xi international pharma licensing...

Business Development: From Molecule to Market . . . and Beyond!The 11th International Pharmaceutical Licensing Symposium will take place in the Gaelic city of Dublin. Famed for its love of

sports (especially rugby and hurling) and of course the ‘black stuff’, Guinness, Dublin is steeped in history with the oldest

college in Ireland, Trinity College and the Ha’penny Bridge (above) among its most famous sights.

Venue – Ballsbridge HotelLocated close to Dublin City Centre, the Ballsbridge Hotel is located in the prestigious Dublin 4 area of the city. We have

secured excellent hotel rates keeping the meeting cost at 2012 levels and discounted accommodation rates can be booked

directly with the hotel using the link from the website: www.plgeurope.com/Dublin_2013.

ProgrammeThe three day programme has been designed by senior industry professionals to address all aspects of business development

throughout the pharmaceutical product life cycle – from early stage through to generics. It also captures business

development across healthcare covering diagnostics and medical devices.

• Innovation, Growth via Early & Mid Stage Licensing • Financing Deals

• Life Cycle Management • World Outreach

• Future Trends – Personalised Medicines, Diagnostics and Technology

In addition, there will be 12 workshop sessions spread over two days on a range of topics, including Emerging Markets and

Deal Issues, that will provide further insight and debate through these interactive sessions.

Networking Events A key feature of PLG events is the informal and relaxed nature of the networking opportunities. As well as extended tea, coffee

and lunch breaks, there are two evening receptions, the first being the Welcome Drinks Reception at the hotel. This is followed

on Thursday evening with a gala dinner at the Royal Hospital Kilmainham, a beautiful building that was previously a home for

retired soldiers. Attendance at all networking events is included within the delegate registration fee.

PartneringAll registered delegates will be given password protected access to our online database enabling direct contact with other

registered delegates. The system allows delegates to arrange meetings and appointments. There will also be a specific

meeting room available during the conference to hold scheduled and informal one-to-one meetings.

For more information, and to download a full programme, please visit:

XI International Pharma Licensing SymposiumWednesday 18th – Friday 20th September 2013Dublin, Republic of Ireland

www.plgeurope.com/Dublin_2013

Business Development & Licensing Journal is published by:The Pharmaceutical Licensing Group (PLG) LtdThe Red HouseKingswood ParkBonsor DriveKingswoodSurrey KT20 6AY

Tel: +44 (0)1737 356 391Email: [email protected]: www.plg-uk.com

Editorial boardSharon FinchEditor

Neil L BrownFrance

Riccardo Carbucicchio Switzerland

Joan ChypyhaAlto Pharma, Canada

Roger CoxPlexus Ventures, Benelux

Jonathan FreemanMerck Serono, Switzerland

Jürgen LanghärigBavarian Nordic A/S, Denmark

Irina Staatz GranzerStaatz Business Development & Strategy, Germany

Enric TurmoEsteve, Spain

AdvertisingAdam CollinsTel: +44 (0)1737 356 391Email: [email protected]

Publishing services Provided by Grist www.gristonline.com

Trends are often borne out of circumstances when a

style of behaviour is developed to suit the prevailing

climate. Reflecting consumers’ reluctance to spend

their way out of economic recession, most pharma

companies appear reluctant to buy into new

technologies where the perceived risk is high. Where

early stage deals are cut, the structures are usually

backloaded to manage the risk profile. Mergers and

acquisitions however seem to offer a safe haven –

buying up turnover and building a sound structure for

when the good times return.

Looking at the deals that have closed over the first half of this year,

acquisitions are definitely the dominating trend, providing an apparent growth

strategy for larger companies and an escape route for smaller financially

challenged businesses.

So what other key strategic trends have been observed? Some two years ago

we ran the article An alternative future for the pharmaceutical industry, in which

it was considered that the industry might be looking to adopt the tactic of

de-merging to slim businesses down to improve flexibility and improve

efficiency. Fast forward and this has come to pass with AbbieVie separating

from Abbott in January and other companies, such as Pfizer, streamlining their

asset base. In May, Pfizer spun out its majority holding in animal health into

Zoetis, which follows its sale of the infant nutrition business to Nestlé in April

2012. The generics business is next for consideration.

Of course, this activity is not confined to the sales end of the industry; Open

Innovation took over the mantle to supplement the cuts being made to in-house

R&D.

One question is whether the industry will follow the traditional life cycle

of growth (via technology), maturity (and consolidation) and decline (into

commodity business). This broad, strategic thinking has been taken forward

into the planning for the next IPLS meeting to be held in Dublin this September,

where the subjects look at business development from all points of the product

life cycle. It is a must-see event.

WelcomeNewsUK annual awards dinner held and the Swiss PLG renamed the Swiss

Healthcare Licensing Group.

PLG eventsA round-up of forthcoming meetings around Europe.

Big pharma loses lustre as partner Dirk Calcoen, Managing Director, The Boston Consulting Group

The role of licensing agreements in the sharp decline in licensing deals

among top ten pharmaceutical companies since 2009.

Patent settlements under scrutiny Dr Wolfgang A Rehmann, Taylor Wessing

Competition authorities are increasingly focusing on payments that

delay the introduction of generic medicines to market.

Patent box related considerations for licensing transactions Allistair Booth, Arwen Berry, Seona Burnett, Stuart Richards and

Heather Self, Pinsent Masons

The UK government’s introduction of the Patent Box in April 2013 will

benefit firms with qualifying IP rights or exclusive licences, creating

significant savings. However, the process can be highly complex.

The negotiating mandateAndrew Gottschalk, Consultant, Group AG

Negotiating mandates are often underestimated but should be a

priority if a deal is to come to fruition in a smooth, successful manner.

Book review: The Future of Pharma: Evolutionary Threats and Opportunities, Brian D Smith Roger Davies, Medius Associates

Pharma has evolved to lengthen life expectancy, among many other

societal benefits. But with developments in genomics, biology and

tough regulation, what might the future hold for the industry?

Deal watchRoger Davies, Medius Associates

With nine M&A deals announced, a look at an active and exciting

month.

Contents4

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Publisher’s note The views expressed in Business Development & Licensing Journal are those of the authors alone and not necessarily those of PLG. No responsibility for loss occasioned to any person acting or refraining from action as a result of the material in this publication can be accepted by the Publisher. While every effort has been made to ensure that the information, advice and commentary is correct at the time of publication, the Publisher does not accept responsibility for any errors or omissions. The right of the author of each article to be identified as the author of the work has been asserted by the author in accordance with the Copyright, Designs and Patents Act 1988.

Sharon FinchEditor, Business Development & Licensing Journal

The Business Development & Licensing Journal is free to PLG members. If you

would like to join the PLG please visit the website at www.plgeurope.com

www.plg-uk.com Issue 19 | July 2013 3

A t the AGM of the Swiss PLG held in Flims earlier this year, a

decision was made to break new ground and change the

name of the group from the Swiss Pharma Licensing Group to

the Swiss Healthcare Licensing Group.

Accompanied by a change of logo, the newly renamed group is

opening its membership to the broader healthcare players and hopes

to attract in members from a wide range of backgrounds, including:

News & Developments

The annual awards dinner given by the UK

PLG took place in February this year on board

the HMS Belfast. Recipients included Thomas

Högn who received a Lifetime Achievement Award

for his services to the PLG. Other recipients included

the Best Newcomer of the Year Peter Huber-Saffer

from AstraZeneca, Germany and the Astra Zeneca

Business Development Executive of the Year which

was won by Catherine Pickering from Merck Serono.

UK annual awards

• Nutrition

• ConsumerHealth

• Manufacturing

• MedicalDevices

• Diagnostics

• MedicalTechnology

• MedicalServices

• HealthInsurance

Above: Thomas Högn with the PLG Lifetime Achievement Award

Left: Sharon Finch presents the PLG Best Newcomer of the Year Award to Peter Huber-Saffer from AstraZeneca, Germany

4 Business Development & Licensing Journal www.plg-uk.com

European PLG events

13th–14th June PLG UK Spring MeetingWindsor, UK

www.plg-uk.com

27th June PLGS Members DinnerBarcelona, Spain

www.plgs-spain.com

18th–20th September XII International Pharmaceutical Licensing SymposiumBallsbridge Hotel, Dublin, Ireland

www.plgeurope.com

10th– 11th October PLGS General AssemblyToledo, Spain

www.plgs-spain.com

13th–15th November PLG UK Introductory Training CourseLingfield, UK

www.plg-uk.com

25th–27th November PLCD Seminar – Licensing & Business DevelopmentBerlin, Germany www.plcd.de

4th December PLG UK Workshop & Christmas Drinks ReceptionLondon, UK

www.plg-uk.com

5th–6th December PLCD Autumn MeetingMannheim, Germany

www.plcd.de

2013

20142nd–4th February Swiss HLG Winter Conference

Flims, Switzerlandwww.swisshlg.com

14th–16th May PLCD Spring MeetingFrankfurt, Germany

www.plcd.de


I t is well-known fact that licensing

agreements play a vital role in the

pharmaceutical pipeline. For big pharma,

smaller biopharmaceutical firms represent

a valuable source of new compounds at a

time when R&D pipelines are critically thin

and patent expirations for many blockbuster

drugs are imminent. For smaller biopharma

firms, big pharma partners offer resource

and commercial expertise to bring promising

products to market when access to capital

has all but dried up.

