Strategic AlliancesStrategic Alliances

How to Structure, Negotiate, and Implement Successful Alliances

February 11, 2003Debra J. DorfmanCopyright © 2003 by Hale and Dorr LLP.

All rights reserved. This presentation cannot be copied or distributed, in whole or in part, without the express written consent of the author.

Benefits of Benefits of Strategic AlliancesStrategic Alliances

• Source of funding

• Sharing the risk

• Access to technology and expertise

• Access to distribution channels and customers

• Manufacturing capacity

• Competition

Risks of Risks of Strategic AlliancesStrategic Alliances

• Loss of control

• Failure to meet goals

• Complications of early termination

Types of AlliancesTypes of Alliances

• Distribution agreement

• Co-promotion agreement

• Research agreement

• Joint research/collaboration agreement

• Joint venture agreement

Strategic AlliancesStrategic Alliances

H ireEm ployees

D irectSales

D o ItYourself

AK AM anufacturer

R epresentative

C om m issionedAgentsSolic itO rders

SalesR epresentative

Pay Som eoneB etter to

Sell B etter

D istributorSells B y

PrescribedM arket'g P lan

Franchise

H elpSom eone Sell

For You

Specia l C ases :O EM

Private Label

AK ASupply orM arketing

Agreem ent

D istributorR esells

ForProfit

D istributor

Let Som eoneSell For You

Specia l C ases:Team ing

Agreem ents

C an B e A:C orporation ,

Partnership , LLCor O ther

L icensee isJointly O w ned

B y You andAnother

JointVenture

Let Som eoneE lse M ake/Sell& O w n Part o fThat Som eone

Specia l C ases :K now -H owShow -H ow

M ore F lexib leC om pared to

Sale o fTechnology

Licensee M akes/Sells Product,

PaysR oyalty

L icenses

Let Som eoneE lse M ake/Sell

As responsibility decreases, up-side opportunity decreases and need for financing decreases.

Identify Your Goals,Identify Your Goals,Develop a PlanDevelop a Plan

• Clarify your company’s objectives (objectives can be monetary or strategic or both)

• Keep these goals in mind during the formation of the alliance

• Identify pros and cons of alliance

• Identify alternatives

Motivating FactorsMotivating Factors

• Funding - Contract R&D funding, equity funding or combination

• Risk sharing - share risk of R&D• Access to technology and expertise• Distribution channels and customer base - can

give smaller company instant channels• Access to regulatory expertise• Validation• Critical mass• Competition

Factors for Success (or Failure)Factors for Success (or Failure)

• Make sure key people are “on board” at all levels• Culture• Compatible objectives• Flexibility• Clear definition of responsibilities and scope• Mutual ongoing incentives• Good communication• Dispute resolution• Wind down / termination provisions

The Non Disclosure AgreementThe Non Disclosure Agreement

• Must be in place prior to commencement of due diligence

• Essential to maintain trade secret and competitive advantages

• Opportunity to assess the other party’s technology

• Review of technical and business compatibility

The Term SheetThe Term Sheet

This includes the negotiated business expectations of your company and your partner• Time frame and schedules• Obligations and rights of each party• Financing and pricing terms• Intellectual property• Publicity• Non solicitation• No shop clause

The Definitive AgreementsThe Definitive Agreements

• Licenses and Assignments• Scope• Field of use• Exclusive/non-exclusive• Territory

• Ownership• Current technology• New technology• Modifications and improvements

The Definitive Agreements (cont’d.)The Definitive Agreements (cont’d.)

• Payment / royalties

• Financing / equity

• Development obligations

• Technology transfer and technical assistance

• Manufacturing and supply obligations

• Representations and warranties

• Limitation of liability

The Definitive Agreements (cont’d.)The Definitive Agreements (cont’d.)

• Confidentiality and non-use obligations

• Non solicitation / non compete

• Indemnification

• Infringement

• Other

• Termination

• Export control

• Publicity

• Dispute resolution

Managing the AllianceManaging the Alliance

How to make the deal work once the contracts are signed

Managing the AllianceManaging the Alliance

• Expectations and objectives

• Control vs. collaboration

• Communications

• Commitment

• Issue resolution

Expectations and ObjectivesExpectations and Objectives

• Alliance objectives

• Prioritization of alliance objectives

• Prioritization of other programs

• Resource allocations

• Delivering on what you promised

Control vs. CollaborationControl vs. Collaboration

• Contractual framework • Allocation of responsibilities• Decision making

CommunicationsCommunications

• Information exchange

• Corporate relationship

• Individual relationships

Issue ResolutionIssue Resolution

• Keep issues within the collaboration

• Structure for issue resolution (levels of review)

• Final control of decisions

TerminationTermination

• A significant percentage of strategic alliances are terminated prior to the introduction of the targeted products/technologies.

• While strategic alliance agreements typically cover product development, commercialization and financial terms in great detail, dispute resolution and termination clauses are often an after-thought.

Dispute Resolution MechanismsDispute Resolution Mechanisms

Steering committee structures

• Usually equal representation

• Presents dispute potential - raises concerns about disrupting progress of collaboration

Typical dispute resolution mechanisms

Termination Of Termination Of Strategic AlliancesStrategic Alliances

1. Breach

2. Change of control

3. Unilateral termination right/ Termination for convenience

4. Failure to achieve milestones

Effects Of TerminationEffects Of Termination

• One size does not fit all situations• Issues to be addressed:

• Survival of licenses• Transfer of technology/improvements• Assignment of data and regulatory

filings/approvals• Financial obligations• Survival of key provisions (e.g.,

confidentiality, product liability indemnification)

Any Any QuestionsQuestions??

Please feel free to contact

Debra J. Dorfman609-750-7644

debra.dorfman@haledorr.com

with any questions you may have.