Collaboration Agreements: Critical Issues and Common Pitfalls

The number of collaboration arrangements for emerging technologies is increasing significantly, especially among companies developing COVID-19 diagnostics, vaccines, and therapeutics. Consequently, a massive amount of capital was invested in the biopharmaceutical industry in 2020. These deals range in value from the low millions to several billion dollars, representing significant risks and value for investors.

Some recipients of that capital are seeking partners with whom to collaborate, sharing both the costs and risks associated with their activities and bringing innovative technologies to market. Such collaborations take on different forms and typically involve joint development, licensing, and ultimate commercialization of intellectual property (IP) related to potential new drugs or medical devices. All parties share profits or losses.
With significant pressure to deliver for investors, valuable resources at stake, and increasing pressure to move quickly, companies might have little time to analyze and negotiate collaboration agreements. However, taking the time to consider a few key factors and understanding some common pitfalls before entering into a definitive agreement can have significant long-term value.

Identify Objectives
Because each party in an agreement might have different priorities, each one should strive to understand the other side’s objectives and work toward finding a general agreement on the objectives of a collaboration. At the outset, collaborating with another company might seem to be the right decision, especially considering the potential financial upside or access to research and development resources. However, thinking about another company’s objectives and how they align with your goals can provide additional clarity.

Objectives of a collaboration agreement for drug development can apply to drug discovery, preclinical testing, clinical trials, manufacturing capabilities or capacity, shipping and logistics, commercialization, or some combination thereof. Fitting a collaboration into your company’s overall business goals and IP strategy can save time and conserve valuable resources (economic and otherwise). When a collaboration opportunity presents itself, consider whether that agreement is worthwhile or an expensive distraction from your company’s long- and short-term business goals.

Aside from ensuring alignment with business goals, focusing on the objectives of a collaboration will help guide it in the right direction — from initial conversations through the negotiations of a formal agreement to a successful end of a project. Identifying objectives and revisiting them throughout a process are vital steps toward ensuring that an agreement is appropriately structured and brings value to both parties. Such an approach also will help during the negotiations, because it indicates where a company should take a stronger position and where it might be willing to concede.

Evaluate Partners
Understanding a potential partner’s technical capabilities, financial resources, existing IP, expertise, facilities, knowledge, track record, and level of commitment to a transaction will help to ensure that all parties achieve their objectives. Taking time to evaluate potential partners can help a company identify situations in which that company lacks the resources or expertise to help move a project forward, receives a benefit from their contributions, has competing interests, and/or does not have the full support to complete the project. Those situations may not be deal breakers, but they will help all parties craft an agreement that adequately addresses them.

Protect Your IP Rights
Deciding on the appropriate structure for IP developed before, during, or after a collaboration can be guided by the objectives and the skills, expertise, and existing IP that each party brings to the table. Aside from granting limited rights to existing IP (referred to as background IP), almost all collaborations need to include an agreement about how IP developed during the project (often referred to as arising IP) will be handled. Arising IP can be owned solely by the developing party, or both parties can have joint ownership. A combination of those two approaches also is possible, along with some additional carve-outs in more complex agreements.

All IP structures come with their own sets of advantages and disadvantages, and companies should consider how collaborations fit in with their overall IP strategies and long-term goals. Selecting the appropriate IP structure for a collaboration can be problematic, in part because a company might not know the nature of an IP that will be developed, who will develop it, and/or how valuable the arising IP might be.

Collaborators also might have conflicting agendas, which emphasizes the importance of understanding all objectives before entering a collaboration. While keeping your company’s overall business objectives in mind, be vigilant for IP provisions that

Clearly Define Performance Obligations
Within a definitive agreement, both parties can allocate responsibility for individual activities to each other or share the responsibility for one or more activities involved in achieving the objectives. Such responsibilities might include carrying out R&D and regulatory activities, manufacturing, commercialization, and/or contributing financially. In some situations, the responsibilities of all parties will be clear. For instance, one party might have the ideas, existing IP, know-how, and expertise to run a project but lack the laboratory space, manufacturing facilities, personnel, and/or financial resources to support the project. Such a situation can make it easy to determine who should be responsible for different activities and contributions. But in some situations, the respective responsibilities are unclear, such as when each party brings its own unique IP, resources, and expertise to the collaboration. In either case, when both parties decide on their respective responsibilities, they should define those responsibilities and the timelines for completion for certain activities. Your company should ensure that a partner carries out its responsibilities with the same level of commitment that your company is dedicating to the project. Another consideration is a formal management structure to ensure that both parties stay on track and contribute to the project in a meaningful way.

Establish Collaboration Oversight
Governance of a collaboration ensures that both parties meet their collaborative goals. A governance structure such as a joint steering committee often is established to provide oversight and facilitate decision-making during collaboration efforts. A steering committee oversees different aspects of a collaboration, including R&D activities, regulatory compliance, manufacturing, commercialization, and all financial and patent matters. The steering committee also might be able to resolve disputes as they arise. Your company should consider whether the management structure provides proper oversight of a collaboration’s essential aspects and whether your company has adequate decision-making power.

Protect Confidential Information
The need to share and protect confidential information is an issue that often arises in collaborations. One party inevitably might share information with a third party, but the other party did not want that information shared. The objectives of the parties and the information to be shared by each party are essential factors to consider.

Pay close attention to how the term confidential information is defined. In general, such information includes development and commercialization plans, inventions and related improvements, technology, and/or data resulting from a collaboration and all other private information the parties disclose among themselves. A company also might want to tailor the purpose for which confidential information can be used so that the other company cannot use that information for purposes outside the scope of the collaboration.

Ensure That All Parties Benefit
The number of collaboration agreements almost certainly will continue to increase. Herein, we present only a few critical factors to consider and the common pitfalls to avoid when entering into a collaboration agreement. Because of the complexity and uniqueness of such agreements, your company should be wary of a cookie-cutter approach when entering into a collaboration.

Drafting a definitive agreement based on facts and the circumstances presented will help ensure that IP rights, confidentiality obligations, and governance provisions meet the needs of all parties. Your company’s efforts to structure and implement sound, effective collaboration agreements can bring significant value to all parties. More important, in the context of the life sciences industry, these collaborations will lead to new therapies and medical devices.

Sarah A. Hibbard ([email protected]) is a corporate attorney, and Jeffrey D. Morton ([email protected]) is partner and cochair of the life sciences industry group and technology industry group, both at Snell & Wilmer LLP, Nobel Executive Center, 3655 Nobel Drive, Suite 600, San Diego, CA 92122; 1-858-434-5020.