nearly inescapable.

On the other hand, being mostly opportunistic often leads to a situation where each asset is partnered with the first large “brand name” multinational corporation that comes along, especially if there is a significant up-front payment involved. In many such cases, the longer-term ramifications are not fully considered, nor are the operational and cultural fit. The lure of positive early cashflow and impressive-sounding investor news flow is too much to resist.

Planned Opportunism

In my experience, a path based on planned opportunism can often make more sense—a hybrid approach in which a high-level partnering strategy is developed initially but the decision makers are open to adjusting the strategy if an opportunity appears that is too good to pass up or if emerging practical realities suggest that their initial thinking was unrealistic. The hybrid approach is the most pragmatic—it improves the chances of avoiding a catastrophic deal by focusing the search process but allows for unforeseen possibilities.

As a foundation for this kind of strategic asset partnering approach, the SME’s leadership team must first consciously align itself on the organization’s strategic aims—what does the team and the SME’s owners really want for the organization in the long term? Once this is developed (which could take a few days or a few months depending on the circumstances), a high-level partnering strategy is developed in two steps—the corporate partnering strategy and the corresponding asset partnering strategies.

The corporate partnering strategy describes the total portfolio of assets potentially available for partnering, sets out in broad terms the role each asset plays in the organization’s long-term strategy, and prioritizes them for partnering. For those who have (and can generate more) protectable intellectual property (“IP”), each asset comprises a bundle of distinct IP, activities, and related in-house knowledge, skills, and tools. For example, a project to generate a candidate drug for an orphan indication could be one asset; its strategic role might be to support a business goal to create a product that the company could market in North America with its own sales force. The liposome-based drug delivery technology developed to support that project could also be split off as a separate technology platform asset that could serve as a cash generator by being licensed to as many different partners as possible.

For CROs that cannot or do not want to generate protectable IP, the asset is simply a package of related in-house knowledge, skills, and tools; for example, a set of services and corresponding tools to assess the safety profile of a prospective drug molecule could constitute a partnerable asset. Such an asset is not necessarily a commodity, since particular skills may be scarce and some tools—such as, for instance, an ex vivo assay based on a unique source of tissue samples—cannot be easily replicated. Even those companies that do generate protectable IP might find it worthwhile to define unprotected assets that can generate revenue via CRO-like arrangements.

The asset partnering strategies which then follow through from the corporate partnering strategy define preferred partnership models and prioritized partner archetypes for each shareable asset. For example, the partnering strategy for an anti-inflammatory candidate drug might read something like this:

  • Partner should be a multinational pharma with a long-established franchise in inflammation-related diseases that has launched new, innovative products in recent years.
  • Partner must have skills in exploratory clinical development, including the translational tools to identify the most appropriate indication for the fastest route to market.
  • Partnership model should be an arrangement in which our people get to participate in (or at least shadow) the development of the clinical and commercial plans by the partner. It should not be a straight IP transfer with no further involvement since we have a strategic aim to develop our own clinical and commercial capabilities in the future.
  • Financial terms must cover all the development costs including in-house costs for the project so that we do not need to raise additional investor funding to take the molecule forward. Since the molecule is quite hard to make, we are willing to trade lower royalty rates on net sales in exchange for a manufacturing contract at fixed terms for a long duration.

When a partnering opportunity comes on the table for a particular shareable asset, the organization will assess it against the relevant asset partnering strategy. This assessment is conducted both by reviewing written materials and, if appropriate, by assigning a team to engage in preliminary discussions with the prospective partner. The opportunity may not be an exact match to the asset partnering strategy, but the strategy provides a baseline from which to negotiate. And having the strategy will help negotiators remain conscious of how far from that baseline they are straying if they elect to pursue an opportunity further. Negotiators and managers should have sufficient flexibility to adjust that strategy when an opportunity brings to light certain features of an asset that were not anticipated or sufficiently understood in the original asset partnering strategy, even if they end up not pursuing the specific deal. And based on the experience of evaluating a number of asset partnering deals, whether consummated or otherwise, the corporate partnering strategy might then be adjusted periodically in the light of the lessons learnt.