Assessing Reasonable Efforts in Biopharmaceutical Licensing Disputes
How Industry Context and Economic Analysis Inform Breach Determinations
Executive Summary
When biopharmaceutical licensing disputes arise, the central question often focuses on whether a party used "commercially reasonable efforts" or made decisions consistent with industry practice. Life sciences consultants can provide valuable context by analyzing whether development decisions, resource allocations, and strategic choices align with what companies typically do under similar circumstances. This guide examines how consultants help assess industry standards, evaluate technical and commercial decisions, and provide economic frameworks that support legal teams in determining whether a breach may have occurred.
Quick Reference: Evaluating Reasonable Efforts
Decision Framework for Breach Assessment
- How compelling was the efficacy data?
- Were there concerning toxicity or safety signals?
- How did results compare to benchmark data?
- Were alternative development approaches explored?
- Did the program face insurmountable technical challenges?
- Manufacturing/formulation solutions attempted
- External expertise consulted
- Investment in problem-solving efforts
- Timeline extensions considered
- Rationality of portfolio prioritization decisions
- Investment levels compared to asset potential
- Resource competition from other programs
- Capital constraints and budget allocation
- Team size and expertise deployment
- Market landscape evolution since licensing
- Competitive product launches or failures
- Changes in treatment paradigms
- Shifts in payer attitudes or coverage
- Evolving regulatory requirements
Introduction: Industry Standards as the Foundation
In biopharmaceutical licensing disputes, the question of breach often hinges on whether a party's actions met the standard of "commercially reasonable efforts" or aligned with industry practice. These determinations benefit from understanding of how pharmaceutical and biotech companies typically make development decisions, allocate resources, and respond to evolving technical and market conditions.
Commercially reasonable efforts' typically means the level of effort a similarly situated company would expend on a similar asset, considering resources, portfolio, and market conditions. This standard recognizes that reasonable companies may make different choices based on their specific circumstances. Breach assessments examine both strategic decision-making and execution quality - did the company make reasonable choices and implement them adequately?4
Life sciences consultants can offer valuable industry context that helps legal teams assess whether challenged decisions fall within the range of reasonable business judgment. Rather than calculating damages after breach is established, this analysis typically comes first - informing considerations about whether a breach occurred at all. This guide examines how consultants can help evaluate technical decisions, commercial strategies, and resource allocation in the context of industry benchmarks to support these important determinations.
Three Critical Questions in Breach Assessment
Were Technical Decisions Reasonable?
Key considerations:
- Did clinical results justify continuing or stopping?
- Were technical challenges addressed appropriately?
- Did regulatory feedback support the decision?
- How did peer companies handle similar situations?
Industry benchmarks: Success rates, typical responses to specific endpoints, standard approaches to technical hurdles
Was Resource Allocation Justified?
Key considerations:
- Development spending relative to asset value
- Personnel and infrastructure deployment
- Comparison to other portfolio programs
- Industry norms for similar stage/indication
Industry benchmarks: Typical development costs, standard team sizes, normal development timelines
Were Strategic Choices Industry-Aligned?
Key considerations:
- Portfolio prioritization methodology
- Response to competitive developments
- Market size and commercial potential
- Strategic fit with company capabilities
Industry benchmarks: Portfolio management practices, typical go/no-go criteria, standard commercial thresholds
Economic Frameworks for Evaluating Decisions
Using Valuation Analysis to Assess Reasonableness
Economic analysis provides essential context for evaluating whether termination or prioritization decisions reflected reasonable commercial judgment. Understanding the asset's economic potential at the time of the decision helps determine whether a similarly situated company would have made the same choice.
Success Rate Benchmarking
Industry databases provide baseline probabilities that help assess whether termination decisions were reasonable given the technical results achieved:
- Mechanism validation: Novel vs. established mechanisms of action
- Indication difficulty: Oncology response rates vs. pain endpoints
- Regulatory precedent: First-in-class vs. follow-on products
- Technical risks: Manufacturing complexity, delivery challenges
Market Assessment Factors
| Parameter | Key Inputs | Relevance to Reasonable Efforts |
|---|---|---|
| Addressable Population | Epidemiology, diagnosis rates, treatment eligibility | Smaller markets may justify resource reallocation |
| Market Share | Competitive landscape, product profile, launch timing | Crowded markets reduce commercial rationale |
| Pricing | Comparator pricing, value proposition, payer environment | Pricing pressure affects development decisions |
| Time to Market | Development timelines, regulatory review, manufacturing scale-up | Delays may make continuation unreasonable |
rNPV = Σ(Probability of Success × Annual Cash Flow / (1 + Discount Rate)^Year) - Σ(Probability of Reaching Stage × Development Costs / (1 + Discount Rate)^Year)
This valuation framework helps assess whether termination decisions were economically rational given the information available at the time. A negative or marginal rNPV may support a decision to discontinue development.
