Towards stronger ties

Towards stronger ties

Licensing alliances are the order of the day, with Indian pharma companies tying with international partners to in-license molecules and brands. Nandini Patwardhan looks at the elements that can make every agreement a strong relationship.

Indian pharma is on the overdrive and almost everyday dawns with an announcement of one or more alliances, a licensing agreement to be precise be it Glenmark, Ranbaxy, Nicholas, Elder or Dr Reddy’s. All these companies forged licensing alliances as a part of their overall business strategies. While some pharmacos in-licenses molecules to conduct trials and sell the drug, there are certain niche players who out-license it to them. Then there are companies who look at in-licensing well-known foreign brands of medicines to market in the country.

The trend goes on

Glenmark has in-licensed Crofelemer, Napo’s proprietary anti-diarrhoeal compound in over 140 countries, including India. These include all markets outside North America, Japan, China and Europe indicated for paediatric diarrhoea, acute infectious diarrhoea and chronic diarrhoea in people living with AIDS. Glenmark will develop, register, commercialise and exclusively supply for Napo’s global API requirements for the development and commercial sales under cGMP manufacturing according to USFDA requirements. Napo will receive royalties ranging from high single digits to early teens on net sales of the product in different geographies.

The company was also in news for its out-licensing deal with Forest Laboratories, which was to conduct clinical trials on Oglemilast (GRC 3886), a specific PDE-4 inhibitor, for asthma and chronic pulmonary obstructive disorder. This deal involves upfront and milestone payments cumulating up to $190 million by the time Phase II commences. Additionally after the commercial launch, Glenmark is to earn a mid-teen royalty from Forest on net sales of the product and in addition, will supply all API for sale by Forest. It has another out-licensing deal with Teijin Pharma, which will have exclusive rights to develop, register and commercialise Oglemilast for all potential indications for which the product might receive approval in the Japanese market. For this, Glenmark will receive upfront and milestone payments for a cumulative value of $53 million. On the successful completion of each stage in addition to annual sums that are marginally higher than the first quartile of net sales of the product in Japan, towards the supply of API and royalties.

USV has an active in-licensing programme to enhance its product portfolio. The strategy is to introduce innovative specialised products while retaining a focus on brand building. Ahmedabad-based Torrent pharma signed an agreement with Dr Reddy’s for licensing and supplying the formulation of one of its blockbuster drug ‘Domstal O’ (Domperidone + Omeprazole) in the GI segment in July 2004. Torrent Pharma licensed the dossier and marketing authorisation for the formulation to DRL, to be soon launched under the brand name Omez D in Ukraine and Kazakhstan, followed by Russia and Belarus.

The following review steps of non-confidential information should lead to an educated go/no-go decision and a confidential disclosure agreement with the licensor for further due diligence in attractive in-licensing opportunities.

  • Strategic fit with the company’s search criteria

  • Review of intellectual property – defensibility

  • Review of freedom to operate with existing intellectual property

  • Review of market opportunity and unmet medical need(s)

  • Review of clinical data – pre- clinical results, clinical trial results (when relevant), publication review

  • Competition assessment and opportunity cost estimates

  • Review of company’s management, partners, available financial data (public, private).

Courtesy: Alok Saxena, Elder Pharmaceuticals

A twist in the trend

There is a trend that can be observed in Indian pharma with respect to these agreements. Firstly, there is a steady rise in the number of such agreements. Secondly, Indian pharma is doing both-in and out-licensing products and lastly, most of these alliances are research driven, while there are very few, wherein companies have a licensing agreement to market a brand. “Today, licensing agreements are typically of an R&D pipeline. When people talk of licensing deals in pharma parlance, they are usually talking about R&D,” states Shivani Shukla Raval, Program Manager, Healthcare Practice, Frost & Sullivan.

The reasons for going in for these arrangements are manifold. Firstly, the product pipelines of various companies is going towards vacuum and investments in research are reaching the much dreaded billion-mark. As a result, companies are licensing molecules that are in different phases of trial. “R&D pipelines (of pharma companies) are drying up and you don’t have a lot of new launches on the horizon. There are fewer and fewer products in the R&D pipeline and the investment in research is becoming very significant,” reveals Raval. “Also, new drug approvals by FDA have been declining. So all these factors led to this trend of licensing in and out,” she adds. The big pharma might analyse their product portfolios to realise gaps in their offerings. And licensing is one of the low-risk ways to plug in those gaps. Also, if a pharma company wishes to enter into a related therapeutic line, licensing agreement provides a quick answer.

