OPTEON

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Topic 22 Strategic Alliances WIPO-KIPO-KIPA IP
Panorama Business School Investment Summit 10
October 2008 Geneva

• OPTEON

Philip Mendes
Level 3, 33 Queen St Brisbane QLD, Australia Ph
61 7 3211 9033 Fax [phone] philip_at_opteon.
com.au
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Outline
Commercialisation of IP
License
Strategic Alliance
Co-Development
Co-Marketing
Passive
Partnership
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Outline
Commercialisation of IP
License
Strategic Alliance
Co-Development
Co-Marketing
Sk
IP


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Passive features of a license

• Licensor grants exploitation rights to a licensee
• Licensee pays royalties and other remuneration to
  the Licensor
• Licensor is passive
• Has no further exploitation rights
• Licensor has no need to actively do anything
• Licensor passively sits by and collects royalties

Licensor
IP

Licensee
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Strategic Alliance
Strategic Partner
Strategic Partner

• In a strategic alliance both parties contribute
  to their joint venture their respective resources
  and capability
• Aim is to add greater value to their respective
  positions
• By doing so, to
• Increase their financial return
• To access the capability of their partner which
  they themselves lack
• To acquire skills that they themselves may lack

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Co-Development AgreementsCo-Marketing Agreements

• Co-Development Agreement
• Partners collaborate scientifically to further
  develop the IP
• Take the IP further along the development path
• Licensor increase the value of the IP as a result
  of the collaboration
• Co-Marketing Agreement
• Partners co-market the products of their alliance
• One may manufacture only, and the other may sell
  products only
• They may sell products competitively in the same
  territory
• Or, they may sell in different territories
• Licensor retains some marketing rights, achieving
  greater financial upside

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Strategic Alliance Financial Terms

• Strategic Alliance Financial Terms
• Payment of research monies
• Purchase or lending of assets (which has a
  monetary value)
• Provision of expertise (which has a monetary
  value)
• Collaborative research (which has a monetary
  value)
• Loans
• Equity subscription
• Convertible notes
• Strategic Alliance other financially valuable
  terms
• Acquiring new skills
• Acquiring new technology
• Creating new technology

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Strategic Alliance Financial Terms

• Payment of research monies
• Licensee pays an agreed amount for research and
  development to be continued by Licensor
• Licensor owns the New IP that results of that
  further RD
• New IP may be jointly owned
• Different categories of New IP may be solely
  owned by the Licensor and Licensee
• Licensee may pay research monies at an FTE rate
  that the Licensee is accustomed to pay
• Licensor may do the research more cost
  effectively, and profits from the contract
  research

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Strategic Alliance Financial Terms

• Provision of assets and expertise
• To assist the further RD
• Licensor may purchase an asset (lab equipment)
  and give it to the Licensor
• Licensee may lend an asset, which is returned to
  the Licensee at the completion of the research
• Licensee may provide expertise, giving the
  Licensor access to that expertise
• All of these have a monetary value to the
  Licensor
• Licensor receives something of value which is
  required, without having to pay for it

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Strategic Alliance Financial Terms

• Collaborative research
• Licensor and Licensee collaborate in the further
  RD
• Each pays its own expenses in the collaboration
• New IP
• Licensor owns the New IP that results of that
  further RD
• New IP may be jointly owned
• Different categories of New IP may be solely
  owned by the Licensor and Licensee
• Again, the Licensor receives something of value

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Strategic Alliance Financial Terms

• Loans
• Licensee makes loans to the Licensor
• Money lent has to be repaid, but on favorable
  terms
• Generous rate of interest
• Generous repayment arrangements
• Loan may or may not be secured
• Loans used by Licensor to
• Fund further RD
• Pay for its marketing and promotion expenses in a
  co-marketing alliance

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Strategic Alliance Financial Terms

• Equity Payments
• Licensee subscribes for shares in the Licensor
• Share subscription monies used to
• Fund further RD
• Pay for its marketing and promotion expenses in a
  co-marketing alliance
• Not repayable
• Licensee acquires an equity stake in the
  Licensor, and therefore has an equity stake in
  the Licensors financial benefits under the terms
  of the license

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Strategic Alliance Financial Terms

• Convertible Notes
• A Convertible Note is a loan, which either
• Is repaid by money, or
• Is repaid by the issue of shares in the receiver
  of the loan (the Licensor)
• Election as to repayment or satisfaction with
  equity is made by
• Licensor only, or
• Licensee only, or
• Either licensor or licensee
• Loan monies used by Licensor to
• Fund further RD
• Pay for its marketing and promotion expenses in a
  co-marketing alliance

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Strategic Alliance Financial Terms

• Genentech and Xoma Raptiva License
• Xoma licensed Genentech 1996 compound (FDA
  approved Oct 2003, now marketed as Raptiva, for
  psoriasis (skin condition)
• 1999 deal amendment
• Future development costs to be shared 25 Xoma
  and 75 Genentech
• Future co-marketing costs to be shared 25 Xoma
  and 75 Genentech
• Future profits on sales shared 25 Xoma and 75
  Genentech
• Genentech provides Xoma loan facility up to 80m
  to fund future development (that is, clinical
  studies)
• Genentech provides Xoma loan facility up to 15m
  to fund future marketing
• Xoma can elect to
• Repay loan
• Issue equity instead of repaying loan
• Defer payment of up to 40m of loan against
  future profit share
• Xoma mortgages its future profit share to
  Genentech as security for repayment

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Strategic Alliance Financial Terms

