Often, small biotechs develop their drugs in a singular effort, trying desperately to meet established clinical milestones, living in the Phase 1 and 2 valley of death space – where no larger pharmaceutical or substantial investor will take interest or assist in funding their effort – until they prove a level of efficacy and safety. Keeping the bills paid and operations running, along with securing patents, is the major challenge at that stage. In other words, it is outright survival that is at stake as each financial quarter arrives.

Thinking about funding clinical trials going forward, commercialization and marketing deals are on the radar, but a distant leap from day to day operational matters. It takes smart management, keen deal making, and efficient cash management to survive. Those who demonstrate the skill of deal-making, without giving up too much of marketing rights, do well. Those who partner in a shrewd manner and net clinical development funding do even better. If you think about it, the company one keeps along the way is somewhat of an indicator of how a company is doing at present, and an indicator of what the future may bring.

The great potential of a drug or remedy that may make it a significant seller and revenue driver for years to come is one thing. But the partners and interested parties early on and along the way suggests a depth that a long term stakeholder should pay attention to.

Novabay Pharmaceuticals (AMEX: (NBY)) latched on to resolving what is now a growing problem of methicillin-resistant Staphylococcus aureus (MRSA). The go-to remedies of the past years are not as effective as they once were, due to growing drug resistance. Novabay’s NVC-422 anti-infective drug is the backbone of their effort. In a highly effective and smart move, Novabay negotiated an agreement with Galderma S.A to develop and then market the product, should it make it through the regulatory approval stages.

Galderma plans to treat impetigo, a highly contagious skin infection with NVC-422. A recent indicator of the partnership was that Galderma paid a $2.6 million clinical milestone payment to Novabay. Galderma pays for the ongoing clinical development, therefore Novabay is not out of pocket without current revenue. Down the road, royalty payments will come streaming in. While the royalty percentage amount is not declared, a double digit percentage is thought probable.

Again, the company you keep is a key indicator of your character. So let’s talk about Galderma, which is a joint venture founded in 1981 between Nestlé and L’Oréal. Their company is rooted in dermatology products with sales of nearly $2 billion in 2011, growing at 11.5 % over 2010 sales. They distribute their products in 70 countries and have close to 4,000 employees. Reportedly, they reinvest 20% of their revenues in research and development for new drugs and remedies and do so in four R&D centers around the world, one of which is in the U.S.

Galderma and NovaBay announced on September 24, 2012 the first patients enrolled in the Phase 2b global trial for impetigo treatment, which according to the Food and Drug Administration (FDA) has all of the design elements (controls, sample size, end-points) to be considered a pivotal trial. Results from this clinical trial are expected in the first half of 2013.

It is apparent that Galderma is highly interested in Novabay which is currently trading at $1.29 within a 52wk range of 0.84 – 1.72, and a surprising low market cap of just over nearly 37 million. The milestones associated with the Galderma partnership alone represent catalysts that investors should pay attention to. The company will likely seek more partnerships for deals as well, and again these announcements and further clinical test results represent opportunities for an investor.

Trius Therapeutics (TSRX) is an additional example of how a core biopharma firm has attracted the attention of, and partnered with, a large and key player in the pharmaceutical industry. Trius entered into an exclusive agreement with Bayer Pharma AG (BAYRY.PK) for the commercialization and development of Trius’ leading antibiotic treatment, Tedizolid Phosphate (TR-701). The company has performed extremely well in reaching milestones for Bayer, while Bayer provides financial and commercial support.

In July of 2011, Trius gave Bayer commercialization and development rights for Tedizolid Phosphate in the countries in Bayer’s Asia-Pacific market (excluding North and South Korea) and Latin America, Africa, and Middle East markets. This move will benefit sales immensely, while allowing Trius to retain its own development and commercialization rights in areas outside of Bayer’s territory. Those areas include the United States, Canada, and the European Union. In that agreement, Bayer compensated $25 million initially, with an additional support of 25% coverage for future development costs that Trius may need to get global approval needed for Tedizolid. There is also an additional $69 million on the table for additional development, commercial, or regulatory milestones, as well as royalties on sales.

In January 2012 the company earned a $5 million milestone payment from Bayer for achieving its objectives in safety and efficacy in this trial. Bayer HealthCare, a division of Bayer AG, focuses on discovering and developing drugs and remedies relating to animal health, consumer-medical care, and pharmaceuticals, with a very extended global reach at hand. The healthcare division generated approximately $19 billion in sales in 2011, which represented 39.5% of Bayer’s total sales.

Trius has a market cap. of over 218.00M with a 52 week range of 4.71 – 8.00 and last traded at 5.66. Bayer has a market cap of nearly 74B and last traded at 89.40. Watching both and acting accordingly with investment decisions could prove to be beneficial. Others certainly seem to think so as well.

WBB Securities initiated coverage on shares of Trius Therapeutics Inc. approximately 2 months ago and issued a buy rating with a $7.00 price target. Zack’s report projected a $12.00 price citing strong fundamentals and probability of their lead drug (IND) tedizolid phosphate along of course the its strong partnership with Bayer Pharma in AG, while also mentioning its strong cash position of $83.8 million at the end of Q2, 2012.