This symbiotic relationship, which has

become imperative over the past decade,

is why the results of The Boston Consulting

Group’s (BCG) 2012 Biopharma Partnering

Survey are so striking. While overall licensing

transaction volumes and values are relatively

steady, top pharma companies have engaged

in fewer transactions over the past few years.

For the first time since 2003 (the year the

survey was introduced), perceptions of the

industry’s partnership performance have

declined. Also, for the first time, medium

pharma has ousted big pharma from its

dominant seat. Two mid-sized players in

particular – Celgene and Novo Nordisk

– penetrated the highest rankings for

partnering capabilities, once the exclusive turf

of the major companies.

Partnering attributesThe discovery that performance rankings

can change relatively quickly was another

important finding. A winning reputation may

be fleeting, just as middling performance

can be turned around in short order, within

as little as two years. A quick turnaround is

especially feasible for partnering attributes,

the qualities that make for a solid working

relationship between licensor and licensee.

While commercial capabilities are essential,

they have become a prerequisite. To be

considered a partner of choice, a company

must focus on partnering attributes:

everything from demonstrating flexibility on

deal terms and being responsive, to allowing

the licensor to retain some control over its

development programme. The good news

is that these attributes are under the direct

control of Business Development & Licensing

(BD&L) departments.

The Biopharma Partnering Survey, the

only one of its kind in the industry, and

BCG’s fifth since 2003, examined licensing

and business development activity in the

global biopharmaceutical industry. With 160

responses (a rate of 22%), the 2012 survey

had the highest result to date. For executives

on either the buy-side (licensees) or the

sell-side (licensors), the survey remains the

premier source of information on licensing

activity and sellers’ perceptions, and is a

valuable indicator of long-term licensing

trends during a period of sweeping change in

health care.

Each year, the survey targets senior

executives including CEOs, presidents

There has been a sharp decline in licensing deals among top ten pharmaceutical companies since 2009 and big pharma is being ousted by smaller players. What part have licensing agreements played on this changing situation?

By Dirk Calcoen, Managing Director, The Boston Consulting Group

Big pharma loses lustre as licensing partner


Highest average score across all attributes 1 Most nominations as a ‘top partner’ 2 Highest proportion of respondents that have a positive impression 3

Figure 1: Overall rankings for 2012: Novo Nordisk and Celgene included among top tier in 2 of 3 rankings

RocheNovo Nordisk

GSKMerck & Co

AstraZenecaCelgene

Median

Median

Merck & CoGSK

RocheAstraZeneca

NovartisBMS

CelgeneNovo Nordisk

GSKRoche

Merck & CoAstraZeneca

2.5 3.0 3.5 4.0 0 5 10 15 20 25 0 20 40 60

Average rating1 Share of best-in-class votes (%) Proportion agreeing (%)

1. Mean score across all partnering attributes and capability scores 2. Share of times mentioned as one of best two companies for partnering 3. Proportion of respondents agreeing that company demonstrates positive partnering attributes. Weighs each response equally. Source: BCG survey of Biotech CEOs and Licensing Executives, 2012

and heads of business development from

hundreds of smaller biopharma firms

worldwide. Respondents reveal which partner

characteristics matter most to them and rate

individual licensees on these. Three types

of partnering characteristics are examined:

partnering capabilities, cultural fit, and other

(such as technical and commercial), which

include clinical and research capabilities,

manufacturing expertise, and commercial

skills including everything from sales and

marketing skills to global reach and pricing.

Intense competitionWhile the total number of licensing deals

and values is holding steady, there has been

a sharp decline in licensing deals among top

ten pharmaceutical companies since 2009.

Paired with this trend are shifting perceptions

of buy-side performance, which have slipped

slightly from 2010 levels, in both partnering

and overall capabilities.

After several years of steady but modest

improvement, the diminished perceptions

in this year’s survey were a surprise. In part,

they are a function of this year’s sample,

which was a broader, although slightly less

experienced, pool of smaller companies.

But it appears that they also reflect a certain

amount of complacency, or at least fatigue,

which has overcome buy-side companies.

Many large companies seem to have

difficulty in sustaining process improvements

over a longer period.

At the same time, the range of

performance among top buy-side

companies has narrowed. So although

perceived performance of top companies

has dipped, the bottom-ranked ones have

improved somewhat, closing the gap.

Intensified competition is one reason for

the shrinking gap. The narrower range also

means that the companies that truly focus

on improving their BD&L operations are

better able to stand out.

High-ranking medium pharma An even greater surprise was the entry of two

mid-sized firms into the top-tier rankings.

US-based Celgene and Denmark-based

Novo Nordisk were ranked among the top

six companies in two out of three categories.

This was the highest average score across

all 17 partnership attributes and companies >>


willingness to pay the highest price, and

treatment areas of interest. Novo Nordisk

earned top spot for three characteristics:

desire for both sides of the partnership to

develop and prosper, alliance management

abilities, and cultural fit.

It is striking that both companies are

highly focused, which no doubt helped their

perceived performance; potential partners

know what these companies stand for. In

addition, Celgene has clearly emphasised

licensing and business development as

Figure 2: Only GSK, Merck & Co. and Roche have constant presence across three most recent survey editions

Highest average score across all attributes 1 Most nominations as a ‘top partner’Ω Highest proportion of respondents that have a positive impression 3

Average rating1 Share of best-in-class votes (%) Proportion agreeing (%)

1. Mean score across all partnering attributes and capability scores 2. Share of times mentioned as one of best two companies for partnering 3. Proportion of respondents agreeing that company demonstrates positive partnering attributes. Weighs each response equally. Note: Companies that have remained at the top over three editions are in boldSource: BCG survey of Biotech CEOs and Licensing Executives, 2012, 2010 and 2008 editions

GSKNovartis

Merck & CoRoche

J&JPfizer

2.5 3.0 3.5 4.0

RocheMerck & Co

GSKNovartis

Eli LillyPfizer

2.5 3.0 3.5 4.0

RocheNovo Nordisk

GSKMerck & CoAstraZeneca

Celgene

2.5 3.0 3.5 4.0

RocheGSK

Merck & CoNovartis

PfizerJ&J

RocheGSK

Merck & CoNovartis

PfizerEli Lilly

Merck & CoGSK

RocheAstraZeneca

NovartisBMS

0 5 10 15 20 25

GSKRoche

NovartisMerck & Co

J&JEli Lilly

0 20 40 60

Merck & CoRoche

CelgeneEli Lilly

GSKNovartis

0 20 40 60

CelgeneNovo Nordisk

GSKRoche

Merck & CoAstraZeneca

0 20 40 60

0 5 10 15 20 25

0 5 10 15 20 25

2008

2010

2012

Figure 3: What a ‘sell-side’ partner is looking for: value creation expertise but also core partnering skills to close a deal

Ability to add value to your TA of interestCreativity and flexibility on deal terms

Clinical capabilityResponsiveness during deal negotiation

Executive leadership committed to partneringAllows partners to develop and prosper

Regulatory capabilitySales/marketing capabilityGlobal/international reach

Pricing, access and reimbursement capabilityBD/licensing group is easy to access

Willingness to pay the highest priceAlliance management

Fit with corporate cultureAllows partners to retain control in depth

Research capabilitiesManufacturing expertise

Average

3.0 3.5 4.0 4.5 5.0

Indifferent Very Important

Partnering

Capability attributes

Culture

that captured the highest proportion of

respondents with a positive impression.

Celgene, in fact, came in first in the latter,

Roche won top ranking for highest average

score across all attributes and Merck & Co.

garnered the most nominations as a top

partner (see Figure 1).

Celgene’s top rating for positive

impressions was the result of it earning the

highest rating in 5 of the 17 partnering

characteristics surveyed: flexibility on deal

terms, responsiveness, executive leadership,

>>


part of its strategy – and its executives are

visibly committed to these activities. While

certain practices and attributes of the two

companies may be hard for big pharma to

emulate, they are certainly worth aspiring

towards. These include communicating

your areas of focus (even if you are a large,

diversified company active in multiple

therapeutic areas), ensuring that your

executives are visibly committed, facilitating

access, and being responsive.

Over the course of the past two surveys –

since 2008 – we have seen that a company’s

rankings can rise or fall dramatically in a

short period. For example, neither Bristol-

Myers Squibb (BMS) nor AstraZeneca made

the top tier in 2008 or 2010, but both

were among the top six in the 2012 survey.

AstraZeneca was a top performer in all

three categories. Among the fallen angels is

Johnson & Johnson. In 2008, the company

made two of the three top categories, but

by 2010 it disappeared altogether from the

top tier in 2010, and did not return in 2012.

Moreover, the six top-tier companies

reshuffled their positions; GSK, Merck &

Co. and Roche are the only perennials in all

three categories over the past three surveys

(see Figure 2).

