Milestones are specified only relative to the event, not by time or date. The development of an asset can take unforeseen turns, and this should not have adverse financial consequences as long as the licensee works diligently to develop the asset. If the development of the primary asset is to be completed, it should be agreed that the development will be converted into a follow-up asset and that the licensee will not subsequently pay any of the milestones for the follow-up asset that have already been paid for the initial asset. Inexperienced biotech companies looking to partner with their assets often want potential pharmaceutical companies to “come first,” assuming the pharmaceutical company will offer higher terms than they dare to charge. However, it is an important advantage for the licensor to leave first, as it sets the stage for the rest of the negotiations. First, the issuance of the same condition sheet to all interested parties facilitates the comparison of different offers from potential licensees. Second, the licensor can specify all the issues that are crucial to the licensor, as well as define the extent to which the term sheet must be detailed before moving on to contract negotiations. And third, the licensor then sets the timeline for the next step and retains control of the process. Exclusivity. When a potential licensee requests exclusivity during negotiations on condition sheets, the pros and cons of committing to a party must be considered so early in the process. An exclusivity fee could be considered, but this is rare for licensing negotiations. In order to set the right conditions, the commitment of the potential licensee must be determined, as well as the reasons why he needs exclusivity and what he promises or gives in return.
Who will control and manage the collaboration? Governance and management of collaboration is an important underrated issue. Regular meetings are recommended, especially in the early stages of collaboration and when internal and external teams work closely together to advance the asset. Often, a Joint Steering Committee (JSC) will regulate the cooperation and development of the asset. Decision-making power and escalation procedures can lead to lengthy discussions, especially if one of the parties has reluctantly agreed to a JSC. If it`s important to move quickly to contract negotiations, leave it for later. But while participation in asset development is a critical point for the licensor, it can be an important differentiator. One of the most important elements of a successful transaction process is the processing of the term sheet, a non-binding agreement that defines the main financial terms and conditions of a partnership or transaction that forms the basis of the subsequent contract. While there are no strict rules for managing a termsheet, there are good and bad practices. In this article, Lubor Gaal of Locust Walk, a global life sciences transaction company, discusses some important topics for successful termsheet negotiations. Are there any special requirements? While this is not a single topic in a termsheet, it is very important to specify specific requirements that could break the agreement if left out, such as. B, commercial rights or control of research and development activities. For many, discussions on condition sheets focus on the conclusion of financial conditions such as upfront payments, milestones and royalties (Table 2).
The triggering event for milestone payments must be clearly defined. For example, while it is common to set a milestone for positive clinical outcomes, it can be difficult to define and agree in contract negotiations. An alternative is to use an event such as the start of the next study. For example, instead of paying after a positive Phase 1 study, choose the FPFV (first patient, first visit) or another jointly agreed event. Production costs. Manufacturing is often a neglected topic in a termsheet, but can be crucial, especially for more complex molecules such as biologics. If significant investments are required, make sure the licensee is aware of this and accepts it from the beginning. It is generally assumed that the most important parts of the term sheet are the financial aspects. Equally important, however, are other terms that define the rights that the licensee receives or acquires with the financial offer and other obligations that the licensee enters into. Since financial conditions vary considerably depending on the type of asset, indication, and stage of development, this article focuses on other important standard aspects of term sheets (Table 1), as unclear definitions can undermine contract design and create unnecessary tensions in contract negotiations.
The process of obtaining an agreed term sheet can be a crucial factor in the partner selection process. If it is difficult to agree on a term sheet, it could indicate that discussions during contract negotiations could be more difficult. Nevertheless, some partnerships may involve negotiations on term sheets that take months, with the agreement being negotiated and signed within weeks. Overall, the key to successful termsheet negotiations is to create a win-win situation where both parties achieve their goals while finding the right partner for their assets. Deciding who goes first when designing the term sheet can be tricky, but it shouldn`t be like a poker game where a company “flashes first.” This can be avoided by establishing a good relationship with your business development partner in the potential partner company, as well as with scientific, clinical and/or business champions. If both parties have a similar view for the asset, proposing terms shouldn`t be as difficult. The optimal time to discuss term sheets in a transactional process can depend on many factors, including the objectives of the discussion with partners. For the sake of simplicity in this article, it will focus on discussions on term sheets from the perspective of licensors seeking a short-term transaction of a single asset, provided that due diligence has been conducted by potential licensees. However, if the main asset is developed for one application or indication and a second active asset for different applications or indications, separate milestones should be expected. The definition of net sales is crucial for future royalty payments.
While most businesses want to use their standard language, many businesses try to get special deductions. In the past, it was possible to limit gross net deductions (GTN) to a fixed maximum rate, but it can be difficult to determine a figure that satisfies both parties in the current or especially future repayment environment. GTN percentages have increased recently, and dramatically in some indications, although much less for innovative assets. Topics that are important when choosing the right partner and should be considered when creating the term sheet include: For more information, see the SEC`s Privacy and Security Policy. Thank you for your interest in the U.S. Securities and Exchange Commission. Sign up for the Nature Briefing newsletter – which is important in science, every day for free in your inbox. Meticulous development by the licensee.
One of the biggest concerns of licensors is the loss of control over their licensed assets. Trust is important, but some companies prefer control, for example through timed milestones that indicate how long each step should take. While this sounds great in theory, in reality, it`s very difficult to implement, and a licensee shouldn`t be penalized for taking more time when there are unforeseen problems. .