Licensing novel molecules and technologies is a relatively new-fangled phenomenon in the Indian pharmaceutical industry. However, it has now taken enormous importance in formulating new product strategy of pharmaceutical organizations that have aggressive growth plans at global and national levels.

Technically, licensing is the transfer of rights to a third party (the licensee) to use the Intellectual Property (IP) 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 initially agreed period. This Intellectual Property offered by licensor (innovator) can be one of the following: A patent covering a product or process; The right to the use of a trademark or brand name; Copyright of process / technology; Manufacturing know-how on products or processes (that is not the subject of a patent); Supply of active pharmaceutical ingredients, semi-finished and finished formulation; 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 new chemical entities (NCEs), Indian generic drug 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 pharmaceutical 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, Glenmarck and Sun Pharmaceuticals Industries have out-licensed few NCEs.

Lately Indian pharmaceutical industry is experiencing renewed challenges that has significantly slackened the introduction of new molecules, these are largely posed by new policy of DoP (Department of Pharmaceuticals) regarding fixed dose combinations (FDCs), stricter processes of regulatory approvals of novel molecules, recognition of Intellectual Property of innovator and MNCs fluctuating interest in adapting aggressive posture in introducing their patented molecules in India.

Thus domestic pharmaceutical companies in India sense the need to innovate strategies and models to keep meeting with their growth aspirations.

Apart from various other plausible ways, Indian pharmaceutical companies have come to a realisation that in-licensing is one of the ways forward. Only a few pharmaceutical 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. U K Modi group (Win Medicare, Modi-Mundipharma), Elder Pharmaceutical (acquired by Torrent Pharmaceutical), Walter Bushnell, Emcure Pharmaceuticals Ltd, Alkem Laboratories, Dr Reddy’s Laboratories, Torrent Pharmaceutical, Glenmarck Pharmaceuticals Limited, 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 pharmaceutical companies and even start-up companies have become active in this new found area. Some of the notable examples are Strides, Zuventus, Akumentis, K Labs, Koye Pharma, Alniche, etc.

With this background let me address the core question why would a pharmaceutical company be interested to go for in-licensing; this can be summarised as        

• Address weak growth area(s) - Therapy segments or Geographies
• Acquire an existing base to build upon - technology, regulatory approvals, manufacturing and marketing  
• Cost and time advantage - Licensing requires relatively smaller capital outlay with high return on investment (ROI).
• Need to consider cost of licensing vs cost of internal development
• Shortening the timeline to market entry and gaining advantage over the competitor and/or neutralise competitor’s move

First to launch - Opportunity to launch a differentiated or specialized product in the market so as to first to maintain or obtain critical competitive advantage.

Enhanced expertise - Gaining access to external expertise and capabilities (access to new drug delivery technologies, manufacturing process, etc.)

Global accessibility - Aligning with innovators helps domestic companies to expand their horizon, capability and global reach.

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 Intellectual Property. Licensing also may be less profitable as returns need 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 pharmaceutical 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 specialize in identifying in-licensing opportunities. They would typically adopt the following steps:

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 Intellectual Property.

Shortlisting - This is based on the strategic focus area(s) of the companies. It can be funneled by applying various criteria – dosage form, molecule, geography, therapy focus, etc.

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.

Approach - Connecting with the key personnel in the target company (Head of B D & Licensing, CSO, CEO, Sourcing or Procurement Head, Business unit or Country Head, etc.) with “one pager” document.

Information package - Receiving the Information Memorandum (IM) 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.

Signing confidential disclosure agreement (CDA) or non-disclosure agreement (NDA) - Though most of the points in a confidential disclosure agreement or non-disclosure agreement 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.

Business proposal - Receiving Confidential Information Package (CIP) 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:

Addressable market size (molecule, drug class, disease prevalence/incidence, competitors).

Stage of development
Pre-clinical (pre-IND) - Target selection and validation/Lead identification and optimization, Candidate selection, in-vitro studies and in-vivo studies / Non-GLP/GLP studies (animal testing) etc.

IND filed/IND approved/Phase-I/Phase-II/Phase-III/FDA review etc.

SWOT of new product and targeted market (therapeutic benefit over existing drugs: safety, efficacy, dosing, form, strength, route of administration, etc.)

COGS (cost of goods) or TP (Transfer Price) vs. expected price

Potential market share (next 5 to 10 years) in the category and cash flow

Further investment required (R&D, trials, marketing)

Time to market (deal completion to commencement of sale)

Feedback from KOLs, customers (understanding the requirement, benefit etc.)

Distribution channel (existing vs. new)

Manpower requirement (existing field force vs. new field force)

Non-binding offer (term sheet) – 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.

Exchange of data - Once the non-binding term sheet is signed and exchanged, the process of due diligence starts that involves setting-up virtual data room, face-to-face meeting(s), on site visit, interaction of technical and legal teams.

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 and conditions in the definitive agreement.

Finally mutually agreed definitive agreement or master service agreement (MSA) is signed and deal is sealed.

Once the definitive agreement is signed, regulatory and marketing teams become active so as to commercialise the Intellectual Property at the earliest.

The payment for the licensing can take any or a combination of the following:
One-time payment - Mainly for finished formulation or technology transfer kinds of deals, based on five year revenue projections. It varies from one to five percent of cumulative sales.

Upfront fees plus Milestone payment - This applies when the deal includes further development of technology / drug molecule since risks are involved in the final outcome.

Upfront fees plus milestone payment + royalty (as a % of sales) - As the above point however innovator wants to be involved in entire process of commercial launch thus expects a share in sales.

Upfront fees plus COGS (Cost of goods) plus Royalty - Primarily when deal involves active pharmaceutical ingredients.

Upfront fees plus transfer price - When deal involves finished formulation to be imported.

Royalty payment (say 5% to 25%) of selling price to distributor/wholesaler / consumer - mainly for finished formulations

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 Intellectual Property in the organization, bring diversity in operations, boost the growth engine, supplement new revenue stream and enhance credibility of the organization 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 organization ahead of the competition.