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OPTEON
Philip Mendes Level 3, 33 Queen St
Brisbane QLD, Australia
Ph + 61 7 3211 9033
Fax + 61 7 3211 9025
Topic 22
Strategic Alliances
WIPO-KIPO-KIPA IP Panorama Business School Investment Summit10 October 2008
Geneva
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Outline
Commercialisation of IP
License Strategic Alliance
Co-Development Co-Marketing
Passive Partnership
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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 rightsto 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 theirrespective 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
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Co-Development Agreements
Co-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
Payment of research monies
Licensee pays an agreed amount for research and development to be continuedby 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 andLicensee
Licensee may pay research monies at an FTE rate that the Licensee isaccustomed to pay
Licensor may do the research more cost effectively, and profits from thecontract research
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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 thecompletion of the research
Licensee may provide expertise, giving the Licensor access to thatexpertise
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 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 andLicensee
Again, the Licensor receives something of value
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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 equitystake 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 R&D
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 asRaptiva, 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 providesXoma loan facility up to $80m to fund future development (that is,clinical studies)
Genentech providesXoma 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 inSTI
Additionally, STI issues 28 million shares to Pluristem, and Pluristem issues 66million 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 wholeof 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 asLicensee now holds shares, but licensors shareholders now share in licenseesprofits across the successful technology, as well as the Licensees otherbusiness
Win Win for licensor in both cases
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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 theother 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 frombiodiverse 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 theother
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 forother 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 ofthe 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 itand 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
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 ?
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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 IP1. New IP that solely relates to vaccine technology2. New IP that solely relates to therapeutic drug against Partner Bs virus of
interest3. New IP that solely relates to therapeutic drug against viruses broadly
4. 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 newIP affecting its own core business ?
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Conclusion
Benefits of licensing
1. Financial payments
Benefits of strategic alliance
1. Upside financial payments
2. 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 ofcollaboration
6. Co-marketing
Manufacturing
Selling