Licensing Activities and Issues
Underlying most arguments against the free market is a lack of belief in freedom itself.
–Milton Friedman, economist.
A few bad reasons for doing something neutralize all the good reasons for doing it.
–F. M. Cornford
OVERALL CONCEPTS
Definitions
“A license is the granting of permission or rights to make, use and/or sell a certain product, design or process or to perform certain other actions, the granting being done by a party who has the right to do so. These rights may include patents, trademarks, copyrights, trade secrets, know-how and technical assistance” (White 1990).
“A trade secret can be any formula, plan or coordinated information used in a business for a competitive advantage, if it is not known in the particular trade” (White 1990). The formula of Coca Cola is a well-known example.
Know-how is defined as “scientific, engineering or other specialized knowledge that can NOT be defined as a trade-secret but has particular application to or use with a certain product or process … proprietary know-how, while it may not be a trade secret, may very well have particular value in the manufacture, use or sale of a given licensed product or process and may, therefore add significant value to a license … know-how includes specifications or components for … chemical compounds … and pharmaceutical products; it also covers all knowledge areas which can be expressed clearly in written engineering specifications, chemical formulas or the like” (White 1990).
Traditional Views
The traditional view of licensing that was prevalent prior to the mid-1980s has extensively changed in recent years. The traditional view of the licensing of a drug to another company (i.e., licensingout) was that major companies wanted to prune their portfolio and obtain whatever value possible from the licensed drugs. In other words, some large companies in the United States and elsewhere wanted to flog the dregs of their portfolio to gain some financial return for the money they had spent on drugs that they now wanted to stop developing. Companies were not generally taken in by this ruse and few large companies were successful in licensing their discards. During this same period, other companies, particularly in Japan, had other more positive views of licensing-out. These companies understood that some of their drugs had substantial value and could increase their sales in countries where their drugs were not being marketed or were not well marketed. They, therefore, sought or agreed to license valuable drugs to partners that were strong in countries where their own presence was small or nonexistent. Licensing was generally a one-way agreement in these situations. Company A (i.e., the licensor) licensed their drug to company B (i.e., the licensee) in one or more countries where company A either did not have sales representatives, development, and/or regulatory capabilities or had only limited capabilities.
In major pharmaceutical companies, the traditional motivation behind licensing-in new drugs was the hope of finding rare gems lying about on a generally bleak landscape, particularly prior to the mid-1980s. Some companies searched obscure places in Eastern Europe and Asia, combing the landscape in search of a gem that they could acquire for relatively small amounts in terms of money or royalties. A number of wellpublicized successes began to interest other companies in proactively utilizing this approach. Whereas research and development (R and D)—based companies have as their motto “Research and Development,” the pure licensing-based companies have as their motto “Search and Development.”
During the 1980s, companies that had valuable drugs to license-out began to place a greater importance on them and demand greater value in exchange. A more modern view developed after the mid-1980s, when both mid-and large-sized companies began to be willing to enhance their portfolio by strategic trades and deals for both late stage products and early stage projects with substantial potential. It is now more common for parties in a license arrangement to seek a win-win situation (e.g., by offering a quid pro quo), rather than taking a more one-sided approach to the relationship.
Benefits in Licensing-out
Some strategic benefits that currently exist for a company to consider when licensing out a product of value are briefly described. A company may:
Earn more money for a drug than it otherwise would, particularly if the product will be marketed in a country where that company is not operating
Enter a new market more easily and more rapidly than attempting to build both a subsidiary and a sales force
Expose itself to fewer risks than if it attempts to market a drug with its small sales force, or a larger sales force that does not call on the type of physician who would prescribe the new product
Inexpensively explore the possibility of establishing a new subsidiary by determining how well one or more of their products sell in the particular country
Receive a drug or other product/technology in return that is extremely valuable and meets its strategic goals
Retain the right to enter the new market at a later date after it has developed the capability of selling and promoting the drug effectively (e.g., Boots licensing ibuprofen to Upjohn and later also selling it themselves, the Glaxo-Roche deal to sell Zantac is similar in that it allowed Glaxo to penetrate the US market rapidly using the Roche sales force)
Obtain expertise in clinical, development, regulatory, and other areas through collaboration with an experienced partner
Most companies prepare a full brochure of information on the products or other types of opportunities (e.g., technologies) they wish to license out. A prototype table of contents for such a brochure is shown in Table 106.1.