Industry Precedent Analysis
Understanding how peer companies handle similar situations provides important context. Examining comparable licensing transactions and development decisions helps establish whether choices fell within the range of reasonable industry practice. Leading biopharmaceutical companies typically maintain stringent portfolio prioritization processes, with the number of unique clinical assets increasing by 15-30% between 2018 and 2024 as companies seek to balance their portfolios.5
Benchmarking Considerations
- Similar technical profiles: Programs with comparable efficacy/safety results
- Development stage: Decisions at similar inflection points
- Market context: Comparable competitive environments
- Company characteristics: Similar size, resources, and portfolio
Monte Carlo Simulation for Decision Analysis
Multiparametric sensitivity analysis demonstrates the range of outcomes a reasonable decision-maker might have considered. This approach shows why different companies might reasonably make different choices about the same asset.
Key Variables in Reasonable Efforts Assessment
- Development timeline uncertainty: Shows why delays might justify reprioritization
- Success probability ranges: Demonstrates reasonable disagreement about technical risk
- Market share scenarios: Illustrates how competitive views affect decisions
- Resource requirement variability: Explains different investment thresholds
Running thousands of iterations reveals the full spectrum of potential outcomes, helping tribunals understand that multiple decision paths could be commercially reasonable given the inherent uncertainties.
Practical Tools for Economic Analysis
Effective analysis often involves comprehensive data gathering. Based on experience across numerous disputes, these categories of documents typically prove valuable:
Technical Development Documentation
▼Clinical and Regulatory Materials
- Clinical study reports (CSRs) for all completed trials
- Protocols and statistical analysis plans for ongoing/planned studies
- Regulatory correspondence (FDA minutes, EMA scientific advice)
- Investigator brochures showing safety/efficacy evolution
- Development timelines and Gantt charts
CMC and Manufacturing Records
- Process development reports and scale-up studies
- Batch records showing yields and success rates
- Stability data and shelf-life projections
- Supply agreements and manufacturing costs
- Technology transfer documentation
Intellectual Property Landscape
- Patent prosecution files and claim construction
- Freedom to operate analyses
- Competitive patent landscapes
- Patent term extension strategies
Commercial and Strategic Planning
▼Market Analysis Documents
- Target product profiles (TPPs) and evolution over time
- Market research reports (primary and secondary)
- Competitive intelligence assessments
- Pricing studies and payer research
- Launch sequence planning by geography
Financial Projections and Models
- Original deal models and valuation memoranda
- Updated forecasts at key decision points
- Budget allocations for development/commercial activities
- Investment committee presentations
- Board of directors materials
Strategic Communications
- Email threads around go/no-go decisions
- Meeting minutes from joint steering committees
- Internal strategy documents explaining prioritization
- Communications with investors/analysts
Areas for Discovery Focus
▼The following areas often yield insights critical to reasonable efforts assessment:
Decision-Making Process
- How were development priorities established and communicated?
- What criteria triggered portfolio reviews?
- Who participated in termination decisions?
- Were external advisors consulted?
Resource Allocation
- Actual vs. planned development spending
- Personnel assignments to the program
- Manufacturing slot allocations
- Competing programs that received resources
Commercial Assessments
- Evolution of market size estimates
- Competitive threat assessments
- Pricing assumption changes
- Partnership discussions with third parties
Technical Challenges
- Manufacturing yield issues and resolution attempts
- Formulation or stability problems
- Clinical trial recruitment difficulties
- Regulatory feedback interpretation
Common Pitfalls in Reasonable Efforts Assessment
Hindsight Bias
The Issue: Judging decisions based on outcomes rather than information available at the time
The Solution: Focus on contemporaneous documentation; evaluate decisions based on what was known when they were made
Perfect Comparables Fallacy
The Issue: Expecting exact precedents when every program has unique characteristics
The Solution: Use multiple reference points; acknowledge differences while identifying relevant patterns in industry behavior
Binary Thinking
The Issue: Viewing decisions as simply right or wrong rather than within a range of reasonable options
The Solution: Consider the spectrum of approaches taken by peer companies; recognize multiple paths may be commercially reasonable
Resource Isolation
The Issue: Evaluating program decisions without considering portfolio context and constraints
The Solution: Assess decisions within the broader context of company capabilities, competing programs, and resource limitations
Technical Oversimplification
The Issue: Ignoring complex technical factors that influence development decisions
The Solution: Consider manufacturing challenges, regulatory complexities, and technical risks that may justify certain choices
Static Market Assumptions
The Issue: Failing to account for how competitive landscapes evolve during development
The Solution: Evaluate decisions in context of market dynamics at the time, including emerging competition and changing treatment paradigms
Illustrative Example: Strategic Pipeline Prioritization
Consider a typical dispute scenario: A licensee abandons a licensed program citing "strategic pipeline priorities" after Phase II results that technically meet primary endpoints but show efficacy that, while passable, is not compelling compared to internal development candidates and emerging competitive therapies.
