Considering Intangibles - Pharmaceutical Executive

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Considering Intangibles


Biopartnerships


Common Temptations

Often, common sense bears repeating: Don't make unrealistic promises in an effort to close a deal. Do not promise something to the other party unless you are certain you can deliver.

In our minds, we know that. But somehow, during the deal process, it's easy for companies to slip into the mindset of taking care of issues "at some point in the future" after the deal is signed. Inevitably, these issues will come up again whether they are verbal or written. Recognize a potential problem before the deal is signed because it is sure to be a real problem after the deal is signed.

Companies can avoid that issue by eliminating non-specific language in agreements. Gray language leaves room for different interpretations down the road. To avoid problems later, it's important for contractual language to be as clear as possible, addressing issues head on. For this reason, it's smart to involve lawyers earlier rather than later.

There are other ways to smooth the passage of the deal process. One common roadblock is the decision of whose contract to use—yours or theirs. While it is best to use your own for obvious reasons (think home-team advantage), discussions might proceed more smoothly if you use the other party's contract. This is especially true when you are negotiating with a large company, which may be unwilling or unable to work efficiently with a contract that was developed outside of its control. By nature, large corporations have more bureaucratic hurdles, and negotiations will likely move forward more quickly if you use its contract—it's not usually worth fighting to use your own.

Before beginning negotiations, it is worth investing time, resources, and money to study the company's goals, recent deals it entered—especially deals that may be comparable to yours. It always helps to be as well or better prepared than the other side. As you examine key issues in your field of research, identify what the other party is interested in. This allows you to approach the discussion with realistic parameters that meet both parties' goals—and understand what the "walk-away" issues are.

Leverage your position through a realistic, but aggressive approach. You must identify gaps in what you offer and what the other company wants. Be sure to emphasize that these are not insurmountable gaps, and present ways to work through them.

Determine the right balance between control and money. It is a balanacing act deciding which is more important:

  • maintaining long-term control of your technology/product development, meaning you will profit in the future but may not raise as much money up front.
  • giving away more control up front in exchange for more near-term money.

Early-stage-development companies that desperately need a partner tend to be willing to give up control to receive money fast. Keep in mind the value of your product and when that value will most likely increase. You can always seek more money later, but it's hard to regain control.

Assess the characteristics of your offering—both the strong and the weak. Evaluate where each technology, patent, or product falls in your portfolio so you know which ones are worth sacrificing versus fighting for during negotiations. Run through several scenarios of how your assets could be most favorably negotiated.

Additional Leveraging Tips

Remember, you have something the other company wants. Smaller biotech companies should realize that by controlling the rights to their technologies, they have something of real value to larger companies.

Take Wall Street pressures into account Keep in mind that a large company is likely to feel pressure from investors to build a substantial pipeline, and your product can help alleviate that pressure.

Know which technologies are really valuable to the other company Assess whether the company has a hole in its pipeline, and determine whether what you offer will help fill that hole.

Know the strengths and weaknesses of your product Assess how the strengths and weaknesses will be seen by the other party.

If another company approaches you, do the same analysis you would do if you approached them. Resist the urge to think there is more interest from the other party than may actually be there. Even if you are approached first, you must still go through the same steps to assess the value of the product. It is risky to assume you have more leverage than you do—do not get greedy.


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