Licensing trendsTen years of survey data gives a broad

perspective on shifting perceptions and

priorities during a decade of tremendous

change. Vast structural changes in health

care, along with the global financial crisis and

its aftermath, have had a profound effect on

the economics of the industry, and in turn, on

licensing partnership trends. Among the most

important lessons we have uncovered:

•Theabilitytocreatethegreatestvalueis

the most important factor in choosing a

licensing partner.

•Anotherkeytowinningdealsis

demonstrating core partnering skills

during the negotiation phase: for instance,

showing creativity and flexibility on

the deal terms, being responsive, and

having executives who demonstrate their

commitment to partnering.

•Coreclinicalskillsareequallyessentialas

firms seek partners who can successfully

bring their compounds over the finish line.

•Commercial,regulatory,pricingandaccess

capabilities are no longer considered

differentiators; they are prerequisites.

Increasingly, responsiveness and

communication are coveted qualities in a

partner.

•Globalreachhasbecomemoreimportant,

as licensors recognise the vast market

potential – as well as the looming

competition – in emerging markets.

•Heftmattersless.Since2008,asignificant

percentage of deals have been between

smaller companies.

The key attributes the sell-side partners

are looking for are summarised in Figure 3.

To succeed in licensing, buy-side firms

must remain relentlessly focused on

improving their partnering skills. As we

have seen, those that do not will experience

declining perceptions. And perceptions

can swing either way in as little as two

years. Complacency is not an option, as

Celgene’s and Novo Nordisk’s rise to the top

demonstrates. Big pharma no longer has a

lock on licensing partnerships, as licensors

have now clearly shown they are willing to

put partnering strengths above brand name.

Companies that understand that partnership

goes beyond signing the deal stand to gain

– and win the upper hand in securing much-

needed future products for their pipelines.

About the authorDr Dirk Calcoen, MD, is a Partner and

Managing Director in the San Francisco office

of The Boston Consulting Group. He has led

the firm’s Biopharma Partnering Survey since

2008.

T: +1 415 732 8010

E: [email protected]


P ay for delay agreements are a type of

patent dispute settlement deal. They

occur when a generic manufacturer

acknowledges the patent of the originator

pharmaceutical company and agrees to

refrain from marketing its generic product

for a specific period of time. In return, the

generic company receives a payment from

the originator.

Following a broad competition inquiry

into the pharmaceutical sector in 2008,

the European Commission has been

concentrating increasingly on settlement

agreements in patent litigation, with a

particular focus on practices to delay

the market entry of generic medicines.

The Commission has issued a number of

formal Statements of Objection against

pharmaceutical companies, including

Les Laboratoires Servier and Lundbeck in

two major cases concerning citalopram,

an antidepressant, and perindopril, a

cardiovascular medicine.

In addition, the Commission published

three reports on its monitoring of patent

settlements in the pharmaceutical sector,

the most recent of which is dated 25th July

2012. In this report, it confirmed that the

overall number of concluded settlements

has significantly increased.

The Commission’s approach to these

agreements centres on their competition

law aspects – if a contractual arrangement

has the objective or effect of hindering the

entry of generic drugs on to the market,

Scrutiny of the settlements between generic companies and the originators is being stepped up. Competition authorities are increasingly focusing on payments that delay the introduction of generic medicines to market, in the interests of competition.

By Dr Wolfgang A Rehmann, Taylor Wessing

this would potentially represent a breach

of EU competition rules, specifically Article

101 of the Treaty on the Functioning of the

EU (TFEU), which bans practices that restrict

competition.

Although settlement agreements are

undoubtedly subject to competition

legislation, the evaluation of an agreement

that is intended to settle a patent conflict,

for any unlawful restrictive arrangements,

brings up a number of fundamental legal

questions:

• Doesasettlementagreementofthiskind

amount to a violation of competition

law?

• Doesthegrantingofbenefitsbythe

pharmaceutical industry to a generic

manufacturer justify the suspicion of anti-

competitive behaviour?

• Ifasettlementagreementdoesnot

contravene competition law due

to the patentee’s payments to the

generic manufacturer alone, in what

circumstances does the agreement

become contrary to competition law?

• Whobearstheburdenofproviding

evidence?

• Isthesettlementagreementjustified

according to the exemptions under

Article 101 (3) TFEU?

European developments Following the pharmaceutical sector inquiry,

the Commission continues to regularly

Patent settlements under scrutiny


monitor potentially problematic patent

settlement agreements. It recently launched

an antitrust investigation against US-based

pharmaceutical company Johnson & Johnson

and Swiss-based Novartis. This is to assess

whether an agreement between Johnson &

Johnson and the Novartis generic branch,

Sandoz, may have had the object or effect of

hindering the market entry of generic versions

of fentanyl, a strong pain killer for chronic

pain, in the Netherlands. Following this, both

companies received a Statement of Objection

on 31st January 2013.

Separately, the French Competition

Authority, Autorité de la concurrence,

responsible for ensuring the competitive

functioning of the economy, launched an

inquiry in the pharmaceutical sector in

February 2013, to examine how competition

operates throughout the medicinal products

distribution chain. The Authority wants to

check whether or not the support of the

French regulatory authorities for generic

medicines, as well as the opening up of

online sales for medicinal products in the last

few years, has brought benefits in the form

of price reductions, and/or increased services

and innovation.

According to the Authority, the

development of generics is a competition

factor and the sale of generic medicines

represents a substantial source of savings

for public accounts in France. A particular

focus of the inquiry will be the price setting

for medicinal products and the scope for

competitive pricing for pharmaceuticals. As

the Authority ought to increase the market

access of generics, the inquiry will also cover

practices likely to delay generic entries.

US developments One of the US Federal Trade Commission’s

(FTC) top priorities in recent years has

been to oppose pay for delay agreements,

which the FTC consistently considers to be

anti-competitive. Since 2001, the FTC has

filed a number of lawsuits to stop these

deals. According to the FTC study for the

fiscal year 2012, published on 17th January

2013, pharmaceutical manufacturers of

branded drugs significantly increased the

use of potential pay for delay settlements

to keep generic competitors off the market.

The study reported that in almost half of

these settlements, a promise may have been

made by originator companies stating that

they would not develop or market their own

authorised generic, in return for the generic

companies withholding their competing

product.

According to the FTC, the settlements in

question related to 31 different originator

pharmaceuticals representing combined

annual US sales of more than $8.3 billion.

Furthermore, the FTC is supporting the

Protecting Consumer Access to Generic

Drugs Act of 2012, introduced into the US

Congress on 9th February 2012, which is

intended to end pay for delay settlements.

The Bill states that it is “unlawful for any >>

If a contractual arrangement has the objective or effect of hindering the entry of generic drugs on to the market, this would potentially represent a breach of EU competition rules.


person to directly or indirectly be a party to

any agreement resolving or settling a patent

infringement claim in which:

(1) an [Abbreviated New Drug Application

(ANDA)] filer receives anything of value;

and

(2) the ANDA filer agrees not to research,

develop, manufacture, market, or sell,

for any period of time, the drug that is

to be manufactured under the ANDA

involved and is the subject of the

patent infringement claim.”

The FTC has also challenged such agreements

in court, on the basis that they violate US

antitrust laws. One case, involving the generic

testosterone replacement drug AndroGel,

is currently pending before the US Supreme

Court. In this case, the Supreme Court has

agreed to hear the FTC’s appeal against Watson

Pharmaceuticals and will need to consider:

• whetherreversepaymentagreements

are lawful unless the underlying patent

litigation was a sham or the patent was

obtained by fraud, or

• whetherreversepaymentagreementsare

anticompetitive and unlawful.

Draft agreements with carePharmaceutical companies need to be aware

that pay for delay settlements are under

close scrutiny by competition authorities.

Investigations by competition authorities

have to take into account that a reasonable

balance is established between patent and

competition law aspects to assess, on a case-

by-case basis, whether a patent settlement is

problematic or permissible under competition

law. In light of the stricter view of the

competition authorities, pharmaceutical

companies are well advised to take great care

when drafting patent settlement agreements.

The assessment under competition law

strongly depends on the scope – in terms

of both subject matter and time – of the

intellectual property right that is the subject

of the agreement between competitors.

Any impression that factors have

prevailed – other than to achieve a fair

balance between the scope of the patent

right in question, and the positions of the

parties with regard to that right – should be

avoided.

>>

Pharmaceutical companies need to be aware that pay for delay settlements are under close scrutiny by competition authorities.

About the authorDr Wolfgang A Rehmann is an expert in

the field of pharmaceutical and medical

law. His forensic work focuses on issues of

pharmaceutical law, intellectual property and

antitrust law. Wolfgang Rehmann passed

his legal exams in 1979 and 1982, while at

the same time earning his doctor’s degree in

banking law. He is a member of the Deutsche

Vereinigung für gewerblichen Rechtsschutz

(GRUR) and the International League of

Competition Law.

