The development of new drugs is becoming more expensive and needs infrastructure and efficient resources so, licensing collaborations are becoming a favorable option for many global pharmaceutical companies. These licensing options help companies offset to research and development investments and bypass the cumbersome innovation and development process.
As per the global data, in the pharmaceutical industry, the value of the licensing deal exceeded USD 40 billion in 2020. And from this data, the cancer-related assets account for more than half, with four in the cancer immunotherapy area. The complete cancer deals have a value of almost $24 billion out of which a total of just over $40 billion overall.
Top 15 licensing deals
In the year 2020, here are the top 15 licensing deals between global pharma players.
- AstraZeneca/Daiichi Sankyo
- Merck & Co/Seattle Genetics
- Biogen/Sage Therapeutics
- Merck & Co./Astex/Taiho
- Innovent Biologics/Roche
- CSL Behring/uniQure
- Eli Lilly/Innovent
Licensing novel molecules and technologies is a relatively new evolving scenario in the global pharma Industry. It helps pharma companies formulate new product strategies having aggressive growth plans at the national and global levels.
There are many key reasons why innovators (pharmaceutical, biotechnology, or any medical equipment developers) consider this method to move their inventions forward.
Some reasons are
- to simplify their expansion operations into new markets without having to do it themselves,
- to increase sales, or merely to spread the product’s image to a different geographic location.
What is a license?
A license (or license is official permission or permits to do, use, or own something. A license is granted by a party to another party as an element of an agreement between those parties.
Let’s understand what exactly licensing means.
What is licensing?
In the pharmaceutical industry, licensing is the transfer of rights to a third party (the Licensee) to use the Intellectual Property owned by an innovator (the Licensor) under mutually agreed terms and conditions.
Licensing can be for various transactions like manufacturing and/or marketing rights in select geographies, renewable after the initially agreed period.
What is In-licensing?
In-licensing is the process of creating an agreement that allows another firm to provide capital to the development and marketing process, thus taking over the financial responsibility of the innovator.
There are some pros and cons in In-Licensing example Company A provides financial support to Company B in development but, once the drug enters the market, companies A and B need to share the profits (Investor and developer).
The In-Licensing process is very popular for small biopharma/pharmaceutical drug-developing start-ups who need financial support to get their drug into the market.
What is out-licensing?
Out-licensing is a process of finding partners who help in identifying the target market and assist in getting the product into the right hands. This process may include working with marketing firms or legal firms.
The financial relationship is very different in out-licensing compared with In-Licensing.
The Intellectual Property (IP) offered by the licensor (Innovator) to the licensee can be one of the following
- Process/technology copyright
- Supply of API, semi-finished, and finished formulation
- Product or process patent
- Trademark or brand name rights
Generic drug and out-license
In the development of New Chemical Entities (NCEs), the global generic players usually out-license entities to develop a technology or drug molecule up to a phase and then out-license this molecule to the big pharma companies who might pay a development fee followed by a royalty on future sales, after commercializing the drug product.
Top 7 advantages for the pharma companies to go with in-licensing
Buying or investing in a new innovative product/process helps to bypass the development efforts and offers the following advantages to the pharma companies.
- Helps to address weak growth areas such as therapeutic segments and/or geographies
- Acquire technology, regulatory approvals, manufacturing, and marketing rather than building up from scratch.
- Licensing generally requires a relatively smaller capital with a high Return On Investment (ROI).
- Saves both the cost and time involved during development.
- Shortens the time for market entry gains an advantage over the competitor and/or neutralizes the competitor’s move.
- Provides an advantage to launch a differentiated or specialized product in the market so as to first maintain or obtain a critical competitive advantage.
- Provides access to new drug delivery technologies, manufacturing processes, etc.
- Helps domestic companies to expand their horizon, capability, and global reach.
However, along with advantages, in-licensing has some risks and a few challenges and these include
- The benefits or profits on the products may be less as the innovator needs to share the profits with the licensee.
- There is always a risk that the licensee sells a similar competitive product after the license agreement expires, and the efforts of the Licensor may go in vain, and the return timeline reduces drastically.
- The innovator may lose control over the manufacturing and marketing of its IP.
- The partner’s inability to utilize the product/process efficiently and take maximum advantage of the innovation.
- Uncertainties in doing business with a partner in unknown territory, language barriers, cultural differences, political risks, and currency fluctuations.
In order to avoid these cons, the innovator needs a great understanding of the investor and shall understand their capabilities in taking the innovative product further.
Alternatives for Licensing
Alternatives for licensing include exporting, acquisitions, establishing a wholly-owned international subsidiary, franchising, and forming strategic alliances.