Goals and Purposes of Licensing
The overall goal of licensing is to add value to a company either by licensing-in or -out the proprietary rights to an idea, compound, drug, or technology. Drugs may be licensed-in (or out) at any stage of discovery or development. “This ranges from licensing a general concept or idea for a new drug where specific molecules may not have been designed, to licensing a compound that is in an early, middle, or late, preclinical stage. A drug could be licensed that is in any stage of clinical investigation or have achieved regulatory approval and be marketed in one or more countries.”
Licensing-in compounds or drugs may be viewed in terms of achieving corporate goals through building a new therapeutic franchise, protecting a current franchise, or expanding an existing franchise. Apart from enhancing a company’s portfolio or marketing position in the short term, a reasonable licensing approach for a company may be based on filling in certain gaps
over a five- to ten-year (or even longer) period. These gaps are defined in the section on strategies.
over a five- to ten-year (or even longer) period. These gaps are defined in the section on strategies.
Table 106.1 Prototype table of contents for a licensing-out proposal | ||||||||||||||||||||||||||||||||||||||
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To add value to a particular therapeutic line of products, a company may attempt to increase the number of different products by licensing-in new ones. A more traditional approach to increasing value of a specific line of drugs is to focus on expanding the number of line-extensions (e.g., new dosage strengths, dosage forms, and packaging). Often, both approaches are followed simultaneously.
WHAT ONE LICENSES
Most licenses involve one of the following: patents, knowledge, trademarks, or trade secrets. License for a patent is usually the best type of license to get because it offers the greatest protection to the licensee. A license of a trade secret (e.g., the cell line used to make monoclonal antibodies, particularly in the past) is less secure to the licensee because others may independently discover the information, may find alternate approaches so that the information becomes less valuable, or may examine the item or process and identify the nature of the knowledge. Because the value of licensing knowledge generally lasts for a shorter time than a patent, lower royalty rates are usually given for it than for a patent-protected license.
Another type of license is for a registered trademark (e.g., brand name). This is usually more valuable for over-the-counter than for prescription drugs. Nonetheless, a licensor may require the licensee of a prescription drug to license the trademark and to pay a royalty for it.
Part of the package that may be licensed along with the patent, know-how, or trademark could be technical assistance needed for the transfer of the technology. This could include training of staff in manufacturing methods, marketing approaches, quality control, and the transfer of improvements as they are developed. The transfer of technology is for a specific period of time, after which any further assistance is generally under a consultancy agreement. However, all of these details are negotiable and are usually specified within the contract.
TYPES OF LICENSES
The types of rights granted in the license maybe exclusive or nonexclusive. Exclusive rights means that only the licensee has rights to the patent, knowledge, or trademark for one or more dosage forms for one or more uses, and in one or more countries. It is common to license-out all dosage forms of a drug for all countries, although specific limitations on either dosage form or country are common. Also, there can be exclusivity held by one licensee for one field of use and exclusivity held by another licensee for another field of use. The fields referred to may be different indications, different dosage forms, or different geographical locations. It is also possible that different uses are for a diagnostic kit or as a research reagent.
Nonexclusive rights means that the licensor may license the drug to as many licensees as they desire. A sole license means that the licensor also retains rights to market the drug, but is only permitted to license one group.
Almost any arrangement that can be conceived may be proposed between two or more groups. A few of the more common types of agreements are briefly presented:
One company licenses a drug to another for worldwide development and marketing.
One company licenses a drug to another for development and marketing in only one country or in selected countries. The original company may participate in the drug’s development or may only retain marketing rights in selected countries after the other company has developed the drug.
One company initiates drug development and the licensee may begin their participation at any of several stages (e.g., Phase 1, Phase 2, marketing). Royalty and other fees for the license become progressively higher if the licensee waits for a later stage before beginning their participation.
There may be money paid as part of the original agreement or money may be paid according to any agreed-upon schedule [e.g., at end of Phase 2 and/or on submission of a New Drug Application (NDA) submission, at time of marketing].
A company may develop a drug but license it to another for comarketing in one or more specific countries. The advantage for the developer is to achieve a better depth and breadth of market penetration.
