This blog was written by Samantha Truex, an Atlas Entrepreneur-in-Residence, as part of the From The Trenches feature of LifeSciVC.
People who know me well will agree that patience is not one of my personal virtues. That said, I recognize that certain circumstances in business development call for following the sage advice of Axl Rose: All we need is just a little patience.
I was working for Mike Gilman at Padlock Therapeutics when he wrote The Art of the In-License here. Mike offered experienced insight on what it takes to identify that an in-licensing opportunity exists and the often-arduous process one must weather to complete it. At the time of Mike’s blog, we had just finished that long process of licensing intellectual property from GSK. Having driven that effort and multiple others like it over the years, I’ll add a few thoughts on the subject.
Mike referenced a common theme in the Stromedix/Biogen and Padlock/GSK deals: relationships. Another Atlas CEO who had worked at GSK for many years made the initial contact for Padlock at a senior level within GSK. Not mentioned in Mike’s blog is that Mike himself was well-known to GSK, having served on the advisory board for GSK’s Immunology Unit. I believe that relationship was key to GSK becoming comfortable with Padlock as a good home for its IP. Yet even with that relationship in Padlock’s favor, it took us the better part of a year to complete the license – and not because Padlock was stalling. While I confess to feeling frustrated by that pace of progress, I understand it well having walked in GSK’s shoes.
I’ll give an example.
In a 10Q from bluebird bio, you can find the following:
“Under a license agreement with Biogen, Inc…we license certain patents…related to our bb2121 [anti-BCMA] product candidate… we will be required to make certain payments related to certain development milestone obligations…. We may be obligated to pay up to $24.0 million in the aggregate for a licensed product upon the achievement of these milestones. Upon commercialization… we will be obligated to pay a percentage of net sales as a royalty in the low single digits.”
Based on this description, you might assume this is a very straightforward license that was quick to execute. You would be right on the first part; it is a straightforward license. Unfortunately, it took far longer than it should have to execute. I know well. I negotiated it for Biogen. I’m sure bluebird was just as frustrated with that Biogen process as I was with the GSK/Padlock process.
Like Padlock with GSK, bluebird also had the benefit of relationships that enabled the license. Steve Holtzman led Biogen Corporate Development when bluebird bio requested a license to Biogen’s IP related to BCMA. Steve and bluebird’s CEO Nick Leschly have a long-standing relationship from their Millennium days. In short order, Steve recognized that bluebird had a bona fide program that could bring the benefit of Biogen’s BCMA IP to patients in ways that Biogen had no plans to pursue. Steve asked me to work on it.
I like to think I work with a sense of urgency and efficiency. I truly tried to make this thing happen quickly. Yet even with relationships at work, Steve championing at senior levels and me pushing, we still couldn’t make this happen quickly.
For confidentiality reasons, I’ll describe at a high level. I think the business development folks on both sides did our jobs well (of course!). Did we haggle on financial terms? Sure. bluebird claimed it was a cash-poor start-up and couldn’t afford much (just as I would have in its place) and I claimed that this license was going to be a valuable enabler to a program that could eventually prove quite important to bluebird. I think we were both right. You can tell from the public disclosure that Biogen gave bluebird a pretty reasonable deal. I’d say those financial terms were the easy part.
What took the time is what I believe takes the time in most of these cases. The big biopharma out-licenser does the following things, each of which is completely rationale, yet time-consuming and, therefore, frustrating for the potential licensee:
- Asks itself if it is certain that there isn’t a better use for the asset than the planned out-license. Might it want this program/IP for itself down the road? Might there be a better licensee? Like I said, completely rationale. The out-licensor should do this. What it maybe doesn’t need to do is ask itself these same questions repeatedly over the course of several months. Unless something fundamental changes in the pipeline, strategy or competitive landscape, why spend time answering the same question the same way multiple times?
- Continually prioritizes other activities above completing the out-license. Again, rationale behavior at its core. Other activities often are more critical and time-sensitive. When the out-license activity requires input and sign-off from corporate legal, IP attorneys, finance & accounting and the research team, any and all of the folks in these functions can hold up the out-license progress each time something that seems more important and/or exciting to these individuals arises. Even the internal BD person negotiating for time and attention within her own employer’s ranks often cannot overcome this inertia swiftly.
The sense of urgency for the out-licensor is usually non-existent. Unless the big biopharma has embarked on an overt campaign to monetize shelved programs with a mandate to transact, the curse of the BATNA prevails. BATNA? Best Alternative to a Negotiated Agreement. It’s a basic premise of negotiating from the classic negotiating book Getting to Yes. For the out-licensor, the BATNA is usually to do nothing. Status quo. Doing nothing often looks pretty attractive to people who are busy with other important matters like IND submission deadlines, piling patent filings and concerns about a change in strategy down the road.
Recent biopharma spin-offs by J&J and Medimmune suggest that biopharma’s BATNA may now be funding its own start-up rather than doing nothing. Sue Dillon, former Immunology Therapeutic Area Head for Janssen, is now CEO of Aro Biotherapeutics based on Janssen’s Centyrin technology. In a similar move, Medimmune spun out 6 therapeutic candidates and raised significant funding for Viela Bio, to be led by CEO Bing Yao, formerly head of MedImmune’s respiratory, inflammation & autoimmunity innovative medicines unit.
So what can you do in the face of negotiating with little-to-no leverage?
- Go into this with patience. Expect the process to take several months. If you can make it move faster, you’ll be pleasantly surprised.
- Consider whether you can create leverage. Is there anything to offer back to the out-licensor? Consider a right of first negotiation or option if the biopharma might be interested in the asset down the road. Consider a cross-license if you have technology of interest to the other party. Consider equity. Even offering to help enable completion of a scientific publication can help win favor with the research team whose asset you seek.
- Be ready to choose your own BATNA. Ask yourself what your best alternative is before initiating the negotiation and continually ask yourself as the negotiation proceeds how much this deal is worth to your seed/company – in terms of money, restrictive collaboration terms and negotiating time. There may come a point when it’s time to step away.
- Help your counterparty. Do what you can to aid your counterpart from the out-licensing company as she or he works internally to make progress. This can include presenting your business plan for the asset to decision-makers on their side, coming to their location for any in-person negotiations, drafting documents and being reasonable on the negotiation front – but only to the point that the deal still makes sense for you, of course.
In my role as an Entrepreneur-in-Residence at Atlas Venture, I have advised multiple Atlas companies on attempts to license IP from large biopharma. Some led to completed deals; some are still in process; one failed when the other party changed its strategy about 9 months into the negotiation.
Is it all worth it?
I’d say absolutely. We probably all know of companies based on or enhanced by IP from biopharma. While I have seen some struggle because they don’t have sufficient data and know-how from the out-licensor to effectively develop, manufacture and/or supply the therapy, many succeed.
The Atlas Venture portfolio includes multiple companies that have successfully followed this path to bring onboard assets or platforms from larger companies – Stromedix (Biogen), Arteaus (Lilly), Magenta (Novartis), Padlock (GSK), and Translate (Shire) just to name a few.
Impact Biosciences is also a recent success story. Impact was formed in 2016 with funding from Medicxi after acquisition of Sanofi’s global rights to JAK2 inhibitor fedratinib. With a clinical plan focused on myelofibrosis and polycythemia vera, Impact attracted Celgene to acquire the company in January 2018.
The long road is definitely worth a try. If the pace becomes frustrating, just keep singing to yourself, “Said woman take it slow, and it’ll work itself out fine. All we need is just a little patience.”