The Dispute Framework
The licensor alleges breach, arguing the licensee failed to use "commercially reasonable efforts" and that meeting primary endpoints obligates continued development. The licensee counters that legitimate business judgment permits resource reallocation when results, while positive, don't support competitive positioning.
Systematic Analysis Approach
1. Technical Performance Assessment
- Did results meet pre-specified Phase II endpoints?
- How do efficacy measures compare to competitor benchmarks?
- What is the probability of Phase III success given these data?
- Are there biomarker or subgroup signals suggesting optimization potential?
2. Strategic Context Evaluation
- What other assets compete for development resources?
- How has the competitive landscape evolved since licensing?
- What return on investment do alternative programs offer?
- Has the licensee's strategic focus shifted (e.g., therapeutic area exit)?
3. Industry Precedent Analysis
- How frequently are programs with similar profiles advanced?
- What development decisions have peer companies made?
- Do industry databases show correlation between such results and approval?
- What resources would a reasonable company allocate?
4. Economic Framework Application
- What is the rNPV if development continues through approval?
- How does this compare to other portfolio opportunities?
- What is the opportunity cost of continued investment?
- Would partnering or out-licensing be more reasonable than termination?
The challenge lies in distinguishing between legitimate portfolio management, which most agreements permit, and failure to pursue a viable asset with reasonable efforts. Economic analysis that considers opportunity cost, competitive positioning, and resource allocation trade-offs can help provide context for this distinction.
Conclusion: Industry Context Supports Breach Determination
Assessing whether parties to biopharmaceutical licensing agreements have met their obligations benefits from more than legal analysis and can be enhanced by understanding of industry practices, technical realities, and commercial norms. Life sciences consultants can provide helpful context for evaluating whether challenged decisions reflect reasonable business judgment or may constitute breach.
Effective breach assessment often considers three elements:
- Technical context: Understanding what typically drives development decisions in practice
- Industry benchmarking: Knowing how peer companies often handle similar situations
- Economic perspective: Evaluating decisions in light of value and competitive realities
By providing analysis of how actions compare to industry standards, consultants can help legal teams explore the fundamental question: did the party act as biopharmaceutical companies typically would under similar circumstances? This industry-grounded perspective can provide valuable input for determining whether obligations were met or breached.
While damages calculations may follow if breach is established, the primary value of expert analysis often lies in this earlier stage, in helping tribunals understand whether challenged decisions fell within the range of commercially reasonable conduct that characterizes this complex, high-risk industry.
2 Biotechnology Innovation Organization (BIO), Clinical Development Success Rates 2011-2020 (2021).
3 Norstella (Citeline Trialtrove), "Why Are Clinical Development Success Rates Falling?" (May 16, 2024).
4 Recent Delaware Court of Chancery decisions have emphasized that commercially reasonable efforts requires consideration of what similarly situated companies would do, without considering idiosyncratic corporate initiatives. See Shareholder Representative Services LLC v. Alexion Pharmaceuticals, Inc. (Del. Ch. Sept. 5, 2024); Himawan v. Cephalon, Inc. (Del. Ch. 2024).
5 McKinsey & Company, "How biopharmaceutical leaders optimize their portfolio strategies" (January 9, 2025).
About Alacrita Consulting
Alacrita is a life-sciences advisory firm specializing in biopharmaceutical due diligence, valuation, and expert witness services. For over 15 years, we have provided technical, commercial, and regulatory insight to investors, companies, and law firms navigating complex biopharmaceutical matters.
Our expert witness practice draws on deep industry experience across therapeutic areas and development stages. We provide neutral testimony in disputes involving licensing agreements, milestone achievements, royalty rates, and asset valuations. Our consultants bring 20+ years of hands-on experience in drug development, deal-making, and commercialization.
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