What level of funding is the venture capital community committing to this technology? What are the results to date?
Armed with this analysis of the hard to assess intellectual assets, managers move to the really hard one: know-how.
The broadest definition of technical know-how is information that (a) is not patentable, (b) has been chosen to be protected
as a trade secret, or (c) is not required in a patent disclosure. Nearly 75 percent of a patent's value is know-how. It is
difficult to assess this information because it resides in people's minds. When evaluating know-how, managers need to consider
Are the key scientists going to transfer the technology and support its development?
For how long and in accord with which agreements?
Which third-party scientists (for example, consultants or university researchers) are needed to move the technology forward?
How will large pharma managers protect biotech know-how during the course of the license?
Is there any documentation of the originality of the know-how?
Is the licensor willing to commit this know-how to paper and share it with the licensee?
Making the Process Valuable for Both Companies
Part of relationship building is openness and transparency. When the large pharma company shares its findings with biotech
management, the biotech should be able to verify the accuracy of its conclusions. More important, biotech management benefits
when the large company provides a candid assessment of its technical approach, data package, path forward, and other aspects
of its technology and strategy. They can play an important role as inputs to the biotech's strategic planning process.
The due diligence framework applies common sense to a sensitive business problem.
The most valuable due diligence efforts occur when both companies commit to the twin goals of assessing the opportunity and
building a long-term relationship. When both parties clearly understand how the process works and to what ends, they conduct
as much due diligence as possible using confidential information before an actual meeting takes place. They also undertake
to build something of more lasting value through their efforts: a strong relationship not limited to a single opportunity.
Gene Slowinski, PhD, is director, Strategic Alliance Research, Rutgers University, and Dan Watson is senior partner, M&A and Alliances, Alliance Management Group, Gladstone, NJ.
Acknowledgment: The authors wish to thank Rutgers University and the Federal EDA University Center Program for their support of licensing
research. The “due diligence framework” is a service mark of Alliance Management Group.