Legal Issues in Licensing and M&A

Legal Issues in Licensing and M&A

Mar 19, 2020PAP-Q1-20-CL-028

In the biotech and pharma fields, deal-making activity, including M&A, has been on the rise and is likely to continue through 2020.

Life sciences companies have increasingly been supplementing their traditional research and development processes through mergers and acquisitions. In addition to developing new technology and product candidates internally, companies have turned to licensing and other modes of acquiring assets, including purchasing entire companies. The result is a more diverse R&D process with the potential to bring products to the market more quickly.

Flexible Deal Structuring

Companies are seeking flexible deal structuring through licensing and M&A. More and more, we’re seeing deals that may start in one form but, with the fluidity of negotiations, end in another. This can make negotiating difficult for those who aren’t familiar and conversant with the full range of deal structures. Such flexible deal-making processes can also present concerns for the structures of the companies involved, especially when one or more of those companies is a foreign entity.

Trends in Licensing and Innovation

Overall, M&A values in the market are on the rise, and we project them to increase in the coming year. Bigger deals will typically result in the divestiture of some products for antitrust purposes or in the course of normal pipeline pruning in terms of product divestitures.

In the licensing area, deals are becoming more complex. With multiple assets and programs involved in licensing and collaboration structures, companies have started to come together to form multi-product collaborations. We’re seeing this especially in the biologics area, where companies are collaborating on discovery and development collaborations for antibodies and related technologies, as monotherapies and also for coadministration, such as in immuno-oncology.

In a current trend, many companies are investing in AI and big data research, as both have the potential to drive efficiencies and accelerate the pace of R&D. Big data collected from research institutes, clinical trials, and other sources is enabling faster, more efficient R&D, particularly as companies tap into the power of gene profiling and analysis, biomarkers, and predictive medicine. Companies are also looking to monetize big data for use in research and other outside applications.

Many biotech and pharma companies have licensing deals with companion diagnostic companies, allowing them, among other applications, to aid in the prediction of whether patients will benefit from a particular product. The amount of data needed for these applications is enormous. This leads to the need to understand the compliance landscape. Privacy laws regarding the distribution and use of personal data vary around the world. Companies collaborate in maintaining compliance but often need legal assistance in navigating applicable laws, including as they may apply to international operations and global studies.

Forecasting M&A Value Trends

There are predictions that the global transactions boom is leveling off, but, even as a cyclical downturn looms, M&A won’t fully slow down. Transactions will continue to grow in the industry. More pharma and big biotech companies are finding that the number of transactions needed to supplement their R&D programs has increased. To continue advancing and generating more product candidates, these companies look at platform technologies and research tools, in addition to actual product candidates.

The successful completion of mutually beneficial transactions requires a variety of strategies. Some companies choose to buy a particular new technology, while others build R&D internally. Appetites in the industry are considerable, generating bigger and more complex collaborations.

Alignment with Other Industries

Companies have historically supplemented long-term R&D through licensing to reduce costs. The latest reports are that the cost of bringing a new drug to market can be upward of two billion dollars, with typical timelines extending up to a decade or more. That kind of high risk drives collaboration and the philosophy that exploiting assets in multiple ways, with multiple partners, is advantageous.

From a capital perspective, a new kind of funding arrangement is being utilized in the industry. Private equity and venture capital firms with strategic expertise in predicting market success have brought in subject-matter experts from CROs or clinical development executives from pharma companies to guide their investments in the development of pharmaceutical products. These firms are funding and conducting late-stage clinical studies of products that may otherwise have been on a slower development timeline in the ordinary course of pipeline prioritizations that pharma companies necessarily employ. The private equity or venture capital firm then funds the clinical trial, contributing to a faster-paced program that they believe will pay out from product sales in the long run. When successful, the payout is often several times the funded cost of development.

Split Territory Agreements

Another licensing deal structure we see is a split territory agreement, which allows licensor and licensee, or multiple licensees, to develop and bring to market the same product in different parts of the world. An added complexity of this type of structure is that the participants will need to coordinate their independent development activities so they don't adversely affect each other, for example, with differing branding strategies, manufacturing practices, and safety reporting.

Baker McKenzie’s Expertise

Baker McKenzie's Life Sciences Transactions practice is based in the United States, but benefits from the firm's global breadth and depth. We effectively cover all of the intricate legal material required for these kinds of transactions, whether the deal is for licensing, M&A, collaborations, or a hybrid of these complex deal structures that are customized and tailored for the particular needs of the parties or the product technology.

With offices in key locations around the world, the lawyers at Baker McKenzie work globally to support our clients in these types of transactions by assisting in due diligence, negotiating and drafting the operative agreements, and addressing regulatory pathways and patent prosecution issues as deals go forward, at a truly international level.