Strategic Alliances How to Structure, Negotiate, and Implement Successful Alliances February 11, 2003 Debra J. Dorfman Copyright © 2003 by Hale and Dorr.

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1 Strategic Alliances How to Structure, Negotiate, and Implement Successful Alliances February 11, 2003 Debra J. Dorfman Copyright © 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.

2 Benefits of Strategic Alliances Source of funding Sharing the risk Access to technology and expertise Access to distribution channels and customers Manufacturing capacity Competition

3 Risks of Strategic Alliances Loss of control Failure to meet goals Complications of early termination

4 Types of Alliances Distribution agreement Co-promotion agreement Research agreement Joint research/collaboration agreement Joint venture agreement

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

6 Identify Your Goals, Develop 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

7 Motivating Factors Motivating 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

8 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

9 The 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

10 The 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

11 The Definitive Agreements Licenses and Assignments Scope Field of use Exclusive/non-exclusive Territory Ownership Current technology New technology Modifications and improvements

12 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

13 The Definitive Agreements (cont’d.) Confidentiality and non-use obligations Non solicitation / non compete Indemnification Infringement Other Termination Export control Publicity Dispute resolution

14 Managing the Alliance How to make the deal work once the contracts are signed

15 Managing the Alliance Expectations and objectives Control vs. collaboration Communications Commitment Issue resolution

16 Expectations and Objectives Alliance objectives Prioritization of alliance objectives Prioritization of other programs Resource allocations Delivering on what you promised

17 Control vs. Collaboration Contractual framework Allocation of responsibilities Decision making

18 Communications Information exchange Corporate relationship Individual relationships

19 Issue Resolution Keep issues within the collaboration Structure for issue resolution (levels of review) Final control of decisions

20 Termination 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.

21 Dispute Resolution Mechanisms Steering committee structures Usually equal representation Presents dispute potential - raises concerns about disrupting progress of collaboration Typical dispute resolution mechanisms

22 Termination Of Strategic Alliances 1.Breach 2.Change of control 3.Unilateral termination right/ Termination for convenience 4.Failure to achieve milestones

23 Effects 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)

24 Any Questions ? Please feel free to contact Debra J. Dorfman 609-750-7644 debra.dorfman@haledorr.com with any questions you may have.