Global Vs. Regional Alliances

Section II.C. Territory Splits? ?A newcomer to the biopharma industry might be surprised to learn that almost three quarters of all SEC-filed alliances over the past four decades have been global.? Given that a project originator pursuing a regional alliance strategy might sign two, or even three, partners for a given project, a newcomer might infer that, at least recently, there has been a movement in favor of regional alliances.? Nope – for 3000 SEC-filed biopharma alliances commenced since 2010, 72% have entailed worldwide rights to the commercialization partner.

Once a global deal is commenced, there can be no regional negotiations – at least not by the project’s originator.? Similarly, one can’t strike a worldwide alliance once a regional deal is in place with a third party – well, it isn’t easy, and I can only recall one such instance, the 1997 global discovery alliance between Geron and Pharmacia (now Pfizer) for telomerase inhibitors to treat cancer that subsumed Geron’s 1995 collaboration with Kyowa Hakko for Asian rights.? Here’s the deal snapshot:

As noted earlier, regional alliances can only happen when an originator actively withholds the home territory and chooses to align with one or more regional partners.? So why do it?? The withholding part makes sense if the project might anchor a liquidity event (Stelios’ Uncapped Upside or SUU once again).? But for compounds already in the clinic, there is a reason to go regional – the royalty rates are higher.

????????????? First, however, a brief digression on Effective Royalty Rates (EFRs) for the benefit of any actual newcomers to biopharma deal terms.? Since most royalty rates are tiered on the basis of annual sales, and the number of tiers and tier thresholds are quite variable, we’ve long used the convention of EFRs to normalize what a given deal implies with respect to three discrete levels of assumed product sales.? Here’s how the EFR convention works:

Okay, so the question was why should a project originator sign regional deals.? While there are too few regional deals at the discovery through preclinical stages to yield useful statistics, for alliances commenced at Phase I/II or Phase III in development, regional alliances show a significant premium in EFR to the project’s originator.? Here’s the data for SEC-filed deals commenced between 2013-21 (As the SEC’s FOIA office is essentially shut down, these are likely the most recent datapoints we’re ever going to see!):

Yes, there’s an argument to be made that EFRs on a regional deal are only paid on sales in the region, so crossing into the $500M and/or $1B annual sales thresholds would be more likely for alliances partnered globally.? Still, most global commercialization partners aren’t equally proficient in selling to all regions, so no EFR is applicable to a product sale that doesn’t happen.? For important regions that are particularly difficult to penetrate, a regional alliance strategy might make sense – and, who knows, a Geron/Pharmacia-like second act might just be possible.

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You can see the introduction to this ongoing series of articles about best practices in biopharma licensing, or go directly to links to previously posted articles of the series here.