Against the backdrop of a slower M&A market, collaborations between biotech companies and pharma companies have remained robust, particularly those focusing on innovation and collaboration for value creation. According to a recent article, the scale of cross-border and domestic licensing deals in Asia has been expanding, with licensing deals becoming a sought-after business development model in China’s pharmaceutical industry. Cross-border transactions can take various forms, such as licensing and collaborations, joint ventures, and financing and distribution agreements. However, when undertaking any cross-jurisdictional agreement there are some key areas to consider.
For a life sciences company, intellectual property (IP) rights are often the company’s most valuable asset, and without protection, these assets can be vulnerable and subject to exploitation by other third parties. It is important to ensure that a licensor has IP rights to grant and run appropriate due diligence on an IP portfolio. Where possible, include robust representations and warranties regarding ownership and employee assignments, particularly for early-stage biotechs.
Given the international nature of these deals, IP rights should be protected in relevant jurisdictions covered by the collaboration. Get first right to prosecute in relevant jurisdictions and include obligations on the licensor to diligently prosecute in the relevant jurisdictions.
It is also important to ensure the territorial scope of license grants are appropriate and to carefully consider whether each of the research, development, manufacturing, and commercialization licenses should be exclusive in the relevant territory.
Cross-border licenses and collaborations in the life sciences industry involve a myriad of complex regulatory frameworks in the broadest sense. They encompass product approvals, clinical trials, IP rights, data privacy laws, export and trade provisions that differ depending on the jurisdiction in which activities take place, or in which companies operates, among others. It is key to identify material issues early, as some novel issues may take time to analyze, having a knock-on impact on the timeline for getting clearance.
If problems turn into a dispute, it is important to ensure that an agreement includes detailed dispute resolution mechanisms, such as arbitration or litigation, and specify the applicable law and jurisdiction. New York, England and Wales, Hong Kong, and Singapore are popular common governing law choices in cross-border strategic licenses and collaborations.
Litigation and arbitration each have advantages and disadvantages as a dispute resolution mechanism; however, international arbitration remains a preferred method for resolving cross-border commercial disputes.
The types of payments involved in a cross-border license or collaboration is the same as domestic agreements; these can include upfront or annual license fees, reimbursement for research and development expenses, patent prosecution and maintenance-related expenses, milestone payments, royalties, profit shares, and equity investments. It is important to identify and understand the risks and consult tax experts as well as include contractual provisions to deal with potential uncertainty.
Being mindful of cultural differences, particularly in communication styles is essential in cross-border deals. Be respectful, and to the extent possible and practical, adopt the customs or approach of the counterparty.
Learn more about key considerations when engaging in the Biden administration’s efforts to promote environmental justice and equity as a key component of its environmental agenda in the Considerations for Cross-Border Strategic Licenses and Collaborations for Asia-Based Life Sciences Companies, part of the Asia Life Sciences Webinar Series 2023.