OPTEON

Philip Mendes Level 3, 33 Queen St

Brisbane QLD, Australia

Ph + 61 7 3211 9033

Fax + 61 7 3211 9025

philip@opteon.com.au

Topic 22Strategic Alliances

WIPO-KIPO-KIPA IP Panorama Business School Investment Summit10 October 2008

Geneva

Outline

Commercialisation of IP

License Strategic Alliance

Co-Development Co-Marketing

Passive Partnership

Outline

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Commercialisation of IP

License Strategic Alliance

Co-Development Co-Marketing

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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

Licensee

IP

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Strategic Alliance

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

Strategic PartnerStrategic Partner

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

Strategic Alliance Financial Terms

Strategic Alliance Financial Terms

1. Payment of research monies

2. Purchase or lending of assets (which has a monetary value)

3. Provision of expertise (which has a monetary value)

4. Collaborative research (which has a monetary value)

5. Loans

6. Equity subscription

7. Convertible notes Strategic Alliance other financially valuable terms

8. Acquiring new skills

9. Acquiring new technology

10. Creating new technology

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 R&D 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

Strategic Alliance Financial Terms

Provision of assets and expertise

To assist the further R&D: 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

Strategic Alliance Financial Terms

Collaborative research

Licensor and Licensee collaborate in the further R&D Each pays its own expenses in the collaboration

New IP: Licensor owns the New IP that results of that further R&D 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

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 R&D Pay for its marketing and promotion expenses in a co-marketing alliance

Strategic Alliance Financial Terms

Equity Payments

Licensee subscribes for shares in the Licensor Share subscription monies used to

Fund further R&D 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 Licensor’s financial benefits under the terms of the license

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 R&D Pay for its marketing and promotion expenses in a co-marketing alliance

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

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

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 ?

Licensor’s perspective: If technology fails and there are no sales

Licensor has shares in licensee and shares in Licensee’s 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, licensee’s shareholders are diluted from those benefits as

Licensee now holds shares, but licensor’s shareholders now share in licensee’s profits across the successful technology, as well as the Licensee’s other business

Win – Win for licensor in both cases

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 Licensor’s

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

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

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 other’s staff for the purposes of

the alliance Skills transfer benefits one partner separately

Increasing the skill and capability of one partner’s staff that can be used in other projects unconnected with the alliance

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

Creating new technology

Purpose of the Alliance is to create New IP Builds on the licensor partner’s 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 partner’s IP position is enhanced, and its IP capability is strengthened

Ownership of new technology

Who should own that new IP ?

Common Model #1

1. Partner A owns new IP that improves its own existing IP

2. Partner B owns new IP that improves its own existing IP

3. 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 ?

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 1. New IP that solely relates to vaccine technology2. New IP that solely relates to therapeutic drug against Partner B’s virus of

interest3. New IP that solely relates to therapeutic drug against viruses broadly4. New IP that relates to 1 and 2 but not 35. New IP that relates to 1 and 3 but not 26. 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 ?

Co-Marketing

Broad definition: encompasses two things

1. Manufacturing Partner A may retain manufacturing rights Upside financially by profits from manufacturing National economic benefits Creates investment Creates employment Improves balance of payments

2. 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

Conclusion

Benefits of licensing

1. Financial payments

Benefits of strategic alliance

1. Upside financial payments2. Increased financial resources

Cash Transfer assets Equity Loans

3. Skills Transfer Technical Management

4. IP Acquisition Platforms Research Tools

5. IP Creation In field of collaboration Outside field of

collaboration6. Co-marketing

Manufacturing Selling