Factors that are covered in a typical licensing agreement include:
Identification of what is being transferred (e.g., patents, dosage forms, manufacturing process, marketing services, technical knowledge)
The payments that are to be made and when they are to be made (e.g., upfront payments, milestone payments, royalties on sales, stock purchases, research support)
The field(s) of use
The countries involved
The nature of the licensee’s participation
How the property transferred is to be used
Time requirements (e.g., for completing various stages of drug development)
Duration of the agreement
Any penalties
Conditions under which the contract may be renegotiated or voided
CREATING A LICENSING STRATEGY
Examples of Simple Licensing Strategies
A simple (and simplistic) licensing strategy is to license drugs or technologies that are going to earn the greatest profit for the company. Some companies utilize this strategy by reacting to all proposals that are presented to it from outside sources (e.g., other companies, academic investigators, institutions). Although this general strategy has actually been effective and successful for some companies in this increasingly competitive world, this approach is too simple to be an effective modus operandi and a more systematic and proactive approach is usually preferred by most pharmaceutical companies.
A more specific strategy may be developed by utilizing portfolio analysis methods to identify various types of gaps in the portfolio that could be closed with a licensed drug or product. In addition to (or instead of) gaps, a company may focus their strategy on creating a strong defensive position around their therapeutic areas or drugs of greatest commercial value. Once the characteristics of desired products or types of opportunities are completed in terms of therapeutic area, stage of development, and potential market size, it enables the person or persons seeking licensing opportunities to have a general understanding as to what types of products would be most desirable and have the best fit with the company. It is not desirable, however, to develop a highly specific strategy that is too restrictive and becomes almost impossible to achieve. An example of this would be to seek to license an antihypertensive drug currently in Phase 2 that acts via a specific mechanism and has a specific commercial potential in its third year of marketing.
On the other hand, seeking to proactively license actual drugs under development by other companies is a realistic strategy to pursue, particularly today when many companies developing drugs have licensing out as an exit strategy.
Some companies adopt the attitude that any product licensed in must be able to be developed and sold using their existing resources and facilities. Companies at the other end of the spectrum believe that if a license has great value for the company, it is essential to find sufficient resources to develop it appropriately, even if they have to borrow money.
It is clear from the discussions in the following text on focus, gaps, and elements that a company may develop extremely complex and detailed strategies in addition to, or instead of, the rather simple ones previously described.
Identifying the Focus of a Licensing Strategy
Each company must decide whether to be proactive, reactive, or both in terms of licensing strategy. Another aspect of a licensing strategy is focus: a company must decide to focus efforts on enhancing the company’s strengths or developing new areas, or to pursue a combination approach. Companies usually receive many unsolicited offers for potential licensing in their areas of strength because those are the areas for which the company is most well known (e.g., antiviral companies will receive numerous antiviral offers). The licensor recognizes that a substantial knowledge base and extensive development and marketing experiences have been acquired by the potential licensee, which can be applied to new compounds or drugs.
Figure 106.1 shows a simple view of a licensing strategy that identifies core products to seek and then categorizes others in progressively uninteresting categories. These categories are identified by specific criteria created to screen and evaluate opportunities such as: (a) therapeutic and disease area, (b) position along the development pipeline, (c) commercial potential, (d) effort to reach the market, and (e) cost to reach the market and other criteria.
Developing an Efficient System and Criteria to Evaluate Licensing Opportunities
After a company establishes its interest in one or more therapeutic areas, it is likely to start receiving unsolicited offers to license in products or compounds in that disease area, as well as in other therapeutic areas. While companies usually seriously review all opportunities looking for a diamond in the rough, if not an actual precious stone already formed, they will have established a set of predefined criteria that will assist them in identifying those opportunities that deserve special consideration.
It is essential to create an efficient process to screen opportunities, minimize the time spent evaluating each potential opportunity, and maximize the ability to find the best products with the least effort and time expended. The number of people to involve, their skills and the possible necessity to obtain additional data make this practical aspect an important one. While there is no ideal procedure to follow, every company will want to assure that its process is streamlined to maximize the efforts of their staff to identify and not miss any opportunities of value to the company.
No matter what system is established within a company, it is important to ensure that all the relevant functions and specialties are involved in the assessment of the opportunity and that they have access to each others’ input. This includes specialties such as clinical, statistics, toxicology, preclinical biology and pharmacology, clinical safety, pharmacokinetics, regulatory affairs, marketing, and others.
Identifying Major Types of Gaps
Nine types of gaps are described that a company may try to fill with a licensed opportunity.