The big pharma is looking at acquiring products and getting into a particular product line or therapy line and create a niche for them in a therapy line. “In the Indian context, a lot of Indian companies need to build up their product portfolio to build up their pipeline of innovative products, go the MNC way and launch innovative products in the market. That is one of the reasons for in-licensing,” explains Raval.

Also, this sort of an arrangement works well with the small sized and niche players whose focus of operations is research, not marketing and are typically scientist-driven organisations. “For the niche payers and smaller pharma, the reason for out-licensing is that they don’t have the money and the pockets to commercialise this particular molecule,” explains Raval. “They out-license their product at the earliest opportunity so that they can concentrate on building on the empty pipelines and keep on out-licensing it. This could be their business model,” she adds.

Another reason for an increase in the number of licensing alliances is the fact that they are less risky than any other form of alliances. “Licensing is a cheaper and less risky way of securing products rather buying companies or doing R&D, which is far more expensive,” opines Alok Saxena, Director (International), Elder Pharmaceuticals. “Also, many small-mid sized companies do not have the financial muscle power to carry the early research stage molecules to the last stage and hence license out the molecule to large companies while keeping the marketing rights for some of the favourable markets for themselves,” he adds.

Think-think

Those relationships perceived as least risky are often the ones that give most problems. But a little effort on part of those involved can smoothen out all the hurdles, thereby making a success of the partnership

One of the concerns for companies today is the valuation that they should give for a product under trials and whether they should in-license a molecule at an early stage or at a later stage. “Previously companies used to in-license at a later stage because then the risk is very less and they would know that the product is going to be very successful,” states Raval. “Nowadays, the competition is very high and there is an increasing investment involved in licensing a particular NCE or NDDS at a later stage with valuations increasing. The later you license a product, higher the valuation. So now a lot of companies have started in-licensing at an earlier stage also due to increasing competition,” she adds.

Terms of agreement, is yet another area which might bring worry lines on the faces of pharma companies. “Biggest concern should be what are the terms of agreement, who will have the brand ownership going forward because remember one thing, most of the time you would be investing in building the brand in India,” declares Saxena. “So how you could settle that issue? What kind of marketing and technical support will you get from the originator. These are the main concerns we have always looked at and then we have been fairly successful in this model in the Indian market,” he adds.

Why conflicts arise?

Conflicts arise if due thought is not given for the reason behind in-licensing and behind the choice of products. “The most common area of conflict is valuations and milestone payment, which is to be included in the deal making and all the negotiations. Both the partners need to sit across the table and draft a deal structure. Milestone payment is an area of conflict in terms of what are the key milestones and payments required,” states Raval. Valuations too can lead to conflict if both the companies do not agree on a common valuation. “The buyer would undervalue the product and the seller would overvalue the product,” expresses Raval. The other reason is failure. “If a company has in-licensed at an early stage and if the product fails and does not get an approval, who takes care of the liability? Usually these are shared as in the draft agreement. Apart from this, there can be internal conflict with in-licensor for financing the deal,” she adds.

A typical licensing arrangement has several components like term, trademark usage, territory, exclusivity, royalty, signing fees and renewal which can all lead to conflicts if not clearly stated and understood by both the partners at the beginning of the arrangement. However, sometimes, even though things have been made clear in the beginning, if one party falters, then the arrangement can be a failure. So both the parties have to constantly monitor the progress of the arrangement and ensure that whatever irritants arise, they are sorted before they lead to major conflict.

Get set

A little bit of homework and preparation can save pharma companies not just millions of Dollars but also the frustration that arises due to conflict. A heightened level of interaction and dialogue between the partners seem necessary to avoid unpleasant situations. Like any other relationship, partners need to be honest with each other and clear with respect to various strategies that can be deployed.

“By identifying the right partner, a company can enter into an alliance so as to maximise revenues as well as market presence. A product deal done in the early stage of the product lifecycle can prove beneficial rather than the late stage. Similarly, alliances also increase penetration in certain markets and hence augment the overall revenues,” explains Saxena.

It is not easy to establish and maintain relationships. Those perceived as least risky are often the ones that give most problems. But a little effort on part of those involved can smoothen out all the hurdles, thereby making a success of the partnership.

nandini.p@expressindia.com