By Wayne Koberstein, Executive Editor, Life Science Leader magazine
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Voices of BayBio's "Successful Public-Private Partnerships" Survey
Two or more widely different entities have worked their way to a united vision. They have set the ground rules for their relationship. They have defi ned goals and plotted a path for achieving them. They have assessed and balanced their resources, individual and shared. Now comes the hard part — creating a formal structure, drawn up in a contract that will ensure long-term success for operating, maintaining, and developing their collaboration.
Structure is the topic of this third installment in our four-part series on best practices for partnerships between life science companies and patient foundations.
Part One of this series (May 2014) introduced several models of industry-foundation partnerships and showed examples of how the partners must rally around a common vision and goals. Part Two (June 2014) dove into the practical challenges of assessing, managing, and leveraging the partners' resources for maximum alignment along their common path. This month, in Part Three, we again hear the voices of people with experience in such partnerships who were also key participants in "Successful Public-Private Partnerships," the survey that inspired this series, conducted by BayBio in collaboration with Merrill Datasite, BIO, and FasterCures.
From Vision To Signature
It becomes increasingly obvious that no hard lines exist between the four general areas we have conveniently defined for this report, and in fact there is plenty of overlap among them all: A common vision and goals serve as the template for everything that follows or, in some cases, must happen in parallel. Resource alignment, last month's topic, not only takes its direction from the shared vision but also places conditions on the envisioning process, beginning at its earliest stages. A contractual agreement formalizes what should be a well-thought-out structure based on the shared vision and goals — and, in some cases, may foster new organizational paradigms for industry-foundation partnerships, the topic of Part Four. The particular form or structure of any given partnership may conform to a standard model or be unique to the circumstances and plans of the partners.
Nevertheless, the people who run many different kinds of partnerships seem to agree on a few principles that may apply to nearly all. Based on their words and shared experience, the following "best practices" offer some reliable guidance to companies and foundations that have reached the point of formalizing their partnership structure.
Tie Milestones To Future Support — Flexibly
One foundation leader's own career suggests the wide range of structures such partnerships may adopt or build for themselves — from the simplest funding mechanisms to complex agreements involving performance incentives, reviews, and reserve clauses to protect development candidates from being sidelined for "nonscientific" reasons. At her former position heading the translational research program at the Muscular Dystrophy Association (MDA), Sharon Hesterlee founded the "MDA Venture Philanthropy" fund, initiating a shift from MDA's traditional support for academic research to funding companies in drug development. Now she heads the research funding of a much smaller foundation making fewer but still sizeable grants to companies. Like most others participating in this series, she emphasizes the importance of setting drug-development milestones in the formal contract, each one tied to a round of funding.
Sharon Hesterlee, VP, Research, Parent Project Muscular Dystrophy (PPMD): A grant to a company is usually milestone-driven, and we will have payments tied to completion of the milestones. Some of the milestones might be a go/no-go point, but in other cases, if the milestone doesn't work out and no longer seems appropriate, we have a small steering committee that will review it and perhaps set a more realistic one. That procedure is all supported by language in the contract. "Good fences make good neighbors." But we have also learned at the front — if you're too rigid about those milestones, you end up actually holding up the project because things take twists and turns that you can't always predict, and you don't want to throw the baby out with the bathwater.
Hesterlee's point about balancing goals with flexibility draws agreement from a legal expert whose firm specializes in life science industry-foundation partnerships.
David Lubitz, Partner, Schaner and Lubitz, pllc: To maximize the coordination and efficiency of the relationship, the two ingredients both sides should want in the contract are 1) setting very clear and concrete, but also realistic, goals for the collaboration, and 2) being reasonable. Sometimes companies go into negotiations with the attitude that, because they are dealing with non-profit organizations, they should "just give us the money" in the same way they might give money to academic researchers, without any return, financial or otherwise. But that is not what foundations are interested in. They are beholden to their patient and family constituents, and that community wants to see results.
Stipulate The Returns On Investment
Contracts with foundations can go beyond milestone-driven funding clauses. Many disease and patient groups expect and receive modest payback for their early investments when one of their supported drugs passes all development milestones and achieves regulatory approval. Though not applicable to groups like The Myelin Repair Foundation and the Critical Path Institute, which deal in scientific tools and information rather than finances, partnership agreements with funding foundations will likely ensure them a certain return on investment from successful outcomes for patients.