Research Gaps
A gap may exist in a specific research area for potentially important drugs or technologies. A new compound requiring some additional discovery work could fill this gap. Other types of research goals that could be met by licensing include licensing-in
a new technology to help develop novel compounds or to improve existing ones, or to obtain a series of compounds to test.
a new technology to help develop novel compounds or to improve existing ones, or to obtain a series of compounds to test.
 Figure 106.1 A classification of licensing opportunities for evaluating their corporate fit. When the specific criteria are developed for identifying each of these groups it should facilitate the initial screening of most opportunities. |
Financial Gaps
A financial gap could be a financial shortfall in terms of projected sales (or profits) for marketed and investigational drugs (in the future) compared to the company’s goals. These gaps must be closely examined for each of the caveats and assumptions underlying the financial gaps; subtle assumptions may have major influences on the outcomes that are projected. For example, are some or all of the projects in the portfolio counted on for future revenues, and if so, which ones or what percentage of the total portfolio and how are these numbers derived?
Risk Gaps
Risk gaps for a company are defined in terms of projects currently in the portfolio. A company may want additional projects in its portfolio that have a higher (or lower) risk than the present ones. Some companies limit the number of high-risk projects in their portfolio, whereas others are more concerned about limiting the proportion of resources devoted to high-risk projects.
Therapeutic Area Gaps
Therapeutic area gaps are gaps in the list of drugs currently in development within each therapeutic or disease area. Goals may be expressed either in terms of overall number (or value) of drugs from a specific area and/or according to each phase of development.
Strategic Gaps
Strategic gaps would include methodologies or approaches that a company desires to have in its armamentarium (e.g., biotechnology). But, the company does not wish to build an infrastructure. A license of know-how may bring such expertise into the company. In some cases, the answer to this (or possibly other) gaps is to acquire an entire company. It was said that Pfizer acquired Parke-Davis in a hostile takeover to acquire the drug Lipitor.
Phase of Development Gaps
Phase of development gaps refer to the numbers of early-, mid-, and late-stage compounds. The phases may either be evaluated in terms of the overall number (or value) of drugs in each phase or may be considered in terms of specific therapeutic areas.
Marketed Product Gaps
Gaps may exist in the number or the value of already marketed over-the-counter or prescription drugs in a specific therapeutic or disease area the company wishes to remain active in.
Resource Gaps
A company with insufficient resources to develop adequately a new drug may license it to another company that has more resources. Another possibility for a company with a resource gap is to try and fill it through financial borrowing or co-development with another company.
Production Capacity Gaps
A company with insufficient ability to produce its own drugs usually contracts the manufacture to another company rather than licensing their drug out. The creation of new facilities or expansion of existing plants is also explored.
Elements of a Licensing Strategy
Stage of development. The earlier in development the compound is, the less expensive it will generally be to acquire, but the more uncertain its future will be. Licensing compounds at a later stage of development is usually more expensive, but there is greater assurance that the drug will be safe and effective and eventually reach the market.
Commercial potential. Marketing groups must research the projected market for the new product at the time that it is estimated to be introduced. A certain amount of profit may be required as a minimum incentive to proceed with licensing negotiations.
R and D staff required to develop the drug. Appropriate expertise and resources must be available to allocate to the drug’s development. In some situations, some or all of these activities may be contracted to outside groups.
Corporate comfort zone. The product must fall within the company’s desires and abilities to have the drug produced and marketed. Parts of these and related activities may be contracted out, but the product should be one that fits the portfolio of marketed products or is a product that is desired to be marketed. Abilities of sales representatives to handle the product well must be considered.
Production capabilities. The company must be able to make the drug themselves or to contract it to another company.
Therapeutic or disease category of the licensed drug or product. This parameter varies in importance from little to critical depending on the precise situation.
Business terms and arrangements. The company may be required to utilize a cross-licensing agreement to acquire the product. Various aspects of the agreement may be determined at an early stage of negotiation (e.g., financial terms, will the license be worldwide, does the other company wish to comarket the drug?). Cross-licensing agreements are becoming increasingly popular and sometimes are even demanded by companies with valuable drugs to license.
Patents and other forms of intellectual property (IP). Is the patent life acceptable? Is there sufficient Freedom to Operate? If there is a Freedom to Operate issue the licensee may need to pay a royalty to license a third party’s technology to practice the licensor’s IP. That can be expensive, assuming the third party is even willing to license its technology, and can easily have a major impact on the cost of the deal. This was fairly common in the case of antibody licensing deals until the humanization patents started to expire.
