Berlex's (Schering's private US operating unit) out-licensing of Ventavis to Cotherix is a good example of using a wise selection
process for a strategic partner. Schering AG was examining iloprost (Ventavis), a prostaglandin antagonist, for some time
but had not fully captured this asset's value. Schering AG is presently marketing the product in Europe and Australia for
an orphan pulmonary hypertension indication via an intravenous route of administration. By out-licensing to Cotherix, Schering
AG/Berlex received FDA approval in six months with a new route of inhalation administration. While the financial terms are
undisclosed, this out-license strategy to a firm dedicated to accessing the US market provides mid-size pharmaceutical firms
such as Schering/Berlex with a vehicle to capture value while avoiding some of the registration and marketing support costs
required to launch such a product in the US. The strategic reason for the deal is that pulmonary hypertension, an orphan indication
in the US, would not necessarily provide large pharmaceutical firms with the returns required to warrant using their complex
manufacturing and marketing engines. Therefore, out-licensing to a relatively small and focused firm makes a lot of sense.
Cotherix, a publicly traded US biotech company, provides Schering/Berlex with additional financial returns based upon any
equity participation in Cotherix. The downstream benefits to Schering/Berlex are reformulation, combined with possible line
extensions in existing offshore markets for the iloprost product. Royalty streams, provided to Schering/Berlex by Cotherix,
will provide further upside. 4. Having a limited network of personal relationships with key decision makers
Emerging companies have small business development teams. Management should never underestimate the value of a having a lead
into the decision maker of a potential partner; licensing deals are made between people and not between companies. Managing
an out-licensing campaign is a complex process requiring real-time access to data and therefore consumes valuable time and
resources. Companies should incorporate a well-structured, web-based contact management and follow-up system to track and
share all communications with all the internal and external parties involved in the deal. 5. Preparing the offering material
Effective offering materials take into account a realistic and pragmatic assessment of the target market, competitive product
timelines and the nature of an unmet medical need. Frequently, smaller firms neglect the perspectives of larger, fully integrated
partners. Attempting to maximize deal valuation by overestimating the market opportunity or underestimating developmental
timelines will not insure the completion of a licensing discussion. Presenting mature, sophisticated, analytical offering
material will insure that discussions produce a mutually satisfactory endpoint for all parties involved in the transaction.
Critical elements to include in the offering material are IP portfolio and freedom-to-operate issues, clear summaries of clinical
data including issues that can be misinterpreted by external clinicians, brief market opportunity analyses, and any relevant
company/management information that can strengthen the partner's willingness to enter into further discussions. ACTION POINTS Out-licensing has become a crucial part of most biotech companies' business strategies. Nonetheless, several recent research
reports demonstrate that biotech companies can fair better in the current licensing environment. The reports make the argument
that biotech companies don't maximize the value of their assets due to inefficient out-licensing processes. To increase shareholder
value, biotech companies intending to out-license one or more of their programs must do one of two things. They must either
commit to a dedicated internal out-licensing team with a best-practice, out-licensing process and infrastructure that can
methodically and proactively present their technology, or they should consider hiring professional assistance from a business
development company that can provide its insight, experience, network, and proven processes, allowing management to remain
fully engaged and focused on their core operational activities. Lachman is a principal, and Marc Samet, Ph.D., an associate principal, with 2Value, 212.897.5808, rananl@twovlaue.com
, Marcs@twovalue.com
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