Corporate law can be mind-boggling, but understanding the fundamentals could lead to profitable investments. Essential concepts, along with notable partnerships like those of MannKind, Sanofi and Regeneron, served to solidify investors’ learning.

Corporate Partnerships

LLC, LP, LLP and C-Corp

As “corporations,” these “legal entities”—the limited liability company “LLC,” limited partnership “LP” and C-corp—are also “corporate partnerships.” These partnerships come with duties and rights, offering different advantages and disadvantages. However, they have one thing in common, a “corporate veil” that protects the personal assets of owners and officers.

An LLC can effectively shield “hot assets” prone to lawsuits. In the event of a bankruptcy filing, creditors cannot go after the personal assets of officers and shareholders. Offering flexibility, owners can file their LLC as a C-corporation or a limited partnership. Hence, LLCs are referred to as “companies” and “partnerships.”

As legal entities, these partnerships have to file required documents with appropriate authorities while adhering to various corporate formalities. While there are many requirements, the annual meeting and election of officers and directors are important regulations. Filings include the certificate of incorporation, operating agreement for the LLC, bylaws for C-corporations, as well as quarterly and annual reports.

Non-Corporate Partnerships 

Joint Ventures
Involves two or more parties, a joint venture—under legal binding agreements among members—pooled the partners’ money in a single endeavor like software programming, and dissolved when the task is done.

Despite legal terms between parties, joint ventures are not corporate entities. Therefore, they do not need to file paper works like a corporate partnership nor adhering to corporate rituals. Since their partnership does not form a new company, joint ventures do not have the corporate veil protection.

Simply put, joint ventures are like affairs of two or more parties, who laid down legal terms how they want to conduct business.

Biopharma
Formed between two firms—usually for the purpose of sharing costs and profits of drug development, manufacturing and commercial launch—biopharma partnerships are similar to joint ventures; their union does not create a new company. Hence, they are also without protection of the corporate veil.

Partners can tap into each other’s resources, such as their expertise, capital reserves, and robust’s sales and marketing force. Profit sharing structure depends on corporate strength, experience, negotiation, cash position, and, more important the quality of drugs in development.

Notable Bio Partnerships 

The Global Diabetes Powerhouse Sanofi (NYSE:SNY) partnered by with Regeneron Pharmaceuticals (NASDAQ:REGN) for Eylea, a drug to treat diabetes macula edema, in a 50/50 profit sharing partnership.

Source: Sanofi

Sanofi also partnered with MannKind Corporation (NASDAQ:MNKD) for Afrezza, the ultra rapid acting insulin to treat diabetes. Sanofi will provide a sum of roughly $1billion as MannKind achieves various milestones, for 65 percent of Afrezza’s future sales.

Source: Sanofi

As joint ventures, bio partnerships do not create a third company; hence, there is no corporate veil protection. Nonetheless, partners have to respect the legal terms drafted and agreed. If violated, members could file lawsuits to break away from the partnership and receive compensation.

It is interesting to note that biotech joint ventures are usually referred to as “partnerships” rather than “joint ventures” per se.

Merger and Acquisition

In a merger and acquisition “M&A,” the new owner transfers assets from the acquired firm. The bought out company can either change its name or remains unchanged. Business operations tend to be ongoing as usual: The firm is just own by a different holding company. Hence, M&A do not create a joint venture or biotechnology partnership.

MannKind-Sanofi Partnership to M&A 

The market has been speculating, as to whether the MannKind-Sanofi partnership will lead to a full-blown merger and acquisition. Corporate filings with the U.S. Patent Trade Office revealed MannKind transferred Afrezza’s patent and the firm’s interest to Aventisub LLC, an asset holding company formed by Sanofi, on September 29, 2014. The aberrant after hour transactions in the past month, where large blocks of MannKind common shares traded, also raised further questions by shareholders. 

MannKind’s corporate headquarter in Valencia, California, has also been listed for sales further evidencing an incoming M&A. But that’s not all. CEO and Founder Mann founded more than 17 biotech companies and sold them at significant premiums. Mann is similar to, “The Most Interesting Man in the World” to say the least. There are speculations as to whether Mann is taking a private company, “Second Sight,” to IPO. Like they said, it’s tought for a man to break his habits.

Source: Second Sight

In a reasonable explanation, Sanofi is waiting for Afrezza to substantiate sales—ensuring the novel inhaled Technosphere Insulin will not flop in the market like Exubera—by then, the French Global Diabetes leader will jump in with both feet.

Perhaps, that explains large blocks of MannKind stock after hour’s transactions: The lesson learned from Pfizer’s mistake of “testing the water with both feet,” in 2006, is still fresh in the biopharma space. Notwithstanding, speculations are still guessing games.

What is certain, the partnership infused MannKind with $150million upfront payment out of the total $1.1billion available. MannKind can now leverage its partner’s elite sales and marketing force of more than 35,000 professionals, to deliver its much-needed flagship product Afrezza to million of patients suffering diabetes world wide.

Source: MannKind

Bottom Line

Partnership can be either corporate entities (LLC, LP, LLP and C-corp) or non-corporate (joint venture and biopharma partnership).  Corporate Partnerships have legal protections of the corporate veil—in the event of filing Chapter 11, creditors cannot go after more money than what’s available in the partnership—at the requisition of filing cumbersome documents and adhering to various formallities.

Non-corporate partnerships do not form a new company in the process. So they are without legal protections, but also no burdening corporate procedures. Nevertheless, partners still have to adhere to their ground rules.

On a final note, whether the non-corporate partnership between MannKind and Sanofi materialize into a Corporate M&A remained. Nonetheless, the wait isn’t in a matter of years, rather it’s within months in fiscal 2015.

“Integrity, ingenuity, essence and essentially all else follow.”