Risk. This term includes aspects of several of the other elements, plus additional ones. The risks to a company in licensing a drug may be determined in terms of the drug’s (a) potential to create liability suits, (b) probability that it will not work as hoped, (c) probability that the drug will not possess adequate safety, (d) projected cost to take the drug to the go-no-go Phase 2 decision point or to NDA submission, (e) probability that it will not be marketed in time to obtain a minimally accepted profit,(f) potential for a complex or unclear patent situation, or (g) having formulation or other problems of technical development or manufacture that may not be able to be completely solved.
Having a highly developed licensing strategy for obtaining opportunities to evaluate is important, but is only one aspect of obtaining valuable opportunities. Some of the crucial factors responsible for a company to be able to obtain licensing rights to a drug of great value include timing, personal contacts and relationships, reputation of being a (the) major company in that area, and serendipity.
Roles and Benefits of Orphan Drugs in a Licensing Strategy
It might seem strange or even incongruous to discuss orphan drugs and licensing-in strategy in the same paragraph, but there are several important connections. For example, a company may wish to expand its franchise in a particular disease or therapeutic area, and an orphan drug could be used as a means of both enhancing the company’s image and broadening its franchise. Another purpose that would be served by licensing-in an orphan drug in an area where the company is strong would be to keep competitors out of the specific disease area. An orphan drug may therefore be used to gain a competitive edge in terms of image and publicity, even if the drug is not a major commercial success.
Finally, an important orphan drug may be used as a means of gaining access to physicians through sales representatives. Sales representatives are finding it increasingly difficult to approach many physicians. A new and important orphan drug can facilitate entry into physicians’ offices, whereby representatives can then promote more commercially important drugs. This approach can involve promoting an orphan drug in one of the company’s established therapeutic areas or in one that the company hopes to enter in the relatively near future. One major company licensed-in an orphan drug for use in a therapeutic
area the company was planning to enter. This promoted familiarity with the therapeutic area among both medical and marketing staffs. Problems in approaches and procedures could be worked out, and staff could prepare for a more determined and efficient effort once the more important drug they were expecting reached that stage of development.
area the company was planning to enter. This promoted familiarity with the therapeutic area among both medical and marketing staffs. Problems in approaches and procedures could be worked out, and staff could prepare for a more determined and efficient effort once the more important drug they were expecting reached that stage of development.
CREATING A PROACTIVE APPROACH TO LICENSING-IN COMPOUNDS AND DRUGS
Creating a proactive approach to licensing-in compounds involves six steps:
Identify the therapeutic areas of interest and also the specific disease(s) of interest within each therapeutic area. Specific technologies of interest may also be identified.
Identify the stage of development that an opportunity must be in to be of interest (e.g., preclinical, Phase 1, Phase 2). This may be specific to one therapeutic area only or may apply to all areas. Clarify on a disease-by-disease basis if necessary. There is often some overlap between this step and the following one.
Identify the minimally acceptable scientific and medical properties that a compound or drug must possess to be of interest in each disease area. This overlaps with step two because a compound of interest may be defined as one that is in Phase 2 or 3 and possesses certain properties, or one that is in a preclinical stage but has a different set of specific properties that make it extremely attractive for licensing.
Identify all of the specific drugs either marketed or known to be under active development from the literature, word of mouth, or other sources that meet the established criteria for each disease of interest. Because not all drugs that actually meet the criteria will be known, several should be included on the list that possibly (or probably) meets the criteria.
Consider which of these drugs to pursue. Make appointments with companies or institutions to discuss the possibility of their licensing-out the compound/drug. It may be necessary to offer an exchange (i.e., cross-licensing) or to offer some other inducement for the other group to be willing to have even a low-risk informal discussion.
Either before or after visiting the owner of the drug of interest, decide what products or other inducements can be offered in exchange. The compounds or drugs offered may be limited to certain countries, to certain dosage forms, or both. In addition, the identity of the specific drug to exchange can be made known at a later time, even after the original drug is licensed (as long as the details are specified in the contract). Nonetheless, the proactive company should have thought through its licensing stance with respect to cross-licensing.
To increase the probabilities of successfully licensing-in drugs or technologies using a proactive approach it is important to:
Follow the patent literature closely because one may sometimes identify potential licensing opportunities of interest at an early stage of development.
