Strategic Partnering:  Pros and Cons
Ronald Rothman

As an invited panelist at the January 18, 2011 meeting of Pharmaceutical Consulting Consortium International, Ronald Rothman addressed the question of strategic partnering for CD Diagnostics, a start-up biotechnology company.

In these times of tight funding, the allure of capital – or even preservation of capital through shared costs – might be very seductive.  The question is:  What are you getting for what you are giving up.  And how will it affect your later needs (i.e. follow-on funding, additional resources), and ultimately your exit strategy

Early partnering makes sense if the company obtains expertise or access to proprietary technology that would expedite product development, and thus getting-to-market sooner.
Or if your company gains exposure and access to a market dominated by the partner; and the partner intends to market the technology.  In this latter case, early discussions would guide product development according to the needs of the partner.
 
It comes down to whether there’s an alignment of incentives. The partner’s incentive is chiefly promoting their brand, and levering their technology. Perhaps somewhat cynical, but the partner may be less interested in your success, than blocking one of their competitors from gaining a competitive advantage.

Some issues to consider prior to entering a partnership:

(1)       Is the partner a dominant player in the market? Or do they view this as an area with growth potential; and are interested in expanding into orthopedics by hitching their wagon to you success?

(2)       A partner’s motivation will affect their stamina and commitment.  Will they be engaged and supportive; or bail out during challenging times, by liquidating prematurely? And how would partnership liquidation be viewed during follow-on funding?

(2)       If later on you need additional resources, how would a potential future partner view dealing with a competitor, and sharing secrets?

(3)       How will partnering affect your exit strategy?  Would your partner block acquisition by one of its competitors?

Admittedly, these issues can, and should, be addressed by how the partnership is structured. At a later stage of product development, you may have more leverage for preferable terms. For example, insistence upon time constraints would defend against a right of first refusal.

Bottom Line:  Is there an adequate sharing of risks and rewards?
Your company needs to derive some real benefit – resources, or exposure, not just capital – that gets you to market sooner; and with a minimum of future entanglements that might affect follow-on funding or exiting.