T: +49 (0)89 210 38 0



The introduction of the Patent Box

by the UK government has given

qualifying companies the opportunity

to make significant tax savings on profits

from qualifying IP rights or exclusive licences

of qualifying IP rights.

The Patent Box corporation tax rate

payable on such income will be 10% by

2017, against a proposed corporation tax

standard rate of 20% (by 2015) on income

not qualifying for Patent Box.

However, not all IP rights will qualify and

the definition of an exclusive licence set out

in the legislation will require licensors to

give thought to how much control of their

patent portfolio they wish to retain and

whether licensees will demand additional

control in order to obtain tax savings.

Broadly, the aims of the regime, which

came into force on 1st April 2013, are to

allow companies involved in research,

development and commercialisation of

patented inventions, to benefit from a lower

corporate tax rate on profits earned from

qualifying IP rights after that date. The relief

will be phased in from 1st April 2013 so that

a corporate tax rate of 10% will apply from

1st April 2017.

It relates to companies based in the

UK that hold ‘qualifying IP rights’ or are

exclusive licensees of qualifying IP rights

and satisfy certain conditions relating to

the development and management of such

rights.

The regime will apply to UK and

Community registered patents1 (and

equivalent rights granted in EEA countries),

supplementary protection certificates,

certain plant breeders’ rights2 and

Community plant variety rights3. For ease of

reference throughout this article, we refer

to the foregoing as ‘qualifying IP rights’. It

should also be noted that, although the tax

regime itself is forward looking, and does

not apply to profits earned from qualifying

IP rights prior to 1st April 2013, profits

earned after that date, derived from patents

filed prior to it, are eligible.

Exclusive licenceThe UK company must own or have an

exclusive licence to the qualifying IP rights

and must comply with ‘active management’

and ‘qualifying development’ obligations.

We do not intend to focus in this article on

these, save to say that the purpose of the

legislation is to reward research, development

and commercialisation that take place in

the UK. The examples in this article assume

compliance with active management and

qualifying development obligations.

The Patent Box tax treatment may

only be applied against profits that are

attributable directly to qualifying IP rights

or patented inventions. The legislation

identifies five heads of ‘relevant IP income’,

including the following, which are relevant

to licence agreements: licence fees or

royalties receivable in connection with

granting another person rights in respect

The UK government’s introduction of the Patent Box in April 2013 will benefit firms with qualifying IP rights or exclusive licences, creating significant savings. However, the process can be highly complex depending on the nature of the licences held.

By Allistair Booth, Arwen Berry, Seona Burnett, Stuart Richards and Heather Self, Pinsent Masons

Patent Box related considerations for licensing transactions

>>


>> of any qualifying IP rights, damages for

infringement, being income payable to the

company from an infringement, or alleged

infringement of the company’s qualifying IP

rights.

Exclusivity requirementsTo qualify as an exclusive right, the licence

must:

1. be granted by the holder of the principal

right or an exclusive licensee of the

principal right; and

2. confer on the licensee one or more rights

to the exclusion of all other persons

(including the proprietor); and

3. confer on the licensee the right either:

(i) to bring proceedings without the

consent of the proprietor or any other

person in respect of any infringement of

the rights granted under the licence; or

(ii) to receive the whole or the greater

part of any damages awarded in respect

of any such infringement.

The legislation and guidance does provide

for multiple ‘field of use’ based licences to

be granted in respect of the same qualifying

IP right and for multiple geographic based

licences to be granted.

Infringement proceedingsIt is the requirements around infringement

proceedings that are likely to give rise to

interesting considerations for licensors and

licensees. Licensors are traditionally reluctant

to relinquish their rights to take control of

proceedings in respect of their IP rights and,

when they do undertake such proceedings,

they seek to retain damages awarded.

Often, this is because they do not trust

another company to protect their rights

sufficiently and, if the licensor is going to

incur the cost and risks of undertaking

infringement proceedings, it usually wishes

to retain all the benefit.

Hence, a licensor has to weigh up the

benefit of a potentially higher licence fee

(because the licensee will be able to claim

tax savings) against either completely ceding

control of any enforcement or defence

proceedings to the licensee, or agreeing to

undertake such actions knowing that the

greater part of any damages it may receive

will have to be paid to the licensee.

HMRC guidance states that the licensor

having the first option to elect whether to

take proceedings or not will not rob the

licence of Patent Box relief – and that should

clearly be the case.

Example oneLet us assume that university A wishes to

grant biotech company B a licence under a

UK patent to research and develop a novel

compound and ultimately out-license it to

pharma company C. Both A and C are UK

companies wishing to take advantage of the

Patent Box regime.

In order for B to be able to claim the

Patent Box tax rate on its qualifying IP

A UK company must own or have an exclusive licence to the qualifying IP rights and must comply with ‘active management’ and ‘qualifying development’ obligations.


profits, it will have to obtain an exclusive

licence from A. The question arises as to

whether the UK government has drafted

the definition of exclusive licence to take

into account the research exemption,

which would permit A – and any other

organisation – to continue research on and

teaching about the patented invention.

So, no entity can grant exclusive rights to

undertake ‘research’, as defined by the

research exemption, and thus ‘exclusive

licence’ must, in our view, be construed

accordingly. It would also contravene the

charters of most, if not all UK universities,

were their fields of academic undertaking

to be restricted every time they granted a

licence. We support the proposition that

retention of rights for non-commercial

academic research only would not fall

outside the definition of ‘exclusive licence’.

The exclusive licence that B obtains will

have to grant B either the right to undertake

infringement proceedings without the

consent of A, or the right to receive the

greater part of any damages should A

undertake the proceedings. While it is not

clear from the legislation, we have assumed,

because patent infringement proceedings

usually result in a counterclaim for invalidity

of the patent, that the government,

when drafting the legislation, intended

the ‘proceedings ... in respect of any

infringement...’ to also cover dealing with a

counterclaim.

In our experience, universities often

do not have the resources to undertake

infringement proceedings and would be

prepared to allow B to do so but they often

like to be consulted about such actions and

to have the right to approve any settlement

arrangements. If B wants to enjoy the Patent

Box regime, the university would arguably

have to relinquish the right to consent to

any settlement arrangement.

Assuming it holds an exclusive licence,

B can claim the Patent Box tax rate on the

profits made from any licence fee or royalty

it receives under an agreement granting

another person a right under the qualifying

IP right. It does not appear from the

legislation that the sub-licence granted by B

has to be exclusive for B to be able to claim

Patent Box treatment of its profits under

that sub-licence agreement.

However, for C to be able to claim

Patent Box treatment of its profits from

its commercial exploitation of the licensed

qualifying IP right, it will have to be granted

an exclusive licence by B and thus have

either the right to conduct the proceedings

or the right to enjoy the greater majority of

the damages awarded in respect of such

proceedings.

We do not envisage that the granting

by B of the exclusive licence to C and

thus, potentially, the right of C to bring

infringement proceedings without the

consent of B, would result in B losing its

ability to benefit from the Patent Box regime

– on the basis that C now has the right to

The introduction of the Patent Box by the UK government has given qualifying companies the opportunity to make significant tax savings on profits from qualifying IP rights or exclusive licences of qualifying IP rights.

>>


bring infringement proceedings and not B.

Finally, B still has a licence agreement with

A, and has the right to bring infringement

proceedings, and we believe that is how

HMRC will view this issue.

Example two UK biotech company A has an exclusive

licence (as defined by Patent Box legislation)

to a worldwide family of patents, some of

which are qualifying IP rights. The invention

in question is a compound that has shown

activity against two different targets and,

as a result, A has agreed term sheets for

licensing transactions with two different

pharma companies (B and C). It will grant

B and C exclusive worldwide licences under

the worldwide patents for the different

indications.

B is a US company and is not interested

in, or capable of claiming, the benefit of the

Patent Box treatment. C is an international

pharma company based in the UK that

wants to claim the benefit of the Patent

Box. For C to do this, it will have to be

granted the rights in respect of infringement

proceedings set forth above (conduct or

the right to receive the greater majority

of the damages). Those rights will apply

with respect to infringement proceedings

concerning the same UK/European patents,

of which B has been granted a licence,

causing B an issue. Biotech company A does

not have to grant C those rights to be able

to claim the 10% tax treatment on its profits

arising under the licence. However, if A

does not grant those rights, C will have

to pay higher tax on its profits from the

exploitation of those qualifying IP rights.

Biotech A might also be reluctant to cede

control over infringement proceedings

because it has multiple sub-licensees,

and B is not comfortable with C having

control of any European infringement

proceedings.

The first thing A should consider is

to separate the rights on infringement

proceedings between qualifying IP rights

and those in other territories. It appears

that A can retain full control over non-

European infringement proceedings

without jeopardising C’s ability to claim

the Patent Box treatment because of the

European rights granted to it.

That leaves the issue of European

infringement proceedings. We believe

that the issue is most likely going to be

resolved through a financial trade off.