Now let’s see the steps involved in the licensing process.
Steps in the licensing process
Licensing needs to follow a systematic process to draw predictable results. Large pharma companies have a dedicated business team that analyzes the global markets for innovative and unique opportunities.
However, mid-sized or small start-ups usually outsource to consulting firms that specialize in identifying such opportunities.
Usually, the dedicated or business teams consider the following steps in licensing.
Step 1: Lead generation
The usual resources for lead generation include
- tracking participating companies in conferences,
- paid reports,
- company directories,
- online licensing sources,
- scientific discussion forum,
- daily alerts and newsletters,
- review articles, etc.
It helps to create a repository of target companies that hold the intended IP.
Step 2: Refine the leads
The teams usually perform this based on the strategic focus area of the companies. They sort out by applying various criteria such as dosage form, molecule, geography, therapy focus, etc.
Step 3: Creating slides/deck/presentation
The company needs to create slides/decks/presentations to create an interest in the innovator (target company) to showcase their capabilities and convince the innovator of the opportunity.
Step 4: Connect with key personnel
Contacting the key personnel in the target company (head of business development & licensing, CSO, CEO, sourcing or procurement head, business unit or country head, etc.) with the slides/deck/presentation document is crucial.
Step 5: Confidential Disclosure Agreement (CDA) or Non-Disclosure Agreement (NDA)
Though most of the statements in a CDA or NDA remain neutral, the country of the jurisdiction where the agreement is made remains a critical concern.
Step 6: Discussion
The Confidential Information Package (CIP) will elaborate on the business proposal and define the exact commercial terms and other relevant points that become the starting point for discussion and lead to the next step.
Usually, the business proposal discussion covers the following points.
- The current stage of innovative product/process development.
- Pre-clinical which includes target selection, lead identification & optimization, candidate selection, in-vitro studies & in-vivo studies / Non-GLP/GLP studies (animal testing), etc.
- Status of IND (filed or approved/ Phase-I/Phase-II/Phase-III/FDA review etc.).
- Market size (molecule, drug class, disease prevalence/incidence, competitors).
- SWOT of new product & targeted market (Therapeutic benefit over existing drugs such as safety, efficacy, dosing, form, strength, route of administration, etc.)
- Further investment is required (R&D, trials, marketing).
- Potential market share (next five to 10 years) in the category & cash flow.
- Time phrase to market (from deal confirmation and completion to commercialization).
- Distribution channel (existing vs. new).
Step 7: Terms and conditions
It is one more crucial step of licensing and incorporates broad discussion on commercial terms and other terms & conditions. That includes licensing details, geography, commercials (such as price, volume, payment terms, three to five-year projections), license duration, mutual liability, etc., between the involved parties.
Step 8: Data exchange
When the two parties sign and exchange the non-binding term sheet, the process of due diligence starts with the face-to-face meeting(s), an onsite visit, and the interaction of technical and legal teams between the involved parties.
Step 9: Deliberation on the agreement
This is the most crucial and end phase where all aspects of the deal are captured and narrated in legal language. Here the business development department plays a key role in defining and incorporate all terms & conditions in the definitive agreement.
After concerning, both parties sign the mutually agreed definitive agreement or MSA (Master Service Agreement) and seal the deal.
Now, after the agreement, the regulatory and marketing teams become active in commercializing as early as possible.
Payment in licensing
The payment for the licensing can take any or a combination of the following ways
- One-time payment
- This type of payment is usually considered mainly for finished formulation or technology transfer kinds of deals, based on five-year revenue projections.
- Upfront fees + milestone payment
- This applies when the deal includes further development of technology/ drug molecules since risks are involved in the outcome
- Upfront fees + Milestone payment + Royalty
- As the above point however innovator wants to be involved in the entire process of commercial launch and thus expects a share in sales.
- Upfront fees + Cost of goods + Royalty
- Primarily when the deal involves API.
- Upfront fees + Transfer price
- When the deal involves a finished formulation to be imported.
- Royalty payment
Most of the commercial terms involve upfront or licensing fees, however, it depends on negotiations and mutual decisions of involved companies.
Credevo licensing services
The development of great products often needs a collaborative effort. Credevo’s licensing support is all about connecting with excellent products, developers, investors, and marketers worldwide.
With Credevo’s global network of companies engaged in the development of new products or those looking for new products to invest in, it becomes easier to find such attractive opportunities.
Credevo offers its services in the United States, Canada, Europe, Australia, Japan, China, South Korea, and many other regions globally.
Utilize Credevo’s global network of healthcare product developers, investors, and pharma companies to explore licensing opportunities.
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