• Pluristem Life Systems and Stem Cell Innovations
  deal
• Deal announced 22 February 2007
• Pluristem licenses STI PLX-I product - stems
  cells obtained from the placenta and expanded by
  using Pluristem bioreactor that mimics
  physiological environments
• Cells are immune privileged reduction or
  absence of rejection of the cells in a patient
  first application in bone marrow transplantation
• Deal terms
• Up front not cash - but instead 23 million
  fully paid shares Plurstem receives in STI
• Additionally, STI issues 28 million shares to
  Pluristem, and Pluristem issues 66 million shares
  to STI
• Undisclosed royalties
• Undisclosed milestone payments

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Strategic Alliance Financial Terms

• Pluristem Life Systems and Stem Cell Innovations
  deal
• What is achieved by
• Up front shares instead of cash
• Share swap where Licensor and Licensee each
  obtain shares in the other ?
• Licensors perspective
• If technology fails and there are no sales
• Licensor has shares in licensee and shares in
  Licensees profit across the whole of its
  business other than the failed technology
• If technology succeeds and there are sales
• Licensor gets the usual royalties and milestones
• Additionally, licensees shareholders are diluted
  from those benefits as Licensee now holds shares,
  but licensors shareholders now share in
  licensees profits across the successful
  technology, as well as the Licensees other
  business
• Win Win for licensor in both cases

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Greater financial returns

• In a license the licensor collects up front
  payments, milestone payments, and royalties,
  based on the value of the IP at the time that the
  license is negotiated
• In a strategic alliance there is the prospect of
• More types of financial returns
• Increased financial returns of the same type
• Co Development Alliance
• Both parties contribute to further develop of IP
  to take it further along the development path.
• By the licensor doing so the licensor increases
  the value of the Licensors IP, justifying
  greater up fronts, milestone payments, and
  royalties than just in a passive license
• Co-Marketing Agreement
• Licensor may earn additional financial return as
  a manufacturer
• Licensor may earn additional financial return as
  a seller of products

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Acquiring new skills

• In a co-development agreement the alliance
  partners may work collaboratively
• Opportunity therefore for skills transfer
• That is, the staff of one alliance partner
  sharing their skills with the staff of the other
  alliance partner, and in that way to upskill the
  staff of the other
• May be technical skills
• Skill in generating transgenic animals
• Skills extracting, isolating, or synthesizing the
  active chemical from biodiverse resources
• May be management skills
• managing pre-clinical studies such as animal
  studies, toxicology studies etc
• Managing the regulatory pathway to product
  registration

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Acquiring new skills

• Skills transfer can occur by
• Collaborative teams working side by side and
  learning from each other
• Internships where one alliance partner trains
  another at its own facilities
• Observation, participation, and experiencing
• Skills transfer benefits both alliance partners
  by
• Increasing the skill and capability of each
  others staff for the purposes of the alliance
• Skills transfer benefits one partner separately
• Increasing the skill and capability of one
  partners staff that can be used in other
  projects unconnected with the alliance

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Acquiring new technology

• In a Co-Development Agreement one partner may
  make its IP available to the other
• For the purposes of the collaboration
• For purposes outside the collaboration
• Collaboration benefits by the access to the IP of
  the strategic partner for the co-development
  program
• Strategic partners benefit independently by
  access to the IP of the other for other research
  programs outside the collaboration
• Access to research tools
• Animal models, vectors, cell lines, other
  biological material
• Access to IP to pursue areas of investigation
  outside the collaboration
• There may be preferential rights to access New IP
  given to the provider of the technology
• Eg, option to negotiate a license

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Creating new technology

• Purpose of the Alliance is to create New IP
• Builds on the licensor partners IP
• May create new unrelated independent IP
• Purpose of the collaboration is to build on the
  existing IP to further develop it and to bring a
  product to market
• That is the ultimate aim of the collaboration by
  the alliance partners
• Side benefit is the creation of IP that may be
  beneficial to one alliance partner only
• That partners IP position is enhanced, and its
  IP capability is strengthened

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Ownership of new technology

• Who should own that new IP ?
• Common Model 1
• Partner A owns new IP that improves its own
  existing IP
• Partner B owns new IP that improves its own
  existing IP
• Partners A and B jointly own new IP outside
  categories 1 2
• Common Model 2
• No new IP is separately owned
• All new IP is jointly owned by both Partners A
  B
• What are the implications ?

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Ownership of new technology

• More complex models
• Partner A has a platform technology for producing
  vaccines against viruses
• Partner B has patents in the gene sequence and
  function of particular virus and its interest is
  producing therapeutic drugs
• Categories of new IP
• New IP that solely relates to vaccine technology
• New IP that solely relates to therapeutic drug
  against Partner Bs virus of interest
• New IP that solely relates to therapeutic drug
  against viruses broadly
• New IP that relates to 1 and 2 but not 3
• New IP that relates to 1 and 3 but not 2
• New IP that relates to 2 and 3 but not 1
• How is ownership of these various categories of
  New IP dealt with ?
• How does each partner ensure that it shares with
  the other what is intended to be shared, but does
  not prejudice its own core business by having to
  share new IP affecting its own core business ?

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Co-Marketing

• Broad definition encompasses two things
• Manufacturing
• Partner A may retain manufacturing rights
• Upside financially by profits from manufacturing
• National economic benefits
• Creates investment
• Creates employment
• Improves balance of payments
• Selling
• Upside financially by profits from selling
  products
• Territory
• Need not be exclusive manufacturing or selling
  rights
• May be rights for specific geographical areas, eg
  Asia

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Conclusion

• Benefits of strategic alliance
• Upside financial payments
• Increased financial resources
• Cash
• Transfer assets
• Equity
• Loans
• Skills Transfer
• Technical
• Management
• IP Acquisition
• Platforms
• Research Tools
• IP Creation
• In field of collaboration
• Outside field of collaboration
• Co-marketing
• Manufacturing
• Selling

• Benefits of licensing
• Financial payments