Bioasis Technologies Inc. V.BTI

Negotiating Positions

[JDavenport]

Let me simplify the apparently very difficult concept that xB3 creates a strong negotiating position for Bioasis management.. 

1. If xB3 works then it will enable neurotherapeutics with potentially high net commercial values. (Annual revenue of hundreds of millions or billions of dollars.)
2. Drugs with potentially high net commercial value are attractive to pharmas. (Duh!)
3. Several companies have displayed their interests in xB3 drugs by entering material transfer agreements or business deals with Bioasis.
4. Therefore the potential value of xB3 drugs is being recognized and expressed by these pharmas.
5. Bioasis has been entering cheap deals with very low upfront payments, milestone payments and royalty rates (Prothena, Chiesi, and Neuramedy).
6. Upfront payments are made before success or failure of xB3 is determined within the terms of the agreements. 
7. Performance-based payments (milestones and royalties) are almost riskless because they aren't paid unless there is success.
8. Therefore the size of milestone payments and royalty rates should be based on the potential commercial value of successful products.
9. Bioasis deals have not been based on the full potential value of the drugs included in its business deals with Prothena, Chiesi and Neuramedy. The milestone payments and royalty rates are instead being based on the poor information available about the performance and capabilities of xB3 at the time of signing. That reflects the stand taken by the pharmas and Bioasis is not arguing with the pharmas on the issue.
10. Bioasis management has been accepting the pharmas' contentions that Bioasis cannot negotiate from strong positions. This is true and I think this could rightly result in only one or two lower upfront, and only upfront, payments.
11. Even if Bioasis management is accepting the pharmas' contentions that Bioasis has weak negotiating positions, it is nevertheless no reason to accept low milestone payments and royalty rates. These payments should be based on achieving future success AND be priced according to the potentially high net commercial value of the resulting approved drugs. Bioasis deserves proper milestone payments as the drugs are derisked and a proper piece of the eventual unlocked revenues, revenues that would never have happened without xB3.
12. Bioasis should not have to pay the pharmas to work with xB3 but by allowing such small performance payments, that is what Bioasis is effectively doing.
13. The pharmas are calling our duckling ugly and Bioasis is agreeing that our duckling will still be ugly even if it grows up to be a beautiful swan.

I contend that Bioasis management has not shown that it knows how to sell xB3. The current MTAs, presumably, were entered to do work that could result in business deals. If the values of these deals turn out to be similar to the Prothena, Chiesi and Neuramedy deals, then Bioasis management will prove, once and for all, that they cannot assume strength of position and stick to it. They would be forgetting that the drugs have high values and that these high values are the reasons why the pharmas are here.

I don't sit at the table, and I don't have knowledge of specific negotiating issues, but if I may be so bold, I would suggest something like the following. 

First off, a material transfer agreement (MTA) should not pledge an xB3 asset or an option for an xB3 asset as part of the agreement. Such pledges are material and should be publicly reported. Such pledges have not been reported and that should mean that the participants in the various Bioasis MTAs have yet to negotiate business deal terms.

I would tell all current MTA partners that Bioasis will negotiate only one deal with one pharma at a time, and that all other pharmas will be put on hold until that first deal is completed. I would tell them all that Bioasis will not accept undervalued milestone and royalty payments. (The first deal must correct Bioasis's negotiating position.) I would put a time limit on negotiations and that bargaining in bad faith will end negotiations with any pharma. Then I would ask who wants to try to make a deal first. 

There would be no negotiating from weakness.

And if Bioasis people can't get a proper deal done at this point then they should get out of this business and into the ice cream parlour business.

jd