With the patents of many highly profitable blockbuster drugs expiring over the course of a few years, the search is on for new drugs to fill large pharmaceutical companies' shrinking product portfolios.

For years, Big Pharma has turned to smaller biotech companies to find new drugs. However, this source has been getting more expensive and less productive—in part because the recession led to reduced investments in biotech, and that has slowed research.

As a result, pharma companies are giving renewed and expanded attention to academic laboratories as a source of innovation. Collaborations have traditionally involved limited, one-off projects—investment of a few hundred thousand dollars in a professor's research, for example. Now, the scope has increased dramatically, and pharmaceutical companies are forging large-scale, multiyear umbrella arrangements with academia covering a wide range of research efforts and involving millions of dollars.

"Big Pharma and the academic institution agree jointly on which projects to fund, and in return for financing the research, the company has the first option to further develop and commercialize the results of that research," says Morrison & Foerster partner Van Ellis. "This significantly reduces the lead time, and the academic laboratory can rapidly begin work."

In some ways, these agreements are similar to the pharma-biotech collaborative model. But business and academia have widely differing needs, Ellis notes. For example, a pharmaceutical company has a strong competitive interest in keeping research findings secret, while academics must publish their research. "Such differences in strategic goals need to be recognized and addressed in their agreements," he says. "They have to be sensitive to each other's pressure points and carefully weigh these issues if the collaborations are to succeed."

Disappearing Patents

The pharmaceutical industry is at an unprecedented inflection point, with the patents on many major drugs—such as Lipitor, Plavix, and Singulair—having recently expired or are on the verge of expiration. From 2010 through 2013, some 30 blockbuster drugs will lose their patent protection. These represent about $98 billion in annual revenue. By next year, some Big Pharma companies may find that as much as two-thirds of their sales are at risk. By 2015, the loss of patents will have affected some $170 billion in industry revenues.

Converging Interests

Big Pharma wants academia to help build up product pipelines, but academia has its own reasons for being interested in these collaborations. Major universities are placing an increasing emphasis on "transitional medicine" and the practical application of biomedical research. Partnering with Big Pharma can facilitate the movement of drugs from the lab to commercialization. Access to Big Pharma's huge compound libraries can improve the quality of university research. And then there's money: National Institute of Health grants—the cornerstone of biomedical research in academia—have declined by $4 billion since 2003, and universities are looking for new sources of funding. These factors dovetail nicely with Big Pharma's needs.

Big Umbrellas

Large-scale umbrella agreements between Big Pharma and universities can direct tens of millions of dollars in investment in academic biomedical research—modest enough by pharmaceutical company standards, but "very big dollars for academia, where successful, well-equipped labs often operate on $1.5 million or less a year," says Ellis. More than simple one-off research initiatives, these relationships rely on master agreements that encompass the funding of multiple projects over time, focus on broad research areas such as "metabolic disorders" or "inflammation," and include the creation of a joint scientific steering committee to decide what research will be funded.

To view the original article, please click here.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved