A View to Strategic Partnering

• GxP Compliance &Training Partners (GCTP)

Any human enterprise is subject to challenge from its conceptual stage; from financial hurdles to technology and expertise, they all contribute to the success or failure of our goals. The typical business cycle dictates that we need to define our operating model based on the service or product to be provided, and the market we want to target.

However, this traditional approach is short-sighted if the regulatory environment, as well as the global and domestic competition is not included in the model. The sheer volume of variables to consider when establishing our presence could be overwhelming and could hinder the enterprise take-off. The good news is that there are ways to overcome this challenge. One of the most effective ways is to partner in those areas where our business needs additional strength. The modern trend is called “Strategic Partnering”. However, the basis on which it is formed and what it pursues are still the same as what we know as a “Partnership”.

What is a Partnership?

A partnership is an association of two or more persons to carry on as co-owners towards a common goal. Generally, this goal is for-profit, but there are other partnerships based on similar principles that pursue a non-profit or scientific goal. In many instances, these partnerships allow individuals or organizations to remain independent. In others, the partnership may dissolve the individuality of each entity in order to become one. In either scenario, the status is defined by the partnership agreement or contract.

Advantages

There are many benefits to a partnership, though it all depends on the complexity of the operation. Some require skilled individuals to carry out the operation itself. It is not enough to have a product or service that is innovative; if the supporting activities are not efficient, the entire enterprise may suffer. On the other hand, there are partnerships solely for innovation and technology development. In these instances, having a partner may complement gaps to ensure success.

In either scenario, partnering shares the same importance of promoting the enterprise. Some of its general advantages are as follows:

• Shared knowledge – We may not have all the necessary expertise in the subject area. Partnering helps compile knowledge under one common denominator, the partnership.
• Financial strength – It is no secret that nearly every human endeavor requires some sort of financial backing. Even for non-profit activities, financial health determines success. There are ways to fund these activities, but certainly having a financial partner ensures that there is vested interest from the individuals involved.
• Reduced weaknesses – A smart practice when partnering is to do it in areas where weaknesses have been identified. A strong partner in the right area may help close the gap and compete against established competitors.
• Shared risks – Similar to financials, when we partner, the risk spreads among the individuals or entities within the partnership. Sharing the risk ensures that there are greater amounts of resources to address any concerns. Commonly, these resources are in knowledge, financials, manpower, and networking.
• Network expansion – By partnering with individuals who possess the right attributes, we can immediately increase our customer or resource base to accomplish our goals.
• Flexibility – From an administrative perspective, we are able to share the responsibility and avoid the pitfalls of a sole proprietorship where all has to go through our own hands.
• Access to new technology – There are instances where required technology is not accessible. This could either be due to cost, trade secrets, exclusive agreements, proprietary rights or patents. In any of these cases, partnering with the right individuals would allow access to technology that otherwise would not be possible. However, a confidentiality disclosure agreement is recommended to protect rights to proprietary or intellectual property.
• Diversification – A self-explanatory item, diversity in a portfolio guarantees customer retention and the adaptability of the enterprise to unforeseen events.
• Speed to market – Partnering brings more resources toward a common goal. One of its positive outcomes is that activities take less time to complete. This in turn accelerates the process to project completion or launch.

Disadvantages

As with any other activity, partnering presents its challenges. It is suggested that anyone considering it performs an evaluation to balance the expectations, and to determine if the benefits outweigh any potential burdens. Every partnership is different, but in general the disadvantages may be one or more of the following:

• Unlimited liability – For entities in a traditional partnership, unlimited liability is a concerning issue. However, it can be limited by contracting specific activities to the extent of the work performed.
• Disagreement – Friction may surface while performing partnered activities. It is often inevitable and can for a time test the ability of partners to work together. However, there are ways to manage these uncomfortable situations. From pre-agreed conditions to mediation, there are recommended approaches to discuss prior to entering into a partnership.
• Liability – In a traditional partnership, each partner is an agent of the partnership and is liable for the actions of other partners. However, in contract based partnering the liability is limited to the activities contracted. For example, a clinical CRO may not be liable to the sponsor for activities related to drug manufacturing as it falls outside the scope of services provided.
• Abandonment - The departure of partners has serious consequences to the enterprise. When a partner leaves, the other has to assess the impact on the enterprise and its survival. It is suggested that we agree on penalties at the partnership formation stage.

Life Cycle of Strategic Partnering

There are many ways to start strategic partnering or partnerships. The most typical is when an entity starts an enterprise and realizes the need for additional resources. Under this scenario, the partnership surfaces through an adhesion process, and new members come to an existing enterprise. It is irrelevant if the partnership later re-shapes the original business. There are other instances for which the partnership is an integral part of the enterprise from concept phase, and is created parallel to the process.

Both cases are the formation of a partnership. Leaving the best practices for the next phase, the formation establishes what the needs for the partnership are and how it can be rolled out for the benefit of the enterprise. Some factors to consider:

• Shared values and purpose – Partners must share similar values and have a sense of commitment to other partners to assure a collaborative environment.
• Clear objectives – A partnership cannot be ambiguous. At the initial stage the upcoming partner is evaluating the enterprise as well. It is important to have everything defined and clear, as it helps relay enterprise goals, boundaries and restrictions.
• Defined responsibilities – Key to success is defining responsibilities and agreeing who is primarily responsible for which operations, and who is back up. Establishing responsibilities early in the process allows focus in concurrent activities, better oversight, and prevents lack of oversight that can negatively impact the overall process.
• General accountability – Unless partnering has been created for a specific activity, the partners are wholly accountable to the entire enterprise. Definition early in the process is imperative.
• Fiduciary duty – It is expected by every partner to honor and respect the alliance formed, and to put partnering interest at the top. After all, the other partners and clients expect the same.
• Open mind – By partnering, we have agreed to share a common goal. On that note, it is natural to agree or disagree on certain issues. The partners are expected to manage these issues professionally and to choose the best option for the partnering activity.

Partnering may come to an end once goals have been achieved. However, there are partnering situations that move on to a new goal not originally planned. It is not uncommon to see partnering evolve to other enterprises as the culture and trust has already been established.

Best Practices

Strategic partnering is a serious business and choosing the right partner may well determine our success moving forward. We have talked about its importance, but we also need to discuss its best practices. We dedicate this section to the steps necessary to make a strategic partnering enforceable between partners and third parties.

It would be an unfinished exercise if documentation requirements were not discussed. The truth of the matter is that an enterprise has an effect on its individuals and third parties; such as customers, patients, government and other businesses. In fact, in good or bad times the partnering individuals may disagree to the point of dissolution of the partnership. To that effect, one best practice is to keep everything in writing. At a minimum, we should consider the following in the agreement:

• Legality of its purpose
• The consent by each partner
• Sharing of profits
• Sharing of losses
• Subcontracting by one partner
• Taxes
• Breach of Agreement consequences
• Indemnification
• Rights upon dissolution

If partnering surfaces as the right choice for enterprise success, it is important to translate topics into writing to ensure they remain as originally agreed.

Another good practice to assure success is information sharing. Many times the lack of information is the root cause of bad decisions or misunderstandings. Partners must have regular meetings with defined agendas to cover on a routine basis. These agendas may be as frequent as weekly at the beginning, then on a monthly basis as the enterprise continues its course. Sharing information ensures that surprises affecting the business are kept to a minimum, and issues are addressed in an adequate manner. It also helps to strengthen the professional relationship and trust among individuals.

Industry Trends

Partnering trends in pharmaceuticals and biologics are very diverse. They are directly affected by the scope of the enterprise and the entities involved. If we look for global versus domestic presence, our focus and energy may well be spent in ways that are very different even though it is the same business. A common trend is to partner with organizations that are of similar size. Nobody wants someone else to have the upper hand in negotiations. The greatest risk of partnering with “bigger than us” organizations is the lack of leverage when negotiating as the scale will always tip to the heavier side. Also, these partners may be too expensive or selective with whom they do business, and negotiations are known to be quite unfair to small players.

Partnering with the right size entity has proven to be effective and successful for many businesses. Some examples exist in small pharma where partnering with others of similar size possess attributes that complement. For example, one company’s business model may be to develop a molecule or to drive the drug development to Phase II/III, while the upcoming partner’s model is to launch NDA and have a commercial presence. Other partnering models are as follows:

Contract Research Organizations (CROs)

Toxicology studies conducted by pre-clinical CROs are considered expensive and require specific expertise and facilities depending on the animal model required to support IND. Partnering with an established CRO dedicated to pre-clinical studies can ease the weight at such an early stage of drug development.

Similar to pre-clinical, efficacy studies developed and conducted by clinical professionals require knowledge and logistics sometimes financially restrictive to sponsors. New drugs are novel in nature, and targeted conditions must be evaluated by licensed physicians and staff. Sponsors typically have some personnel in-house, but the efforts are complemented with the selection of a strong clinical CRO.

Drug development has also benefited from partnering models that allow process development, scale up, registration batches, and CMC IND sections. In some instances, the co-development of drug candidates or processes may lead to shared intellectual property issues. If there is potential for intellectual property development, the partners must evaluate who keeps such rights before engaging in any activity.

Contract Manufacturers

A strong trend in the industry has been contract manufacturing as the outsourcing of GMP or commercial operations. Unless the sponsor has obtained an NDA/BLA before for which they have GMP manufacturing, chances are that running the commercial operation is a new challenge to their business model. Launching a product from the ground requires vast amounts of resources that are not of the same nature as pursuing drug approval. At the end of Phase III and during the NDA process, the sponsor’s concern is already shifting from drug approval to being the first in the market. Partnering with a contract manufacturer may represent the ideal alternative that addresses many of the commercial concerns. The approach could be either transitional while the sponsor develops its own operation, or as a permanent alternative if the sponsor model does not contemplate its own commercial operation.

Conclusion

With globalization and increased competition, every enterprise faces more challenges than ever before. Whether our goal is discovering a new technology or to gain commercial market share, it will always be critical to be the best at what we do. On the other hand, resource limitations have a direct impact on our ability to perform, and leaves room for competition to get ahead. Partnering should always be part of our strategy as it shortens the cycle towards the end goal. Also, it let us acquire resources that can enhance our performance and ensures success.

Robert Guzman is a Consultant for GxP Compass LLC, an organization specialized in global regulatory compliance, regulatory affairs, GxP quality assurance, process engineering, and six sigma for pharmaceuticals, biologics and medical devices. He is experienced with product registration, transfers, and compliance within the domestic and international markets of Asia, Europe, North America, and Latin America. His educational background is a Juris Doctor from the Pontifical Catholic University, a MBA from the University of Massachusetts-Lowell, and a Master in Chemical and Life Sciences from the University of Maryland-College Park. He is an ASQ Fellow and RAPS US RAC.