Sorting Out Research Options

Section I.W.? Research Options? ?Biopharma alliance negotiators encounter an array of possible scenarios for weeks or even months enroute to signing a deal.? Along the way, there is an implicit sorting of the peripheral from the essential.? What the parties deem peripheral typically ends up as rights of first negotiation (ROFN) or rights of first refusal (ROFR).

First, a bit of clarity on custom and usage.? Within the context of biopharma alliances, a ROFN requires a party to engage in good faith discussions with its partner before negotiating with others for specific IP, assets and/or rights.? A ROFR requires a party to engage in good faith discussions with its partner after establishing (either independently or via negotiation) the terms upon which it is willing to convey such IP, assets and/or rights.? The party holding a ROFR typically needs only to match the established terms to complete the option exercise.

BioSci analyzed approximately 550 ROFN and ROFR provisions of alliances commenced over two decades from 1997-2017.? Of these provisions, 71% were ROFN, and 29% were ROFR.? Of the ROFN provisions, half concerned additional products, one-third concerned additional territories, and the other 16% dealt with additional fields of use.? Of the ROFR provisions, 55% concerned additional products, 20% additional territories, 17% additional fields of use, and 8% other contingencies (e.g. rights in bankruptcy).

What the BioSci analysis didn’t consider, however, was the distinction between research and license options in the context of ROFNs and ROFRs.? While license options are a topic for a later time (II.J License Options), I believe it’s worthwhile considering the more recent ROFN & ROFR provisions, and particularly those provisions entailing R&D-associated assets, as opposed to simple licenses for territory, fields, or take-backs.

Of the approximately 150 ROFN and ROFR provisions of alliances commenced since 2010, 77% were ROFN and 23% were ROFR.? Upon close inspection, it turns out that 60% of these provisions pertain to research options.? For research-related ROFNs, 63% pertain to new products, 23% to development for specific territories (e.g development in China), and 14% to additional fields of use.? For research-related ROFRs, 57% pertain to new products (typically follow-on or combination products), 29% to additional fields of use, and 14% to development for specific territories.

As an example of the distinction between research ROFNs and research ROFRs, here’s a snapshot of the 2016 Phase III alliance between Tesaro and Zai Lab for Zejula (niraparib) in China:

Note that the deal entailed two research options:? Zai has a ROFN to any follow-on PARP inhibitor, and Tesaro has a ROFR to the first two immuno-oncology compounds developed by Zai.? Here are the contract provisions:

While most research ROFNs and ROFRs are intentionally vague, some can be quite specific regarding the targets or compounds to which the option pertains.? Here’s a snapshot of Merrimack’s 2014 alliance with Baxter (later Baxalta) for ex-US rights to liposomal irinotecan, plus a ROFN for three additional compounds:

This is how the ROFN provision was structured:

Occasionally a research ROFR will specify not only the specific compounds but also the economic terms associated with the option’s exercise.? That was the case with Concert’s 2013 preclinical stage alliance with Celgene, as described in this deal snapshot:

In this instance, Celgene obtained a 7 year option to expand the collaboration to include D-L and/or D-P compounds, each upon payment of a $30 million exercise fee plus $270 million in additional milestone payments.? Here is the exercise portion of the ROFR provision:

As it turned out, Celgene was acquired by Bristol-Myers Squibb early in 2019, and a year later BMS’ inherited ROFR option to the two Concert compounds finally lapsed.? In this instance, the research terrain marked for possible future exploration by the partners outlived their actual collaboration.

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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.