Realizing tangible value from strategic alliances, JV's and partnering arrangements

As drug pipelines among major pharmaceutical manufacturers have become less productive, many companies have increasingly sought to establish a variety of partnering arrangements such as strategic alliances and joint ventures with small, innovative biotech companies as a source for new products. Further, the high cost of R&D, risk management considerations as well as market demand, makes it increasingly attractive for industry players to form alliances, often in the form of licensing or co-marketing/co-promotion agreements. The resulting benefits of these alliances include:

• For licensors, out-licensing maximizes the value of a compound while freeing the organization from many of the risks associated with manufacturing, providing services and establishing distribution channels;
• For licensees, in-licensing can be very profitable by allowing companies to fill new product pipelines; and
• For co-marketers and co-promoters, the collaboration with marketing partners allows for broader distribution of products.

Companies spend significant amounts of time and resources researching and negotiating various alliances. However, many companies fail to effectively monitor the royalty and other revenue streams that are negotiated with their partners and as a result, often leave significant amounts of revenues on the table. This lack of monitoring is often the result of poor coordination among legal, accounting/finance and sales departments as well as the turnover of personnel responsible for oversight. As the number of alliances has grown and the complexity of the compensation arrangements has increased, the monitoring of these arrangements has struggled to keep pace. Further, as companies assess controls under the Sarbanes Oxley Act of 2003, including the provisions of the Section 404 certifications, they are finding an inability to gain assurance that such arrangements are working effectively due to the confidentiality constraints or lack of critical information from an alliance partner.

How PwC Can Help You

In an industry where strategic alliances are essential, PricewaterhouseCoopers help companies develop sound business practices to maximize cash flows from these arrangements. Increased cash flows are often achieved through a combination of identifying the IP value drivers, establishing robust compliance systems and performing forensic royalty procedures. We offer a unique mix of accounting knowledge, licensing experience and a global network that understands the issues that licensors and licensees face when living with the terms of an agreement. Our team assists companies in improving revenue streams and managing risk by reviewing compliance with licenses and other business arrangements and by advising on appropriate procedures to manage royalty revenue payments and proceeds.

In short, we help provide licensors, and their investors, the confidence that they are maximizing the value of their intellectual property and the resulting cash flows from their licensing agreements. Our proactive approach to licensing management can also help pharmaceutical companies improve future agreement terms and build stronger relationships between business partners. By taking a proactive approach to licensing management, licensors can be confident that they are receiving accurate and complete royalty income and licensees can be confident that they are not paying more than they should.