Sanjay Sharma, Head-Lifesciences, NCF, UK; Ritu Hasija, Director Corporate and Girish Arora, Managing Director, Alniche Lifesciences, India elaborate on strategies to handle and execute pharma licensing effectively
Licensing novel molecules and technologies is a relatively new-fangled phenomenon in the Indian Pharma Industry; however, it has now taken enormous importance in formulating new product strategy of pharma organisations that have aggressive growth plans at the global and national level.
Technically, 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 manufacturing and/or marketing rights in select geographies, renewable after the initially agreed period. This Intellectual Property offered by Licensor (Innovator) can be one of the following:
Technical advice and assistance including (occasionally) the supply of components, materials, etc. which may be required in the manufacturing process Based on the perspective, a licensing deal can be an Out-Licensing deal or an In-Licensing deal. In Out-Licensing, Licensor is ‘out’ – licensing its Intellectual Property to a third party (the Licensee) and for the third party (the Licensee), who takes ‘In’ the Intellectual Property, this becomes an In-Licensing deal.
In the space of development of NCEs, Indian generic players have been an out-licensing entity wherein they undertake to develop a technology/drug molecule up to a certain phase and then out-license this molecule to the targeted big pharma companies who might pay a development fee followed by a royalty on future sales, in case if the drug candidate is finally been commercialised. Though there are not many examples yet, Zydus Cadila, Dr Reddy’s, Glenmark and Sun Pharma have out-licensed a few NCEs.
Of late, Indian pharma industry is experiencing renewed challenges that have significantly slackened the introduction of new molecules. These are largely posed by the new policy of Department of Pharmaceuticals (DOP) regarding fixed dose combinations (FDC), stricter processes of regulatory approvals of novel molecules, recognition of IP of innovator and MNCs’ fluctuating interest and adapting aggressive postures while introducing their patented molecules in India.
Thus domestic pharma companies in India sense the need for innovative strategies and models to keep meeting with their growth aspirations.
Apart from various other plausible ways, Indian pharmacompanies have come to a realisation that in-licensing is one of the ways forward. Only a few pharma companies have taken full advantage of in-licensing opportunities and paved the way for their rapid growth in the competitive market. They have aligned the process with their long-term growth strategy. UK Modi group (Win Medicare, Modi-Mundipharma), Elder Pharma (acquired by Torrent Pharma), Walter Bushnell, Emcure, Alkem, Dr Reddy’s, Torrent, Glenmark, USV, Zydus Cadila, Cadila Pharma, Sun Pharma are some of the companies with an eye for such opportunities.
It is only recently that most of the companies have started understanding the long-term benefits of in-licensing, hence now mid-sized pharma companies and even start-up companies have become active in this new found area. Some of the notable examples are Zuventus, Khandelwal Labs, Alniche and others.
With this background, let’s address the core question: Why would a pharma company be interested to go for in-licensing? This can be summarised as
However, in-licensing does involve some risks and has a few disadvantages too. The innovator may lose control over the manufacturing and marketing of its IP. Licensing also may be less profitable as returns needs to be shared between two parties. There is even a risk that the licensee may sell a similar competitive product after the license agreement expires and efforts of Licensor go in vain. To most of the companies initial upfront fee becomes a speed breaker to kick start the process. Other risks and issues involve; speed of a partner, general uncertainties in doing business with a partner in unknown territory, language barrier, cultural differences, political risk, and currency fluctuations. Alternatives to licensing include exporting, acquisitions, establishing a wholly owned international subsidiary, franchising, and forming strategic alliances. However, these are out of the purview of this article and can be discussed separately.
The approach to licensing is a well-drawn process, if followed serially, it brings predictable results. To handle this, large pharma companies have a dedicated business development department who scan the global markets for innovative and unique opportunities. In mid-sized or small or start-up companies, this activity is either carried out by marketing department or out-sourced to consulting firms who specialise in identifying in-licensing opportunities. They would typically adopt the following steps:
1. Lead generation– There can be various sources that support in generating licensing opportunities like paid reports, tracking participating companies in conferences, company directory, online licensing sources, scientific discussion forum, daily alerts, newsletters, review articles etc. This helps in structuring a repository of targeted companies having intended IP.
2. Shortlisting– This is based on the strategic focus area(s) of the companies. It can be funnelled by applying various criteria – dosage form, molecule, geography, therapy focus etc.
3. One pager document– This is a crucial document presented by the company to the targeted company (Innovator) that helps in creating interest among the innovator company regarding opportunity for them.
4. Approach– Connecting with the key personnel in the target company (Head of BD & Licensing, CSO, CEO, Sourcing or Procurement Head, Business unit or Country Head etc.) with ‘One Pager’ document.
5. Information package– Receiving the IM (Information Memorandum) or NCIP (Non-confidential Information Package) by innovator company that will assist in preparing a comprehensive proposal which includes details about therapy focus, target market, competitors and commercial proposal plus other relevant details.
6. Signing confidential disclosure agreement (CDA) or non-disclosure agreement (NDA) – Though most of the points in a CDA or NDA remain neutral or standard, however country of jurisdiction always remains a point of debate. As a practice, it should be a neutral country that must be acceptable to both Licensor and Licence.
7. Business proposal– Receiving CIP (Confidential Information Package) or CIM (Confidential Information Memorandum) that will elaborate the previous business proposal and define the exact commercial terms and other relevant points that becomes the starting point for discussion leading to next step. This business proposal should cover following points:
8. Non-binding offer (termsheet) – This is a crucial step that incorporates broad commercial terms and other terms and conditions like details of licencing, territory, commercials (price, volume, payment terms, three to five year projections), duration of licence, mutual liability, force majeure etc.
9. Exchange of data– Once the non-binding termsheet is signed and exchanged, the process of due diligence starts that involves setting-up virtual data room, face-to-face meeting(s), onsite visit, interaction of technical and legal teams.
10. Deliberation on the agreement– The final phase in which all aspects of deal are captured and narrated in legal language. The role of business development department becomes very central in defining and incorporating all terms & conditions in the definitive agreement.
11.Finally mutually agreed definitive agreement or MSA (Master Service Agreement) is signed and deal is sealed.
Once the definitive agreement is signed, regulatory and marketing teams become active so as to commercialise the IP at the earliest. The payment for the licensing can take any or a combination of the following:
Most of the commercial terms involve upfront or licensing fee, however it depends on negotiations and mutual decision of involved companies.
To summarise the above, Licensing is an opportunity to infuse new IP in the organisation, bring diversity in operations, boost the growth engine, supplement new revenue stream and enhance credibility of the organisation through their association with various partners. In today’s competitive scenario, BD team must structurally approach licensing as a well thought over strategy that will be imperative mainstay in placing their organisation ahead of the competition.