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A Joint Venture in the Life Sciences World – Is It Right for You?

A Joint Venture in the Life Sciences World – Is It Right for You?

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The decision by Eli Lily a few years ago to outsource a good portion of its drug development seems to have served as a watershed moment in the evolution of joint ventures in the life sciences industry. This mega business that today remains a mainstay of the pharmaceutical industry came to the tough realization that it could no longer go at it alone when it came to the research, development, manufacturing and distribution of pharmaceutical products. The overall cycle from development to distribution required too diverse a collection of skillsets to be found under one roof. While it had been utilized before, this event really advanced the role of the joint venture as an effective vehicle in the world of life sciences.

Today, collaborations of all types are evident in the life science space. Licensing, royalty deals, co-development and joint venture arrangements are relatively common and have become an acceptable way for parties in this space to advance their cause. Up and down the supply chain, start up R&D shops are teaming with those more established companies that can handle the regulated manufacturing environment or those that can more effectively distribute product into the healthcare and consumer products markets. But while the pure JV has increased in popularity, is it the right choice for you? Here are a few points to keep in mind when making this determination.

First and foremost, a true JV is a partnership and in any joint arrangement, picking the right partner is critical. As subjective as it is, make sure the “chemistry” feels right; those nagging feelings at the beginning usually do not dissipate. Each party should contribute something significant to the arrangement that the other does not have. As most JV’s split profits evenly, you are not going to be satisfied if you give up half the profit and then truly believe with hindsight that you could have accomplished most of the goals on your own. If you believe you only need help in a particular area (like sales or manufacturing) perhaps a commission or royalty arrangement is a better answer.

Next, make sure you get the mechanics right up front. You need to make sure you clearly define roles and responsibilities and lay out the basics of administration such as billing, accounting, taxes, acceptable JV costs and structure; they all need to be worked out in the front end (and each is worthy of its own separate article). You also need a mechanism for a tie breaker in this 50/50 arrangement; you do not want to get paralyzed in a stalemate scenario. Of course as long as all goes according to plan, this is usually not an issue, but throw in a few wrinkles or bumps in the road and you may find you spend more time cleaning up the mess than it was worth.

Finally, have an exit plan. You should never get into a deal without knowing how you get out. What are exit options in the event of success, failure or just the plain “it is not working out the way we expected” scenario? Like any partnership, clearer minds usually prevail early in the courting period when both parties are looking forward to working with each other rather than at the end when neither wants to talk to the other and you have to negotiate some type of settlement. So make sure to settle this key point at the commencement of the relationship.

There are hundreds of successful collaborative arrangements in the life sciences world. Doing a solid analysis before you commit, tempered with the right amount of caution and diligence, will increase your chances of success.  Be honest and fair with your partner and there is no reason your JV should not be all you want it to be.

Bernie Leone, CPA, CITP, CGMA, Partne Bernie Leone, CPA, CITP, CGMA, Partne
212-829-3207
bleone@withum.com
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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals.

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