If A is adamant about retaining control

of infringement proceedings and C still

wishes to take a licence for its indication,

C is likely to seek decreased financial

obligations to A in respect of its European

revenues – a lower royalty rate, reduced

milestones and so on – to compensate

for the higher tax it will have to pay for

falling outside the Patent Box regime. The

converse is also true. Biotech A does not

have to grant C control over infringement

proceedings for A to enjoy the benefit of

>>

It remains to be seen how licensors will respond to pressures in negotiating (or renegotiating) licence agreements associated with the requirements of Patent Box.

HMRC may ask to see evidence of the business relationship between the parties.


About the authorsAllistair Booth is Partner, Life Sciences at

Pinsent Masons. He has extensive expertise

with complex licensing, collaboration and

partnering transactions and high-value

manufacturing and outsourcing arrangements.

He also deals with supply and distribution

agreements and advises on commercialisation

and value realisation strategies.

T: +44 20 7418 7000


Arwen Berry is Senior Associate, Life Sciences

at Pinsent Masons. She advises rights

holders on their sponsorship agreements and

agreements related to the merchandising

of branded products and services on a wide

variety of commercial contracts including

agency agreements, distribution agreements,

manufacturing and supply agreements and

standard terms and conditions of trade.


T: +44 (0)131 777 7145

Seona Burnett is Partner, Life Sciences

at Pinsent Masons. She specialises in

non-contentious intellectual property and

commercial work and advises on protection,

management and exploitation of all forms of

intellectual property and on a wide range of

commercial contracts including sale and supply

of goods and services, agency, distribution and

manufacturing agreements.


T: +44 (0)131 777 7359

Stuart Richards is Partner, Life Sciences at

Pinsent Masons. He advises on commercial

transactions for a variety of pharmaceutical,

biotechnology and medical device companies,

including international licensing and

collaboration agreements and manufacturing,

development, clinical research and distribution

agreements. He has particular expertise in

the issues faced by drug delivery companies.

He also specialises in competition and other

regulatory issues, including on parallel trade,

supply models and settlement agreements.


E: + 44 (0)20 7418 8273

Heather Self, Partner (non lawyer), Tax at

Pinsents Masons, has more than 25 years

of experience in tax. She has been a partner

in Ernst & Young and Group Tax Director

at Scottish Power, where she advised on

numerous corporate transactions.


T: +44 (0)161 662 8066

the Patent Box regime. If A does so, C will

benefit from less tax on profits arising from

the licensed qualifying IP. It is difficult to

conceive that A would not seek some form

of quid pro quo for granting such rights.

Restructuring agreementsThe anti-avoidance provisions of the

legislation4 state that exclusive licences

should not be regarded as such if ‘the main

purpose or one of the main purposes, of

conferring the right’ is to ensure that the

licence is treated as an exclusive licence for

the purposes of the Patent Box regime.

At first glance, this would seem to be

a prohibition on companies renegotiating

licences in order to make them exclusive

and, by extension, to benefit from the

Patent Box. However, HMRC guidance5

confirms that these provisions will not

apply to the renegotiation of non-exclusive

licences to make them exclusive ‘provided

that the new licence genuinely confers

rights that meet the requirements of [the

legislation] and is a true reflection of the

way the parties to the licence operate in

practice. The renegotiation will require the

consent of the licensor and will either result

in the licensee obtaining new rights or will

formalise rights already conferred that were

previously implicit.’

The phrase “main purpose, or one of the

main purposes” is common in other areas

of tax legislation and is primarily used to

challenge artificial arrangements that aim

to take advantage of particular tax benefits.

Commercial arrangements should be able to

resist any such challenge, although HMRC

may ask to see evidence of the business

relationship between the parties.

ConclusionIt remains to be seen how licensors will

respond to pressures in negotiating (or

renegotiating) licence agreements associated

with the requirements of Patent Box.

If licensees are unsuccessful in pushing

through the relevant provisions to support

their election for Patent Box, however, they

may be prompted to attempt to offset

their inability to claim relief under Patent

Box by negotiating more favourable royalty

payments, or greater warranty or indemnity

protections, in the licence agreement.

Footnotes1 Granted under the Patents Act 1977 and the

European Patent Convention, respectively.2 Granted under Part 1 of the Plant Varieties Act

1997.3 Granted under Council Regulation (ED) No

2100/94.4 Section 357F of CTA 2010.5 CIRD210130 – Patent Box: qualifying

companies: exclusive licence: non-commercial

or unnecessary terms (see: www.hmrc.gov.uk/

manuals/cirdmanual/CIRD210130.htm).


Our licence to negotiate – the what,

why, when and, often the how – are

encapsulated in our mandate. In

many instances, however, it is characterised

by either its virtual absence or by being a

partially developed concept.

The anorexic, incomplete mandate

accounts for a significant proportion

of failed negotiations. The absence of

coherence and structure are significant

contributors to the destruction of potential

value that a robust deal may generate. The

potential corrective solution remains almost

solely within our hands.

This paper explores the mandate from four

perspectives:

• fromourselvesasthenegotiators

• fromourrelationswithourcolleagues

who may be co-located or scattered in

multiple locations

• fromourstakeholderswhocouldbe

internal to our organisation, may have

‘one foot in and one foot out’ (the

venture capitalist) or be fully external

such as research foundations or

government agencies

• fromtheformalorganisationthatwe

represent. The use of the word ‘formal’

may sound arcane but it should remind

us that it is the organisation that is the

party of substance that adds its signature

to the transaction and transforms the

negotiated outcome into a formal

agreement.

A mandate is a clear verbal or written

confirmation or instruction to the negotiator

to plan and commence negotiations with an

identified counterparty to secure a specific

business objective. It should contain two

significant assumptions: that negotiators

will behave ethically and will be held

accountable for managing the process from

beginning to end.

Mandates should remain private to

their organisation. If widely publicised,

negotiating options tend to be reduced and

counterparties’ perceptions of power will be

enhanced.

The negotiator and the mandate For the negotiator in receipt of the mandate,

its appearance may bring a personal sense

of relief that time invested in building the

business case is beginning to show results:

The organisation is authorising an

additional investment against a projected

return and will have to balance three factors

(see Figure 1):

• Theperceivedstrategicbenefitsfrom

the business opportunity. This is an

interplay between information, time and

the decision criteria used by the senior

executive team:

o Is the timing of the negotiations

appropriate?

o Is the counterparty ready to enter into

the negotiating process?

• Thepsychologicalcontractwiththeir

representative(s). This is the dynamic

and complex relationship between the

organisation and the negotiator:

o How will success or failure be

handled? Will the negotiator be

allowed to retain their job, receive a

bonus or be promoted?

o Which resources will be allocated to

the negotiations and how will they be

managed over time and potentially

through transitions and changes in

the senior executive team?

o If a group has responsibility for the

negotiations, can the organisation deliver

rewards equitably to those involved?

• Theorganisation’sfuturereputation:

o How will this be managed and

The negotiating mandateNegotiations stand or fall depending on the existence and robustness of a mandate. These, however, are often underestimated when they should in fact be a priority if a deal is to eventually come to fruition in a smooth, successful manner.

By Andrew Gottschalk, Consultant, Group AG


About the authorAndrew Gottschalk has consulted on

negotiation problems for major organisations

on four continents. He negotiates, consults on

negotiation problems and runs negotiation

skill development programmes for numerous

executives from public and private sectors. He

has sharp end experience as a commercial

and industrial relations negotiator in the

motor vehicle and electronics industry.

T: +44 (0)20 7273 5385


who will be responsible within the

organisation?

The solo mandate ownerThere are many issues to consider in terms of

planning and preparing for negotiations. As

negotiators, and from the perspective of the

solo mandate owner, the question is whether

this is a function of our efforts or whether we

are victims of events.

In particular, as we begin to shift

from strategy to the specifics of the

opening position and the management of

negotiations, we may recognise our own

sense of vulnerability. If this is the case, it

is important to address whether additional

support, such as a coach or a mentor,

should be made available. A mandate,

specific or imprecise, notionally justifies

additional resources or, as a minimum, can

be prioritised over other tasks.

As its owner, we should ensure that

each mandate establishes the internal

ground rules for communication with

senior executives. An indicator of failure is

a continuous stream of telephone calls that

start with non-issues and conclude with

an interrogation about the progress of the

negotiations.

Negotiator-mandate relationshipThe matrix in Figure 2 clarifies the relationship

between the negotiator and the mandate.

The first issue is our degree of personal

identification with the mandate, and the

second is its characteristics.

•Thecommittedandvestednegotiator

builds and sustains his relationship

with the organisation’s negotiating

objectives from the outset with high ego

involvement and the realised expectation

of support from the organisation.

•Theengagednegotiatordriveshis

motivational investment from the

negotiating process itself, from

interacting with colleagues and the

counterparty.

•Theconstrainednegotiatormaydisplay

elements of behavioural clarity in the

management of concessions. This,

however, is likely to be negated by an

inability to show the flexible creativity

needed in integrative bargaining. To

design and deploy a win-win outcome

requires support, not the shackles of an

overly prescriptive mandate.

Most of us have experienced the

dissatisfaction of being engaged in a

negotiation that feels like a ritual. Two

situations tend to generate this behaviour.

