Editor’s note: Cutting Edge Information, a business intelligence firm based in Durham, will begin contributing exclusive articles to Local Tech Wire on Thursdays.Pharmaceutical and biotech firms are joining forces to breed the next generation of blockbusters. Now, alliance building is a critical skill that allows companies to thrive despite slowing product pipelines.

Partnerships defray the costs and risks of each drug’s expensive trek from lab to pharmacy. By some estimates, the costs of basic research and development, clinical testing and market preparation now surpass $1 billion per product. To add to the pressure, sales expectations created by years of industry growth force major drug companies to bulk up pipelines with guaranteed winners — a near-impossible task. At the same time, small pharmaceutical and biotechnology companies have exciting products but few resources for drug commercialization.

A multi-billion dollar trend

To combat these forces, companies look to licensing deals and co-development, co-marketing and co-promotion alliances. According to our firm’s research, about 30 percent of drugs currently undergoing clinical trials come directly from biotechs and other outside sources. In 2002, the industry invested over $7.5 billion in collaborations that unite biotech firms’ specialized skills and small-lab intensity with the marketing and sales might of billion-dollar pharmaceutical giants.

“Companies that recognize their strengths and limitations develop lucrative partnerships without overtaxing resources,” said Cutting Edge Information’s senior analyst Eric Bolesh. “It takes a mature, well-led organization to be honest with itself about its shortcomings.”

Companies that partner can focus on higher-priority products, raise capital for other strategic objectives, gain experience in specific markets and therapeutic areas, and expand market research. According to Bolesh, firms with weaker pipelines use alliances to make up ground on competitors that dominate key therapeutic areas.

Most alliances fail to meet expectations

Making these partnerships work is no walk on the beach, and negligence and poor management sinks many promising deals. Experts estimate that 67 percent of alliances fail to meet initial expectations.

Like any business relationship, an alliance must be nurtured after the partners sign contracts and shake hands. Companies that fail to appropriately prioritize each alliance within their strategic plans face lackluster results and rocky partner relationships. Well-managed alliances fit snugly into therapeutic pipelines and are managed as closely as internal projects.

The results boost a company’s fortunes: over the past decade, for example, small-to-medium pharmaceutical companies seeking to commercialize their products have given Pfizer a richer product array than it could have developed in its own labs.

Teamwork required

Identifying, evaluating and structuring each partnership are tasks that fall to the pharmaceutical company’s business development team. In their roles as deal investigators and negotiators — and with past experiences in hand — business development team members are uniquely positioned to spot attractive opportunities and understand the implications different partnership options.

Once potential deals have been identified, they progress through a rigorous evaluation process that draws on expertise from marketing, sales, manufacturing, medical, regulatory, finance and legal functions. These parties determine a partnership’s advantages, disadvantages, and potential payoff. After thorough analysis from every corner of the company, approved deals move on to negotiation.

Throughout the negotiation process, business development continues to receive help from a host of supporting functions, especially R&D and marketing. Senior management gets involved at appropriate points to help move a deal toward completion. The negotiators hammer out the details — each partnership calls for different team structures to manage unique details.

Ultimately, the alliance moves into day-to-day project management. In the most sophisticated endeavors, formal alliance management teams assume diplomatic roles to aid project managers and create a direct line of communication between both parties. These diplomats help defuse difficult situations, resolve conflicts, and push a product slowly toward the market.

For more information, visit: www.pharmabiotechalliances.com and www.pharmacopromotion.com

Contact Jan Blanchette at jan_blanchette@cuttingedgeinfo.com or 919-433-0218 to learn how these reports will help you and your team execute strategy, understand key business issues, and support your ideas in meetings with key executives.

Cutting Edge Information offers research and consulting services. To develop our findings, we interview executives to understand their companies’ strategic and tactical approaches to a specific topic. The finished product is a report detailing quantitative and qualitative findings from across a given industry. For more information, see: www.cuttingedgeinfo.com