Leveraging Ex-U.S. Deals

Throughout all of our columns, we’ve provided succinct overviews of critical components of new ventures in ophthalmology—including defining a target product profile; considerations around raising money; building an intellectual property (IP) estate; and when to explore conducting an ex-U.S. trial. In this installment, we will build off of these topics by discussing the value of regional strategic partnerships and licensing. These partnerships can provide significant benefits to ophthalmic entrepreneurs’ programs via additional capital, resources, conduct of activities to help move a program forward and/or credibility. Through this brief column, we hope that you’ll continue to glean a few insights that may help your ophthalmic program best navigate early stage business planning and development, to bridge the valley of death and reach value inflection, as well as increase the overall value of your program.

As with all components of your new venture, we suggest that you approach this step of the process with your end goal in mind. The scope of this article doesn’t permit a debate on the merits of the various outcomes, as each entrepreneur may have different end goals in mind. Instead, this is an overview of how a strategic regional deal can help in the early stages. Engaging in strategic partnerships that exchange commercialization rights, IP and/or equity for capital and/or resources for R&D—whether you’ve successfully raised funds or are still crafting your business plan—should be considered as options for your new venture.

Research and development, for small-molecule and biological therapeutics, is an expensive and time-consuming process. Entrepreneurs will try to utilize their financing road map to raise money to cover the R&D costs associated with reaching key, early value inflection points while trying to preserve value for themselves, as well. Regardless of your financial situation, exchanging the development and commercialization rights in ex-U.S. territories in exchange for R&D capital can allow you to rapidly progress to certain value inflection points.

Obviously there are many elements of a deal that need to be reviewed carefully. Here are a couple of structural points to keep in mind that can specifically help the early stage entrepreneur:

Entrepreneurs may be worried about losing the value of their precious ventures and potential impact of a global deal later. But many times a regional deal can help build value and move an early project forward. A regional deal can be non-dilutive—in other words, the entrepreneur retains the ownership of the company—compared with others models like venture capital where the financial investor secures equity in the company. However, the potential impact of not having rights for a global deal later needs to be considered. Terms that address how a regional partner may consider discussion with a future global partner can also be included, to leave that door open.

As larger pharmaceutical companies focus more on later-stage projects, smaller companies that are entering the space or looking to expand their pipelines (whether in the United States or ex-U.S.) may be open to earlier-stage deals in certain circumstances. We have seen this fit well recently, when capabilities needed to help move an asset forward reside within a regional partner’s realm of expertise, for example, in the areas of formulation, conduct of animal models, manufacturing and toxicology, etc. In these cases, a partnership helps move a project down field, and builds value for the United States and other territories in which there are retained rights. These activities can be provided as part of the deal in exchange for a license, or option, in that territory.

Terms for how data from those activities performed by your regional partner can be leveraged by you in other regions should be included in the deal. As an example, we are currently involved in a program with a novel antibiotic (an isothiazoquinolone), ACH-702 (Achillion Pharma). Regional rights were licensed to an ophthalmic company in South Korea, Taejoon Pharm, and they are responsible for development and commercialization in Asia, and leveraging internal capabilities for specific activities like formulation and cGMP (current good manufacturing practice) manufacturing of the product for ophthalmology. The rights were retained for rest of world with terms in place of how data from the Asian development can be leveraged.

Much like data, IP rights are an area of particular importance to focus on, as IP (such as patents) may be generated by the activities performed with or by the regional partner. How those rights are shared, how costs are covered, and whether use of such inventions carries a different financial structure, all need to be thought through and become part of the agreement. Costs for filing and ongoing maintenance of existing patents at the time of the deal can be negotiated in terms of how those are shared, particularly as it pertains to patents in the territory subject to the deal.

In addition to the capital and resources for R&D, partnering with an ex-U.S. firm may increase the credibility of your program. Some investors may be more willing to invest in your program if they see that a third party has already conducted due diligence and moved forward. For the early-stage entrepreneur raising money to turn his ideas into a fundable development program, credibility is almost invaluable.

As the cost of capital for entrepreneurial development programs is quite high, ex-U.S. partnerships that allow you to help you achieve your first goal—U.S. approval—in exchange for development rights in territories that you may not have pursued initially is an attractive deal structure. Every development program in those regions may be different, but “giving away” future revenue in ex-U.S. markets in exchange for a boost that will advance your development program today is typically a win.

While the potential cons of giving up a program’s ex-U.S. rights should be given serious consideration in advance of a deal, adding credibility and momentum to the U.S. program—and the entrepreneur— advances your program towards value inflection and FDA approval.

The authors are with the Corporate Development Group at Ora Inc. Ora provides a comprehensive range of product development, clinical-regulatory and product consulting for developers, due diligence support for investors and buyers, clinical trial services, and asset and business partnering and commercialization support in ophthalmology. They welcome comments or questions related to this or other development topics. Please send correspondence to mchapin@oraclinical.com.