The first involves negotiations prior to parties

resorting to legal action over a disputed

issue. The second occurs once one party has

concluded that negotiations will not result in

an agreement.

The negotiator, colleagues & mandateIf, as negotiators, we are asked to describe

our relationship with our colleagues

we would probably hear words such as

representative, delegate, champion and

perhaps, more rarely, leader or manager.

Each of these provides us with an insight

into how the mandate will impact upon,

and be impacted by, our relationship with

our colleagues. But how much influence

and control should our colleagues exercise

over the formulation of the mandate?

In many instances the influence and

control of colleagues is a long and subtle

process because they provide critical input

(information, ideas and insights). In the

jargon of the social scientists they exercise

‘lower order participant power’.

Those about to enter into negotiations

should ask themselves how they would >>

The absence of coherence and structure are significant contributors to the destruction of potential value that a robust deal may generate.

Figure 1: Factors to balance in developing the mandate

Business opportunity

Psychological contract Reputation management

High personal mandate identification

Commitment Engagement

Constrained Ritual

Low personal mandate identification

Vague/imprecise mandate

Detailed/precise

mandate

Figure 2: Negotiating styles


>> describe their colleagues’ frame of

reference. Do they have a past, present or

future orientation? This will shape how they

evaluate the mandate and its impact upon

them in terms of risks and opportunities

– and therefore with their designated

negotiator. The matrix in Figure 3 uses

aircraft analogies to link business vision,

science and the mandate.

Negotiating about science on behalf

of scientists is difficult. The research and

development process requires focus and

commitment that is sustained by massive

individual and collective ego investment

and identification. The often heard and

apparently casual comment ‘this is our work,

our lives, our investment. This is who we are’

should warn us that our local constituency is

composed of colleagues more in the mould

of the Wright Brothers or Hector Blériot than

members of a large design team modifying

a 747 many years after it first entered

production.

Our mandate and our stakeholders Why do stakeholders so compulsively and

continuously impale negotiators? And how

do we protect ourselves against the vagaries

of stakeholders? (See Figure 4)

The first dimension to consider is the

salience of the agenda to stakeholders’

continuing power and influence on the

organisation. The second is their pattern

of engagement with the substantive issues

that form the basis of the mandate. On a

day-to-day basis, inconsistent engagement

is a greater challenge than interest because

it usually manifests itself in aspirational

stupidity, such as expectations well outside

the realistic bargaining range, or the

construction of erratic redline items that

unpredictably appear and disappear. Where

groups become vested in a negotiating

mandate they may develop an appetite for

being obstructive that may result in a delay

in the internal ratification process, but this is

relatively inconsequential.

In most instances, as a negotiator you

would be well advised to disclose potential

stakeholder issues to your counterparty

representative in offline communications

where balanced mutual disclosure may be

very effective. An alternative is to explicitly

describe your internal processes and state

the assumptions you are making about the

counterparty’s organisational context that

shapes their decision framework. Neither

party’s representative should be surprised

that stakeholders want to demonstrate

their own importance. To support a

negotiating process in which there is an

orderly progression towards a yes or no,

insert stakeholder contact time slots during

scheduled adjournments.

Every minute spent in discussion with the

stakeholder before obtaining a mandate

is worth at least an hour, if not a day

subsequently. Contact after receiving a

mandate shows stakeholders that they

possess power that they may enjoy

deploying negatively to their maximum

advantage.

From my experience, the only comfort

I can provide is to suggest that strategic

and conservative stakeholders should be

incorporated into a negotiating steering

group. This should be the first and regular

point of contact with the organisation

for mandate holders during significant

negotiations. Senior executives and line

management may mean well but there

is a tendency to spontaneous creativity

(‘Have you thought of ... ?’) or unthinking

interventionism (‘We should now ...’).

The notion that the thinking and analytics

that underpin the negotiating plan require

sustained commitment by the organisation

is a lesson few have learnt.

The organisation and the mandateNegotiators are painfully aware that almost

irrespective of the quality of the relationship

they establish with the counterparty’s

representative, their constant challenge is

how to build and consolidate organisational

support for the potential deal. As a social

psychologist, I am drawn to the impact of

culture on behaviour, both to describe and

to help us determine an action plan for

Figure 3: Linking business vision, science and the mandate

Business risk-reward ratioStable

The science

Dynamic Poor

Stellar

The Dakota(the workhorse

of the sky)747 Jumbo

A flying machine A rocket


>>

negotiators.

My starting point, as it has been for

the last 20 years, is the work of Dutch

anthropologist, Fons Trompenaars. In his

monograph Riding the Waves of Culture

he identifies four discrete organisational

cultures, which I have used as the basis

for my ongoing work on organisational

negotiating style. Trompenaars neatly

identifies four cultures on two axes:

centralisation-decentralisation and people or

task focus (see Figure 5).

The organisational culturesIn a previous article I have described in more

detail the features that will help us recognise

the four organisational cultures. For the

purpose of this exploration of the dynamics

of the mandate a summary will suffice:

• Thefamilycultureistypicallysynonymous

with the founders whose behaviour and

values reach out beyond their graves.

Subsequent changes in ownership may

have diluted their financial influence

but their genetic legacy remains in the

organisation’s values, processes and

decision-making. Family involvement can

sometimes be erratic but this is hidden

through the ongoing commitment

and loyalty of a key group of senior

executives. Johnson & Johnson is proud

to communicate its family culture. In

Boehringer Ingelheim it is an equally

unquestioned fact of life along with the

majority of German Mittelstand.

• TheEiffelTowercultureistypicallyfound

in national, state and local government,

in regulatory agencies and the para-

state organisations that inhabit our

administered market. Negotiating with

regulators and enforcement agencies

provides us with ample opportunities to

see this culture at work. Their defence of

precedent, hierarchy and status knows

no limits.

Figure 4: Analysis of stakeholders and their dynamics during a negotiation

Centralised

The family The Eiffel Tower

The incubator The guided missile

Decentralised

Task focusPeople focus

Figure 5: Organisational cultures

Consistent engagement in negotiations

Strategic• teams, interdependent

and high perceived status• always involved, alert and

engaged on their issues and aggressive towards others

• high levels of internal debate, democratic

• know their way around, will make demands and actively oppose

• want engagement in deciding deal or no deal

Conservative• individuals/independent

agreed higher status• expect others to respond

to them• shift unpredictably

between non-engagement and obsessive involvement

• protective of own position and power, precedent driven, risk averse

• political/career interests overlaid by ‘professional concerns’

Apathetic• individuals remain

disconnected• lower perceived status

and influence, isolated locations

• intensive mobilisation for short periods on single issues

• unsure, overstate issues and concerns

• want recognition/attention

Erratic• teams, inter-dependent

but unstable (staff turnover)

• inner group who decide and floaters remain un-engaged

• shift unpredictably between disinterest and obsessive involvement

• under influence of single personality (charismatic but also authoritarian)

Inconsistent engagement in negotiations

Primarily individual interests and low group agenda

Primarily group interests and low individual agenda


instances, the mandate is the major factor

in determining our negotiating strategy and

driving the tactical choices in the planning

process. The outcome, in particular our

opening position, should be inextricably

bound to our mandate. Any attempt that

we might make as individual representatives

to depart from its content is likely to bring,

as a minimum, instant disavowal. Should our

transgression be seen to be more serious,

we can expect to be replaced by a colleague

deemed to be more loyal, reliable and

pliant. So the advice might be: if you carry a

poisoned chalice, carry it, spill it if you must,

but don’t try to change the formula.

If we could record our experiences as

negotiators for public broadcasting, what

would we include in our story? The mandate

might not even be mentioned, which is in

itself is telling. Our struggle with colleagues,

stakeholders, the organisation and ourselves

is often overlooked as the panic and

adrenalin of the negotiating process kicks in.

Only if we confront a crisis within the

negotiations are we forced to recognise that

the source of our troubles was our mandate.

It is our mandate that demands and

deserves our skill, energy and commitment.

The subsequent negotiations are, by

comparison, a walk in the park.

References

Fons Trompenaars, Riding the Waves of

Culture, Nicholas Brearley Publishing 1993

Andrew Gottschalk, How Organisations

Negotiate: managing a love-hate

relationship, Business Development &

Licensing Journal No 2, Autumn 2006

The family The Eiffel Tower The guided missile The incubator

Objective Commercial reality plus drift to moralistic and emotional

Administrative and political rationality mixed with principled expediency

Requirement for strategic and tactical functionality and gains

Future life story, from dream to reality, existentialist issue

Outcome Require longer-term commitments from the counterparty

Indifferent to relationships, prime focus on precedents and risk avoidance

Performance orientation not based on relationship

Support without loss of identity or control

Decision criteria

Apply ‘our’ standards and decision criteria

Retain all powers of sanction

Formal enforcement safeguards

Reluctance to commit, want to retain the right to review

Relations with negotiator

Trust and space given to known and loyal representatives

Highly circumscribed delegated autonomy

Autonomy for performance within prescribed limits

Negotiating autonomy balanced with unpredictable veto

Table 1: The mandate and the organisational culture

• Theguidedmissilecultureisevidenced

in most of the global pharmaceutical

groups. Even after a merger of equals, for

example Glaxo with SmithKline Beecham,

the previous corporate identities are

still alive and well in evidence. We may

have heard the phrase, ‘When you meet

X don’t forget he/she came from ...’

