Life Sciences Outlook 2012 Dutch biotech companies ... - NautaDutilh

The term ‘strategic alliance’ is “largely window
dressing”; the relationships are in reality quite
skewed, with power being in the hands of the party
with the money. “Big Pharma is not in the business
of paying milestones. The only certain payment is
the upfront payment, which is usually quite low.
Subsequent milestone payments may get stalled or
bogged down in legal battles.” Structuring the terms
of an alliance and potential equity investments is
obviously key (See box).
companies are then freed up and can put their talent
and experience to use in new ventures.
There are, however, downsides to such an
ecosystem. “In the Netherlands we will end up with
many small biotech companies. In this way we
are not going to build new Crucells here,” is how
one interviewee puts it. From a national economic
perspective, this means a lack of sufficiently mature
companies that generate taxable income, exports
The end result of a strategic alliance and collaboration, but also of equity investments and exits, will
of course depend on the bargaining power of the parties involved and the competitive field. Clearly, a
company with urgent financing needs will often reach a worse deal than a strong independent player with
no need for a sale or alliance. From the company’s perspective it is key to structure deals so as to get the
benefits in the desired terms (upfront & milestone payments), while not bargaining the company away for
too little. This could be achieved, for instance, by limiting the scope of an alliance (to certain regions, parts
of the portfolio or indications only), by being very careful in agreeing to co-finance the products under
penalty of losing the product, and by agreeing appropriate termination provisions allowing the company
to regain control and a new future if the partnership for whatever reason does not work out. It may indeed
occur that the partner changes its strategy and decides not to acquire control over the company even if it
was planning to do so before. The company is well-advised to have made allowance for that situation in the
termination provisions, including by having a repurchase option for any equity held by the partner.
30
Implications
The ecosystem described above perhaps reflects
– in an ideal world – the most efficient allocation
of means: agile, focused biotechs quickly take
scientific ideas and discoveries through the initial
phases of development. Professional investors select
the ones most likely to succeed, provide capital
and managerial support and broker deals with Big
Pharma. Big Pharma offers good exit opportunities,
takes new products through the final phases
of development and applies its marketing and
distribution power to create successful market entry.
Often management and scientific staff of biotech
and self-supporting business for the long run.
For the sector itself, the risk associated with this
development is that in the longer term, and in the
absence of Big Pharma that has R&D and business
development activities here, there will be a lack of
people who have first-hand experience in building an
(independent) biotech company, taking a company
public or bringing new products to the market.
“You must have occasional success stories! Only
then can you attract the people and the capital you
need to sustain a vibrant, growing biotech sector,”
stresses one interviewee, again echoing several
others.