Strategic alliances and market risk

Strategic alliances in product development and marketing are crucial to the biotechnology industry. Many alliances, however, are terminated before the drug reaches the market. In this article we make the case that strategic alliances can fail because of how they are negotiated. Alliance contracts are often inflexible and do not allow for changes in market conditions. We propose a model for contract valuation that can assist biotech and/or pharma deal makers in negotiating alliances that have a higher chance of survival in uncertain market conditions. The model makes use of variable royalties and milestone payments. Because licensing is key to the biotech and/or pharma business model this article will be of interest not only to professionals in licensing, but to all professionals active in the industry.