Conflict and internal competition for

resources will only be resolved when one

culture triumphs.

• Theincubatorculture,engagedinthe

struggle for life, is usually found in

start-ups and spin-offs and can be a

negotiating nightmare. The mandate has

to reconcile ego-driven decision-making,

interpersonal relations and intense

loyalty, and that is no easy task. For

companies of this type, the negotiating

process can be particularly challenging

if their business strategy is disconnected

from reality.

Table 1 sets out some of the impacts of

organisational culture on the mandate that

have been suggested by our experience.

We could now ask a relatively simple but

stark question: how do, for example, the

guided missile culture and the incubator

do business if their mandates contain

such different characteristics? To secure an

agreement with our counterparty, do we

require an alignment of mandates or will an

overlap suffice? If our answer is the latter,

how extensive would it need to be? In many

>>


In our daily work routine we focus on

short-term day-to-day issues and seldom

think about the bigger picture. This

book provides the ideal opportunity to take

your eyes off the desktop and look into

the wide blue yonder. The author worked

for 20 years in the industry and is now an

academic at the Business Schools at the

Open University and SDA Bocconi, Milan.

As such, he is well qualified to provide

a long-term strategic analysis of the

industry in the years ahead. His book

is not an extended opinion piece, but

is based on both a literature search

and, most importantly, interviews with

senior executives in 34 pharma organisations

including companies such as Merck & Co.,

Novartis, Teva, Bayer, Shire, Grunenthal and

Norgine.

In essence, the book provides an analysis of

how the industry reached its current position

providing social and economic benefits, the

challenges facing the industry today and how

it may evolve over the next two decades to

deal with these challenges.

Everyone accepts that the pharma industry

has historically provided products that

have had a great benefit to society, such

as significantly extended life expectancy.

However, the author believes that the

industry is now stalling, driven by a slow-

down in innovation caused by poor R&D

productivity, tougher regulatory requirements

and an economic squeeze by the payers.

The question therefore is whether pharma

will follow the traditional industry life cycle

Pharma has evolved to lengthen life expectancy, among many other societal benefits. But with developments in genomics, biology and tough regulation, what might the future hold for the industry?

The Future of Pharma: Evolutionary Threats and Opportunities, Author: Brian D Smith

Book review by Roger Davies, Medius Associates

hypothesis of growth (based on technology),

maturity (consolidation) and decline (into a

commodity business such as generics). Prof

Smith rejects this hypothesis in favour of

an evolutionary theory of industry whereby

existing pharma organisms will evolve into

new species adapted to fit the changed social

and technological landscape, as it did in the

past.

The research undertaken by the author

identified seven forces shaping the social

landscape. Six of the drivers of these forces

are reasonably well known including: payers’

focus on value, growth from emerging

markets with low prices, risk-averse

regulators, a proactive public and cautious

investors. The seventh factor that was unclear

from the interviews, but was identified as the

growth of preventative medicine.

Similarly, the author identifies five

technological forces including a second

therapeutic revolution arising from the

greater understanding of biology, genomics

and the convergence of drug, devices and

diagnostics, which will take longer to develop

and will need mastery of new technologies.

Whilst most pharmaceutical executives may

recognise this, the author also identifies

technologies from outside the industry that

are expected to play a part in the future, such

as telemedicine, information technology and

the death of the traditional salesperson, as

new IT channels are developed.

Having identified the social and

technological factors, the author then

identifies nine habitats created by a three-

Time for change

>>

Published by Gower, July 2011

ISBN: 978-1-4094-3031-5

(E-book version 978-1-4094-3032-2)

214 pages, hardback £65.00

(publisher website price £58.50)


by-three matrix of payers (institutions,

consumers and wealthy individuals) and value

propositions (tailored customer operations,

supply efficiency and innovative therapies).

The pharma industry organisms of the future

will evolve their business models with new

strategies and organisational structures to

create new species adapted to their target

habitat. The existing structures of big

pharma, speciality and generics will gradually

disappear.

Monsters and giantsSo what are the new species? The high

volume, low price species is called the

‘monster imitators’ and can be likened to

giant generic companies who mainly supply

institutions. The smaller generic companies

will presumably become extinct. The opposite

end of the spectrum is the ‘genii’, where each

company will provide clinically superior high

price products for those who can pay. The

‘get well, stay well’ habitat will be inhabited

by ‘trust managers’ offering OTC products

to the mass-market consumers. The ‘disease

managers’ will target patients with chronic

diseases such as asthma but also including

degenerative diseases such as Alzheimer’s

where cost containment is important. The

‘lifestyle managers’ are expected to develop

to cater for the prophylaxis market where

a combination of ‘analytics, processes

and therapies’ will be used to identify and

manage patients’ behaviour to prevent or

ameliorate disease.

The ‘value pickers’, the carrion of the

industry, are the smaller companies who

exploit gaps left by the big companies by

re-innovation of existing molecules with

new indications, dosage forms, and so on.

The ‘health concierge’ is the company that

caters for the wealthy well with personalised

patient management using screening and new

technologies. The author makes it clear that

these are discrete, mutually exclusive, business

models rather than companies that may

consist of a number of the above species.

Having identified the new species, the

author describes the differentiating capabilities

each company will need to address its

habitat, the organisational structures that

will be needed, and asks what capabilities

should be made and what bought in? As an

aside did you as a BD&L executive know that

outsourcing (acquiring) R&D from another

company is ‘a form of sex’? This is not

meant as a one-night stand but is how the

in-licensing company acquires new ‘genes’.

Apparently, there will be more outsourcing in

the future.

Finally, the author describes how the

industry may change to adapt to the future

and discusses how to prepare for, and if

possible, control the evolution. The most

radical suggestion is that the ‘large hierarchical

and integrated organisation structures …

have run their course as the optimal structural

form’, so watch out big pharma. Prof Smith

concludes with a plea that the people who

work in the industry should seek to embrace

change using all their knowledge and skills to

ensure the pharma industry continues to be

a major contributor to social and economic

wealth.

This is a very readable, especially well-argued

and stimulating book based on a substantial

research project with leading executives in the

pharma industry. It provides a new perspective

on the industry, the issues it is facing and

how it may evolve to deal with them. It offers

an holistic analysis rather than the more

specialised focus of reports published by the

larger consultancy firms. Whether it has more

‘blue sky thinking’ is for the reader to decide.

Some of the conclusions could be regarded

as controversial. For example, I am not

convinced that large companies will become

less important in the next 20 years, not least

of all because of investors’ desire for relatively

safe investments, albeit with perhaps weak

earnings and capital growth.

This book is essential for anyone with a

general interest in the future of the pharma

industry or for those who are involved either

directly or indirectly (including most BD&L

executives) with the strategic future of their

company.

Large hierarchical and integrated (pharmaceutical) organisation structures … have run their course as the optimal structural form.

>>

About the authorRoger Davies works with Medius as

a consultant in licensing and business

development. Having personally completed more

than 80 pharmaceutical deals he specialises

in valuations, deal structuring and negotiating

licensing and acquisition deals. He is the

former Chairman of the UK Pharmaceutical

Licensing Group, the professional association of

licensing and business development executives

and is the Finance module leader for the

Business Development MSc at the University

of Manchester. Roger has a Masters degree in

Economics.

T: +44 (0) 1954 200520



A s is customary, this month’s deals will

focus on those with disclosed financial

terms. Whilst the weather in May in

most of Europe was grey and cold, the pharma

M&A market was sunny and hot. There were

nine M&A deals announced, with an aggregate

headline value of $20 billion. On top of that,

at the end of the month there were rumours

circulating that the Indian generic company Sun

Pharma is seeking to buy Meda for around $5

billion. This news caps what has been the most

active month this year for deals.

Seven Days in MayJohn Frankenheimer’s film about a plot to stage

a military coup in the US compares well to the

number of M&A coups published in the seven-

day period from 20 May. First on the scene was

the announcement that Actavis would buy

Warner Chilcott for $8.5 billion. On the same

day, Elan announced the acquisition of both

AOP Orphan for up to $693 million and a 48%

share of Newbridge for $40 million, plus an

option to buy the rest for $240 million. A day

later Novo Nordisk said it would buy Xellia for

$700 million. The next day, BTG announced

two deals worth $420 million; then came

Valeant’s $8.7 billion bid for Bausch & Lomb,

and so on for the rest of the month. With the

latest Meda rumour, early June also looked

promising. Maybe the European weather will

pick up as well.

FrenzyThe M&A deal frenzy could hardly be compared

to Hitchcock’s film about a serial killer.

