The Nath Law Group. Deal Killers in Healthcare. and Biotec

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Deal Killers in Healthcare and Biotech Licensing

• Gary M. Nath
• February 22, 2007

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Licensing Issues and Deal Killers

• Evaluating Potential Licensing Partners
• Licensing Deal Killers
• Killing the Deal

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Evaluating Potential Licensing Partners

• Identify target candidates early competitors
  and non-competitors
• Start early discussions to license or sell
• On average 9 months to conclude an agreement
• Never say no
• Execute CDAs or Secrecy Agreements

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Licensing Deal Killers

• Scope of Agreement
• Unreasonableness
• Agreement Term Definitions
• Agreeing to a Reasonable Royalty
• Future Control
• Termination Provisions

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Being Unreasonable is the Easiest Way to Kill a
Deal

• Avoidable issues to prevent problems from
  occurring
• Do not make 11th hour changes to an already
  agreed to deal
• Do not present a new negotiating team
• Do not expect unrealistic timing in making a
  decision
• Do not present unreasonable conditions or
  obligations
• Anything the parties will not yield on
• Are researchers paid under both the licensing and
  research agreements?

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Approach the Issues in the Right Way

• Anything can be a potential block depending on
  the approach
• Never say no, just offer a counterproposal
• A proposed low royalty rate can be acceptable if
  coupled with, for example, a high up-front
  payment
• Do not propose unrealistic delivery or milestones
• Take ownership of your positions
• I vs. You

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Agreement Term Definitions

• Effective Date
• Net Sales
• Patent Rights
• Sublicensing
• Territory
• Milestones

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Royalty Considerations

• Lack of give-and-take on the royalty rate will be
  a deal killer
• Royalties can be
• Running or fixed
• Front end, back end, loaded
• Performance driven (milestones)
• Tiered
• Gross sales vs. net sales
• Can both parties live with the royalty
  arrangement?

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How Important is Future Control?

• Future enforcement of the agreement should be
  clearly set forth
• Who will maintain control of future patent
  litigation and prosecution?
• Who will pay for it?
• Is there a clear understanding of how the parties
  will collaborate?
• How critical is maintaining control? Enough to
  kill the deal?

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Termination Provisions

• Are you comfortable with how the agreement can be
  terminated?
• Representations/warranties of patent validity and
  enforceability
• Failure to perform
• Bankruptcy or insolvency
• Sale of business
• Material breach or defect of agreement

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Follow Track Records

• If a potential partner is being secretive, walk
  away from the licensing opportunity
• If a potential partner is known as a thief,
  presume they will steal from you
• Your reputation comes into the negotiation with
  you

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Killing the Deal

• Know when to walk away
• Understand the pace of negotiations
• Protracted negotiations are a part of life with
  big companies

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Bottom Line

• Both parties should be unhappy about something,
  but happy about the rest of the deal

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Every Deal is Different

• If you dont know where you are going, you may
  not like where you end up

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