Collaborations are the voluntary, joint actions of two or more parties to achieve a common goal. This is a straightforward concept in principle, but often more complex in the real world.
Within the pharmaceutical and biotechnology sectors, one can easily identify at least six major classes of stakeholders, viz. private industry, academia, regulatory agencies, governments (policy and legislation), patient advocacy groups, and payers (public / private).
Each of them can be involved in collaborative activities with one or more organisations in their own or other stakeholder categories. On a purely numeric basis, a single stakeholder could be involved in as many as 32 different kinds of collaborative interactions with organisations from their own or other stakeholder categories.
In this context collaborations are classified into three categories—non-competitive, pre-competitive and competitive.
Non-competitive collaborations
The first group, non-competitive collaborations, is best exemplified by private industry-academia collaborations. Within the US, this model of industry-academia collaboration, with its concomitant flow of innovation from academia to industry has its basis in the Patent and Trademark Act Amendments of 1980 (University and Small Business Patent Procedures Act), more commonly known as the Bayh-Dole Act.
Under the provisions of this act, universities, non-profit organisations and small businesses can obtain and retain ownership of, and patents on, inventions funded by the federal government. Additionally, the act requires that the universities actively engage in the commercialisation of these patented assets. With this legal foundation, American universities have, over the past 28 years, become increasingly important and currently essential sources of innovation for the pharmaceutical and biotechnology sector.
In non-competitive collaborations, such as those of industry and academia, the desired outcomes by each party are generally non-overlapping. For example, the industrial partner may be seeking novel product/service opportunities to develop within their own pipeline, or access to the specialised analytical or preclinical expertise of an academic laboratory.
In a complementary fashion, the academic partner may be seeking to commercialise an asset developed within the university or to generate new scientific observations (publications) by evaluating the activity of a novel pharmaceutical agent in a preclinical model which is well established within the academic laboratory.
Pre-competitive collaborations
The second major class of collaborations, pre-competitive collaborations, also have a legislative underpinning within the US, in this case, The National Cooperative Research Act of 1984 (NCRA), and the National Cooperative Research and Production Act of 1993.
These laws were enacted to enhance the competitiveness of the US-based industries in an increasingly competitive international marketplace. The 1984 law clarified the application of antitrust law to cooperative research ventures, and eliminated the treble damage awards associated with antitrust violations. These benefits accrue to the members of a collaborative research consortium, provided that the consortium complies with the mandated disclosure of all participants and the purpose of the collaboration.
The 1993 amendment extended similar provisions to joint production activities. Although more than 900 groups have registered under NCRA since 1984, registered collaborations in the pharmaceutical and biotechnology sectors represent substantially less than 5 per cent of the total.
To begin to probe why this collaborative model is apparently not favoured by the pharmaceutical and biotechnology sector, we can examine some of the main characteristics of this type of collaboration, and consider their match (or mismatch) with some essential aspects of the business model of the sector.
The essential hallmark of pre-competitive collaborations is the focus on the development of tools and standards, and not the development of products and services. This aspect of pre-competitive collaborations is exemplified by one of the earliest and most often cited NCRA collaborations, Sematech. It was initially established as an industry/government collaboration for the development of advanced manufacturing methods for the US semiconductor manufacturing sector, and was created in direct response to the perceived domination of this manufacturing sector by Japan.
Competitive collaborations
Collaborations between competitors are also regulated by large bodies of antitrust or competition law in all jurisdictions. Within the US, the Sherman Antitrust Act of 1890 briefly states, “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal”. Within this legal framework, the underlying need for competitive collaborations is the same as that of other collaborative types, i.e. the need to achieve an outcome which cannot be accomplished alone. To solve this need, a wide spectrum of collaborative activities between competitors (business-to-business transactions) has evolved.
One way to structure and view the relationships between these different types of collaborations is to consider them in the context of a two-dimensional space as described in Figure 1. The first axis is the relative valuation and size of the two entities with respect to each other and the second axis is the degree of overlap of skill sets, or intellectual property or infrastructure between the participating entities. Utilising these axes, it is possible to place most competitive transactions within this space. For example, joint ventures and mergers are usually formed between entities of roughly comparable size and complementary skill sets or intellectual property.
Licensing deals and strategic alliances are characterised by a minimal overlap in skills or IP (depending on the subject of the transaction) and are not particularly dependent on the relative size of the two parties. Co-marketing arrangements tend to be done between partners of roughly equal size, with a strong overlap in market, but some moderate degree of separation in call point or geographic coverage. Acquisitions are typically asymmetric transactions where the larger partner takes control of the smaller party and there is sufficient lack of overlap in market to avoid anti-trust/anti-competitive issues.
Finally, the “buy your competition” business strategy, in which a large entity may wish to acquire a smaller party operating within the same market segment, may run afoul of antitrust/competition laws. Refinements of this schema are clearly possible. Nevertheless, this approach, even in its current form, may provide some clarification or rationalisation of the type of collaborative transaction chosen to achieve a desired outcome.
In summary, collaborations involving the pharmaceutical and biotechnology sector, non-competitive, pre-competitive and competitive, may differ in their legal underpinnings, structure, complexity and value.
However, all of these interactions are driven by:
1) the mutual recognition that some objectives can only be achieved by the combination of resources from two or more parties, and
2) the mutual expectation that the joint outcome will provide a positive benefit to each party that exceeds what might be achieved by proceeding independently.
About the Author
Bruce M Pratt works for Genzyme Corporation on identification and evaluation of early stage product opportunities, proactive outreach to academic and biotechnology sectors, and works with Corporate Development on issues related to product development.
