Surviving the Escape Clause Discussion
Section III.I. Escape Clause ??Your prospective commercialization partner is enthusiastic; the economics are satisfactory; and potential dealbreakers have receded to the background.? What remains to be discussed before the attorney handoff to “paper” the collaboration?? Top of the list will usually be the rights, contingencies and consequences of changing the source of compound supply.
From the project originator’s perspective, negotiating an escape clause for compound manufacture is about as pleasant a discussion as commercial diligence is for your partner.? One might ease into the topic gently if your partner seeks the right to step-in to manufacture, as did Celgene in the 2013 Phase I license agreement with GlobeImmune, as shown in the deal snapshot and contract provision below:
More often than not, however, the escape clause discussion is about contingencies and consequences.? The contingencies include shortages, which may include commercial product, samples and clinical supply, and typically have a trigger set as less than 80% of firm supply orders for two consecutive quarters.? Other contingencies include regulatory issues such as recalls or non-compliance, delivery of supply that is non-conforming to specifications, or a significant increase in the commercial transfer price versus prior supply periods.
The consequences of invoking the manufacturing escape clause vary substantially.? At the mild end of the spectrum, a supply disruption might simply impact future decision-making, including the allocation of limited supplies, as in the 2016 Tesaro license to Janssen of a PARP inhibitor in Japan, shown below:
Granting of a non-exclusive license to make or have made compound is most common, however, followed closely by transfer of manufacturing technology to one’s partner or a third party.? Supply rights might revert to the project originator under certain circumstances, including supply shortages incurred by one’s partner, as in the 2009 Alnylam CoDev collaboration with Cubist for RNAi treatment of RSV infections, as shown in the deal snapshot and escape clause provision below:
Payments will oftentimes be utilized in the settlement of supply disruption.? For example, in Orexigen’s 2010 Co-Co alliance with Takeda for Contrave to treat obesity, failure to produce adequate launch supply of product resulted in the loss of a substantial milestones payment, as in this provision:
Alternatively, failure to supply might result in liquidated damages owed to the commercialization partner, as was the case in the 2008 Sepracor (later Sunovion) agreement with Altana (later Nycomed) for distribution of asthma and allergy products in the US:
Finally, it’s important to limit the financial exposure of supply shortfalls, lest the consequence of such an event provokes the agreement to unravel.? In the 2008 CoDev collaboration between Isis (later Ionis) and Genzyme for an antisense compound to treat hypercholesterolemia, there were limits to Isis’ exposure for supply shortfalls, as shown in the deal snapshot and contract provision below:
Overall, when it comes to the negotiation of a manufacturing escape clause provision, advance preparation by BD&L is key – like walking into a deposition or sitting in a dentist’s chair, if your mouth will be open for an extended period, the best one can hope for is no cavities!
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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.