Lubitz: With diseases for which we don't even know the causes, the issue of a financial return from a therapeutic product really isn't on the table; foundations are focused on research for developing biomarkers or figuring out causes for the disease. But when the knowledge chain is sufficiently advanced with the potential for therapeutics, and companies with those potential technologies are looking for funding, the foundations do two things that justify their request for financial return: They are willing to invest in the technology during the period of development known as the Valley of Death, where the risk is extremely high and private money is scarce or unavailable. And, unlike profit-maximizing investors or private investors, when foundations obtain a return on their investment, they always put the money back into support for scientific progress. There is no charitable requirement on private investors who obtained a return — they can take the money and do anything they want with it. But when the disease foundations are plowing money back into scientific research, there is a virtuous cycle in giving them a contractual return for their investments.
Hesterlee: One of the things our donors really appreciate — when we give money to a for-profit company, we typically arrange some kind of return on that investment, and the return, of course, is rolled back into our non-profit mission. It is actually a way to leverage dollars from donors. They understand it's high risk; we may not see any return at all, or it might be years before we do, but there's a chance the money they gave early on could turn into bigger dollars, and of course it's a potential source of income for us. We typically develop some kind of royalty-sharing agreement, though other organizations have different processes. We don't take an equity stake, any shares, stock, or ownership of IP. As a non-profit, we have to look at any equity stake as an asset, and that means every year you have to value that asset, and at some point, you will probably have to write it down.
Another foundation leader shows how greatly the contractual forms of ROI can vary among the disease or patient groups partnering with companies. But the common denominator is still a concern for maintaining reasonable flexibility in the agreements.
Tim Coetzee, Chief Advocacy, Services, and Research Officer, National MS Society: When we put money into a company, we expect some level of a return if the program we fund is successful. It is not about our trying to extract a pound of flesh but really more about the company's responsibility to the community that helped get the program going. We never get an argument from companies on that. As part of our agreement, we have some sort of return vehicle built into the transaction.
Sometimes, it consists of warrants or options in the company at a negotiated rate with potential upside if it achieves a certain coverage. Oftentimes, it's more of a capped-cash royalty based on specific development milestones. When the company reaches a point where it is receiving money from another partner for specific assets of the program, we also receive some of the money, so everybody participates in success.
We don't aim to secure a royalty based on percent of sales of a future approved drug, in part because the development timelines are so long and fraught with uncertainty, and we just don't believe it is the right strategy for our organization. Royalties can quickly become stacking royalties that make the development program commercially unviable because of financial downstream challenges. We aim to make sure our royalty appropriately reflects the mission but also will not create an impediment to future developments.
Because some foundations may have made unreasonable demands in the early days of partnering with companies or because ambiguous ethical issues may arise wherever funds change hands, it is only fair to include two cautionary views of "foundation ROI" from the industry side.
Andres Gengos, President and CEO, ImmunoCellular Therapeutics: If foundations start to act like venture capitalists, saying, "Here's $200,000, but we'd like some stock in your company," or, "If the drug reaches the market, we'd like a royalty from sales," now you've got a 501(c)(3), tax-exempt, not for profit disease organization, financially benefiting from an approved drug that serves its constituent patients. If the drug gets priced at $100,000 a year instead of $50,000 a year, the foundation may earn even more from it, but there's blowback risk from the potential misperception that higher pricing restricts patient access. By the way, ROI mechanisms aren't categorically bad ideas; financially, they can make sense especially in underserved disease areas. However, all parties need to be mindful of the potential conflicts of interest.
Michael Richman, President and CEO, Amplimmune: Conflict of interest will always come into play, not so much with the foundations because the foundations usually don't take a royalty, and they're not involved so much in the clinical trial as their developer partners are. But a real conflict of interest may arise when a key opinion leader receives funding from a foundation and also from a company involved in the foundation-supported trial. Such arrangements can only be dealt with on a case-by-case basis.
Define Intellectual Property And Data-Access Rights
Foundations may also want to protect the drug in development from the opposite of success — being put on the shelf for nonscientific reasons such as new organizational priorities in a merger or acquisition. Likewise, companies usually should not fear their partners' limited efforts to ensure timely patient access or at least a fair shot at it.