Nevertheless, Elan’s deal activity is reminiscent

of the killer’s frantic search through a lorry load

of potatoes (potatoes = deals in this context)

to find something to secure his future. The

Elan/Royalty Pharma saga started following

Biogen’s decision in February to buy out the

Tysabri rights from Elan for $3.25 billion. The

windfall prompted Royalty Pharma to make

a $6.55 billion bid for Elan, arguing that the

shareholders would prefer cash than leave it in

the hands of the Elan management to invest in

a new pharma business.

Following the close of the Tysabri deal in

early April, Elan went on a spending spree

in May. Firstly it paid $1 billion for 21% of

the respiratory product royalties Theravance

receives, including the royalties on the

recently US approved Breo for COPD being

marketed by GlaxoSmithKline. Secondly Elan

spent $693 million on the Austrian company

AOP Orphan with sales of $76 million and

products in development.

Thirdly, there was an unusual deal where

Elan spun out its clinical stage CNS asset

ELND005 to a new company, Speranza,

whereby Elan paid Speranza (not the other

way around) up to $70 million in fees and

loans. In return, Elan received an 18% share

in Speranza and an option to commercialise

the product in some countries, a 3% royalty

on sales of ELND005 products and potentially

two $200 million milestones. Nerano, a

company controlled by a former Director of

Elan Corporation, Seamus Mulligan, will hold

62% of Speranza shares and the remaining

20% will be issued to senior management

who work on ELND005 and who will transfer

from Elan to Speranza. A further $20 million

in loans is being made by Nerano to the new

company.

The next eye-popping episode will be

at the EGM on the 17th June when the

Elan shareholders will be asked to vote on

four strategic transactions: Theravance,

AOP Orphan, Speranza and a $200 million

share repurchase programme. According

to press reports, analysts have been critical

of the Theravance deal but the Elan CEO

says that if the shareholders reject the deals

(costing $16 million in break fees) there is

a ‘Plan B’! According to Royalty Pharma,

Elan is “pursuing a frenetic jumble of value

destructive [deals]” and the “proposed

transactions offer no coherent strategy and

Spotlight on the most significant deals in the world of pharma in May 2013.

By Roger Davies, Medius Associates

Deal watch

>>

are not in the best interests of Elan or its

shareholders.”

Four Weddings and a FuneralLooking at the recent activity of Actavis, Mylan

and Valeant, one could be forgiven for thinking

it was a rom-com script. At the end of April the

Financial Times reported that the engagement

between Valeant and Actavis, for Valeant to

pay $13 billion in an all-stock deal, had been

called off. A few days later, Actavis paid $55

million for Valeant’s metronidazole gel, a bit like

keeping possession of the engagement ring.

With both parties hurting from the bust-up,

Actavis went off and married Warner Chilcott

for $8 billion and Valeant married Bausch and

Lomb for $8.7 billion. Apparently, Mylan was

also considering acquisition of Actavis but was

jilted.

So what is the logic of these deals? The

noteworthy aspect is that all the players rely

on expansion of their business by acquisition

of products or companies with marketed

products and brands. This is in contrast to big

pharma that more often acquire companies

with technologies or development stage

products to bolster its pipeline. A point made

by The Economist (1 June) is that Valeant’s

R&D spending is 2% of sales so it does not

seek to generate growth from internal R&D.

The same applies at Actavis and Mylan, where

R&D spending is 6% of sales, which is typical

of generic companies. Meda’s expansion has

also been driven by product acquisitions and in

the process incurred $2.25 billion of debt and

50% gearing. Similarly, the size of the deals by

Valeant and Actavis means that serious debt

or new equity will be needed and it begs the

question as to how much more Valeant and

Actavis can develop their business in this way.

Brewster’s MillionsThe $30 million spending spree that had to

be achieved by Monty Brewster in 30 days to

secure $300 million is nothing compared to the


money big pharma companies invest as they

continue to buy companies and license products

and technologies to supplement their pipelines.

The deals that fall into this category are: Forest’s

$460 million option to license a phase 2 acute

heart failure treatment from Trevena; Merck’s

$430 million licence of diabetes type 2 targets

from Abide; Takeda’s $250 million acquisition

of Inviragen; GlaxoSmithKline’s $325 million

acquisition of the vaccine platform technology

company, Okairos; and Bristol Myers Squibb’s

$112 million licence to antibody conjugates

from Ambrx. Note that some of the headline

numbers can be misleading. The Ambrx/

BMS $112 million deal consists of $15 million

upfront and then $97 million per product,

whereas the Abide/Merck $430 million deal

includes the upfront and rights to three

products. On a like-with-like basis the deals may

be much the same size.

Some of the big pharma companies that

have been damaged by products falling off the

patent cliff are seeking late stage or marketed

products to bolster sales. AstraZeneca’s

new CEO’s first acquisition was Omthera,

a US company with its omega-3 product in

registration. The good news is that the product

is late stage and is likely to be approved and

will fit alongside Crestor. However, the market

is highly competitive and AstraZeneca paid an

88% premium for the company’s shares.

BTG has also had to find new late stage

opportunities after the Cytofab collaboration

with AstraZeneca was terminated last August.

So, in May it acquired two marketed products,

the EKOS device with $28 million sales and

the Therasphere business of Nordion with

$48 million sales. Shire continues to follow

the rare disease path with its co-development

with Nimbus using its discovery platform. The

financial terms were not disclosed but it seems

that Shire’s alliance with Atlas Ventures, who

along with Bill Gates is an investor in Nimbus,

is bearing fruit. Another VC company, Novo

A/S, the company that manages the $30

billion assets of the Novo Nordisk Foundation,

has also made a major deal with the $700

million acquisition of the Norwegian company

Xellia, which manufactures anti-infective API

and generic products. Xellia is a spin out from

Alpharma, with sales of $220 million in 2012.

In addition, late in May, Novo A/S closed

a $125 million royalty purchase deal with

Ophthotec and agreed to lead the $50 million

Series C funding.

Panic in the StreetsThe threat of a person with bubonic plague

spreading the disease in New York as portrayed

in Elia Kazan’s film may be diminishing. There is

a trend developing whereby government and

NGOs fund big pharma companies to develop

products that have scientific challenges and/or

have a low return on investment, such as anti-

infectives. The latest example is where BARDA,

part of the US Department of Health, has given

GlaxoSmithKline a contract worth up to $200

million to develop new antibiotics – the first

deal of its kind.

In effect, governments and NGOs are

stepping in to correct the market failure of

low pricing in certain disease areas that deters

companies from developing new products

that are likely to have low returns. In Japan,

six local companies with the Bill and Melinda

Gates Foundation are contributing $100

million for development of treatments for

diseases prevalent in the developing world.

Another public/private partnership announced

in May is where Eli Lilly and Roche Diagnostics

and the State of Indiana are investing $50

millon in a start-up fund for a new research

institute focused on metabolic disease.

Effectively, these public/private deals provide a

risk sharing approach to development of new

treatments and, hopefully, many more will

happen.

Unl

ess

note

d al

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tions

are

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s*

U

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Pa

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* Ja

pan

only

>>

Licensor/partner or acquirer

Deal type Product / technology Headline ($m)

Deal watch

Bausch & Lomb / Valeant Company acquisition Ophthalmology business 8,700

Warner Chilcott / Actavis Company acquisition Branded medicines for women’s health, gastroenterology, derma 8,500

Theravance / Elan Royalty participation 21% of respiratory product royalties received by Theravance 1,000

Xellia / Novo A/S Company acquisition by Novo’s VC arm API manufacturer and anti-infective products 700

AOP Orphan / Elan Company acquisition Rare disease medicines $76 million sales 693

Trevena / Forest Option to license + equity TRV027 phase 2 acute heart failure + $30 million equity 460

Omthera / AstraZeneca Company acquisition Dyslipidemia therapy end phase 3 443

Abide / Merck Licence, collaboration Targets for Type 2 diabetes – 3 products 430

Okairos / GlaxoSmithKline Company acquisition Vaccine platform technology 325

Newbridge / Elan 48% company share UAE based regional company 284 $40 million + $244 million option for 52%

Inviragen / Takeda Company acquisition Vaccines in phases 1 and 2 250

Alexza / Teva Licence, supply US Adasuve approved for acute agitation 235*

EKOS / BTG Company acquisition Device for treating blood clots 220

Therasphere / BTG Asset purchase Treatment for liver cancer 200

Aradigm / Grifols Licence + equity Inhaled ciprofloxacin phase 3 ready; 35% of Aradigm ($26 million) 116

Ambrx / Bristol Myers Squibb Licence Develop and commercialise antibody drug conjugates 112

Elan / Speranza Product spin out ELND005 phase 2 CNS drug 70**

Alvine / Abbievie Option to acquire Phase 2 product for coeliac disease 70

Cempra / Toyama Licence, development Solithromycin phase 3 70***

Valeant / Actavis Product acquisition Metronidazole gel 55

Astellas / Amgen Co-development / JV 5 Amgen development products ND***

Nimbus / Shire Co-development Lysosomal storage disorder agents ND


55

54

53

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March 31 + April 1, 2014

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June 10 + 11, 2013

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e53-54_PLG-BDLJ.indd 1 06.06.13 11:15

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