The last ten years have seen a remarkable increase in the number of therapeutic products that have received regulatory approval with a companion diagnostic (CDx) test. This trend has been a boon to patients, allowing health care providers to tailor their prescriptions for a drug that is more likely to be effective, and less likely to cause safety issues, for the individual patient than a drug that is developed and approved for all patients. The trend also reflects the value that drug developers may derive from a more targeted approval, in the form of lower clinical development costs and shorter timelines to approval. And of course, both diagnostic manufacturers have seen revenue growth through these collaborations.

While CDx collaborations between biopharmaceutical companies and diagnostic manufacturers can bring tremendous benefits, negotiating the terms of the collaboration often requires a delicate dance to bridge the competing interests of the parties. These include the following:

Payment structure. A diagnostic company typically seeks meaningful upfront payments and minimal payment risk for its development activities, while a biopharmaceutical company may want to incentivize successful completion of the development program.

IP ownership. A biopharmaceutical company often expects to own intellectual property (IP) that it is paying to develop, while a diagnostic company may insist on owning any biomarker-related IP and any improvements to its assay that may result from the collaboration.

IP risk. Neither party wants to bear the risk of infringement of third-party IP that would be infringed through the conduct of the diagnostic test.

Development diligence. A biopharmaceutical company almost always pushes for a strong commitment for the CDx to be ready at drug launch, while a diagnostic company will seek to limit exposure for delays, particularly those beyond its control.

Commercialization diligence. A biopharmaceutical company may want assurance that the CDx that it helped pay to develop will be commercially available to prescribers and patients following launch of the drug, while a diagnostic company may be reluctant to make strong commitments well into the future.

Remedies. A biopharmaceutical company will often insist on the ability to commercialize the CDx, or have a short path to obtaining approval of a replacement, in the event of a failure by the diagnostic company, which may require the diagnostic company to provide a license to its core IP and to provide a technology transfer and regulatory support to the pharma company or its designee.  A diagnostic company, on the other hand, may not want to risk allowing its IP (particularly trade secrets or otherwise unpatented IP) to fall into the hands of a competitor.

These (and other) issues can make the negotiation of a CDx collaboration a challenge, but given the significant scientific, patient, and economic benefits of these agreements, the parties are often able to bridge their differences to add value on both sides and bring life-changing personalized medicines to patients.

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Authored by Cullen Taylor.