Hesterlee: Most organizations in this space ask for some kind of interruption license or march-in rights, meaning that if a company drops the work on a therapeutic in development, then we have the right to sub-license to another developer to finish the work. Companies tend to hate this requirement because it may appear we have a right to grab their assets, which could be a problem for them in future deals. But companies can have many internal projects, and they have boards and often shareholders they report to. If the company's priorities change, and it drops a project for a non-scientific reason, we want to make sure the particular project is not lost. Of course, if they drop it for scientific reasons, and everybody agrees it failed, we don't have a problem. It is usually a contingent issue. We have not exercised our march-in rights before, though we have discussed them. They are really worst-case-scenario safeguards. We are business partners, and that's the best way to look at our rights in the contract, because it is a business arrangement.
Lubitz: Disease foundations are certainly no more difficult for companies to work with than private investors, and perhaps easier. Typically, in addition to interruption rights, they may ask for things like research licenses for technology but only on a non-commercial basis. The point of disease foundations, of course, is to further scientific research broadly, and they are certainly quite flexible in their research licenses or publication requirements so that they don't negatively impact the company's intellectual property protections. Once the companies see the foundations are not making outrageous requests or demands, they realize foundations can be quite helpful collaborators.
Hesterlee: If we don't have the license, which would only occur in a rare exercise of march-in rights, it doesn't really matter if we own all of the data. We have all the data reporting we need built in already, related to milestones. We usually ask our partner companies for reports on communications with regulatory agencies, shareholders, and other types of prospective information, and they typically agree to share it.
Build A Dynamic Structuring Process
When people speak about incorporating flexibility and reasonableness into the partnership structure, they generally mean establishing some kind of steering body that represents all the players in the program. Without exception, the experienced voices in this series stress the importance of establishing an inclusive system that ensures dynamic restructuring of the partnership as new challenges and opportunities arise.
Martha Brumfield: President and CEO, the Critical Path Institute (C-Path): Ideas for new projects come to us from many directions. Sometimes the FDA or EMA, oftentimes foundations such as The National Multiple Sclerosis Society or the Gates Foundation, or other times from industry. In complex consortia, we bring multiple players together to share data we can aggregate into databases that help us construct predictive models and biomarkers that address wide-interest medical issues, such as drug toxicity and effectiveness. When we take on a project, we reach out broadly to those who have expertise or interest in the area and invite them to join the consortium. We want everyone's voice in the discussion, including patients'.
Klaus Romero, Director of Clinical Pharmacology, the Critical Path Institute: Every C-Path consortium is founded on a legal agreement that defines the breadth of participation and the expectations and the roles for each of the participants, including the regulators and the companies. Sometimes we bring in independent consultants or even CROs for specific portions of the hands-on work, and we also leave the door open to external collaborators, such as key opinion leaders, to participate under a confidentiality agreement.
Whether developing therapeutics, new science, or data tools is the goal, a "family" approach to managing and making structural changes in the partnership is the ideal path to take, as the following company executive and his peers in this report unanimously testify.
Jeffrey M. Ostrove, Former CEO, Ceregene: In Ceregene's partnership with the Michael J. Fox Foundation [MJFF], representatives from the foundation attended all of our key company meetings, including Board of Directors, scientific advisory board, and our "expert panel" meetings, where we assembled world experts in Parkinson's disease. The MJFF people didn't just attend the meetings, they participated in them, because the whole community was pulling together.
To guide the spirit of the community formed in any company-foundation partnership, a few final words of wisdom from another experienced hand:
Diane Stephenson, Executive Director of C-Path's Coalition Against Major Diseases: In some of the areas we work, even the experts in the field don't agree on the best approach; for example, on the details of developing outcome measures for Alzheimer's. So, it's extremely difficult to gain consensus. We work with so many diverse stakeholders that we've learned to say, "It's okay if you don't agree, but we're still going to continue working on this goal together." That's really rewarding because then people in the consortium realize that everybody brings something to the table, that we respect your opinion, that what you have to say is extremely important and we hear it, but let's all realize that that's not going to block our progress."
So ends Part Three of our four-part series, "Industry Partnerships with Patient Foundations — The Best Practices." Watch for Part Four, "New Partnership Paradigms," in next month's Life Science Leader. Many thanks to Travis Blaschek- Miller at BayBio and the BayBio team for their help with this article series. (See BayBio's white paper on the survey at baybio.org.)