There are three bits of news which can be just about guaranteed to move the share price of a ASX-listed biotechnology company — either positively or negatively.

The first is, obviously, trial results — if a company’s drug proves to be safe or effective in clinical trials, that generally sends the share price up (check out Biotron (ASX:BIT), Orthocell (ASX:OCC) and Opthea (ASX:OPT) for recent examples of this).

If the drug doesn’t work, has a negligible effect or produces conflicting results, the opposite takes place, as Factor Therapeutics (ASX:FTT) so painfully found out last year.

Then there’s regulatory approval.

If a major body like the US Food and Drug Administration, Europe’s CE Mark or Australia’s Therapeutic Goods Administration approves a drug or device, shares fly (this happened for ResApp (ASX:RAP) just last month) or plummet if they refuse or require more data and re-submission.

The third bit of news is a partnership with a larger company, usually a big pharmaceutical company.

This is when a big name buys the rights to a drug or device from a smaller company, providing validation of the IP.

It can have not only a big impact on the share price, but even lead to immediate windfall, as was seen last year, when Viralytics ended its life on the ASX after being snapped up by US pharma giant Merck for half a billion dollars.

So when is the right time for a small biotech company to look for a partner? Phase one studies are usually too early, as most often these trials only test the drug or device in healthy patients, not ones with the disease the company is trying to treat.

After the release of successful phase II results is a common time to partner; as the drug has been shown to be effective in ill patients, and many small Australian biotechs cannot afford the costs associated with a phase III trial.

But it’s not always that cut and dry. Viralytics was acquired on the back of phase I data, for example, while Paradigm (ASX:PAR) chief Paul Rennie previously told Stockhead his company was in no rush to partner, even after successful phase II data.

“Generally speaking most times on the ASX we’d see biotech partners sniffing around post-phase II results, once safety has the tick and also a decent look at efficacy,” says Iain Wilkie, health analyst at Morgans.

“To run a phase III trial yourself, you are potentially looking at anywhere from $US50m to $200m+ depending on the indication, which for most ASX small biotechs is several times their market caps.”

Dr Ross Macdonald, boss of Cynata Therapeutics (ASX:CYP), which just this week announced Japanese tech giant Fujifilm would take ownership of its graft-versus-host disease (GvHD) stem cell treatment, answers the question of when to partner simply: “as soon as you bloody well can”.

“I think there is a big contrast between biotech here in Australia and in the US,” he muses.

“In the US, institutional investors are not in the least bit interested in companies partnering after trial results, if ever! They will give you the capital to go the whole way so that all value goes back to the company and its shareholders.

“But here in Australia we don’t have access to that level of funding, and many investors are impatient, and aren’t prepared to invest over the long timelines that are standard practice for a biotech.

“So in my view you have to have partnering front and centre of your business strategy and seek to partner as early as possible.”

Cynata’s tie-up with Fujifilm comes after successful phase I results, but that trial was unusually conducted in patients with GvHD.

Dr Macdonald said his company landed on GvHD as its first indication because it was a much smaller market.

“In our case the disease we chose gave us the confirmation our technology works,” he says.

“This makes us attractive to a partner, and now that we have that partner, it is enormous validation, because they’ve kicked the tyres, like what they’ve seen and are prepared to put money in, which allows us to expand into other indications as they take control of the GvHD drug.”

Wilkie agrees, saying ultimately, whether a biotech is approached by a bigger partner or not is all down to context.

“It really depends on the target indications and how many other players are already out there going for the same goal,” he says.

“Opthea obviously had a successful phase II result recently and has run hard on the back of that.

“Assumedly investors are backing that a deal is forthcoming. Adalta (ASX:1AD) is still pre-clinical but has pretty consistently argued that it’s a target once it gets through phase I.”

And as for Paradigm? “Results were interesting but I thought far from convincing – pharma likely keeping watch but insufficient to go all in for it,” Wilkie says.

“It went from being deal-ready with multiple suitors, in its investor presentation just prior to the capital raise, to raising $78m and going it alone. We read into this that those deals were likely far less than management were anticipating.”