In today’s market, odds are that a life sciences company will end up with a corporate partner at some point in its development.

These relationships are often compared to marriages, and the parties usually enter into them with the same high expectations of living happily ever after that couples do. But in reality, partnerships between biotechnology and pharmaceutical companies are often characterized by years of “marriage counseling” while both sides try to sort out their various expectations.

One of the best ways to ensure the success of these arrangements is to have the equivalent of a pre-nuptial agreement. Just like marriages, parties often enter partnerships with too much wishful thinking and too few specifics committed to paper. And just like marriages, too much wishful thinking increases the probability that your relationship will eventually have to be sorted out in court.

So here are five fundamental issues that if spelled out on the front end can save companies a lot of money and time in the long-run.

  • Method and Timing of Exits – How do the parties anticipate exiting the relationship? Acquisition by the corporate partner? IPO? Are additional investors welcome? And when do the partners expect to exit? After a significant clinical milestone or once the product is commercialized?
  • Define Platform versus Product – Does the scope of the deal include the platform technology alone? If so, are there provisions if either party wants to develop a product based on the platform?< Or does it include a specific product and not the platform from which it was developed? What about subsequent products developed from the same platform?
  • Realistic Runway Expectations – Do both sides have similar expectations about how long it will take to achieve the milestones covered by the agreement? Does the agreement take into account worst-case scenario set-backs?
  • Front-end and Back-end Compensation – Who is entitled to what and when?
  • Dilutive versus Non-dilutive Investment – Does this investment dilute the position of existing investors? What about additional tranches (either anticipated or unanticipated) Does this deal effectively limit the number of potential additional investors?

Corporate investors usually enter the picture when a life sciences company needs to scale up production or undertake a large clinical trial. A well-heeled corporate partner may look like a godsend to a company with new and large capital needs. And it can be tempting to avoid the tough questions early in a relationship.

But it is critical to get every potential scenario on the table before entering into a partnership, particularly when the corporate partner is larger and often more a more experienced deal-maker.