Talk to consultants who are aware of pharmaceutical or biotechnology industry activities and have many personal contacts. Provide important consultants (under confidentiality agreements) with the characteristics of the drugs you are seeking to license.
Follow the medical literature on new drugs (e.g., Pharmaprojects, SCRIP, Drug News and Perspectives, Drug & Market Development).
Initiate a dialogue with important investigators in the therapeutic field(s) in which one is particularly interested in finding a new drug. Choose those investigators who are most likely to learn about new drugs at an early stage of development.
Visit other pharmaceutical companies to build personal relationships and networks, but be selective in this approach. This can be a black hole that absorbs all of the time and travel dollars that one wishes to spend without accomplishing anything of substance.
Utilize personal contacts of the company’s scientific staff. These people may inform your staff of important opportunities at scientific meetings or elsewhere.
Consider licensing-in and licensing-out simultaneously. Do not conceptually separate these two activities because trades or various types of agreements are often possible or even necessary. Such exchanges may not have been conceived of during the initial discussions or even well into the negotiations.
Most large pharmaceutical companies should only consider licensing-in preclinical compounds if they are extremely novel, meet an unmet medical need and have great promise based on the preclinical data generated. The number of hurdles for preclinical compounds to jump is extremely large. Preclinical compounds should be licensed, whenever possible, on a worldwide basis. Licensing-in ideas for compounds that have not yet been synthesized and tested is rarely advisable.
THE BUSINESS OF LICENSING: ORGANIZATIONAL AND METHODOLOGICAL ISSUES
Where Does Licensing Fit Best in a Company’s Organization?
The major options concern where to place the licensing group: under marketing, finance, R and D, or corporate planning. A licensing group also could report to a very high senior corporate officer as an independent group. Pros and cons exist for each approach; the choice will depend to a large degree on the traditions of the company and the people involved. Licensing also may be placed in a more broadly defined business development function. The term business development is used to include not only licensing activities, but also efforts directed toward mergers, acquisitions, and divestitures. In most cases, an independent licensing group reporting to the Chief Executive Officer or a staff assistant makes the most sense.
Pharmaceutical companies have developed a large variety of internal staff groups to deal with licensing. Different individuals may be in charge of licensing opportunities in different business areas (e.g., animal products, over-the-counter drugs, diagnostics, ethical human drugs, contract manufacturing) of a company. Alternatively, two or even all of these areas may be assigned to a single person. Regardless of the number of licensing groups, a central coordinator is needed if licensing activities are being conducted in multiple businesses. If a coordinator is not used then separate licensing people from one company may independently visit another company and unwittingly create confusion and even negative reactions. Each independent business or R and D site
in a company may develop its own licensing strategy that is unlikely to work well together, unless coordinated.
in a company may develop its own licensing strategy that is unlikely to work well together, unless coordinated.
The size of a group working on licensing opportunities varies from one or a few full-time people up to large organizations of over 100 people. In the latter case, the large number of employees includes groups of people that analyze the following traits of licensing:
The research and technical development aspects of what has been accomplished and what remains to be accomplished
Marketing aspects and commercial potential
Production issues
Legal aspects
Financial aspects of the agreement
Obtaining Information and Data on New Opportunities
The process of licensing may be thought of as having three periods:
Review of the opportunity
Negotiation of the contract
Execution of the contract’s terms
The initial step is review of non-confidential information on a product or technology, usually in the form of a report or letter. This is generally sufficient for an experienced group to judge the interest of the company. The opportunity may be compared to a list of therapeutic areas within the company’s comfort zone, or it may be compared to a much more detailed description of desired stage and mechanism for specific diseases. The concept may also be discussed with scientific, medical, or marketing staff to determine if sufficient interest exists to sign a mutual confidentiality agreement. This legal document states that the reviewer agrees not to disclose any information contained in confidential reports supplied by the licensor. This agreement protects the licensor from information not yet disclosed through publication of a patent application, or issued patent that might compromise a patent or provide an important research lead to others. These documents typically contain two to four pages of legal terms and sometimes require significant negotiations before they are agreed to and signed. At that point, the licensor sends the licensing company all available pertinent information on the product. This process may proceed in steps where only some of the data are initially shared.
A company working in the same area as the potential opportunity may choose not to sign the agreement and receive the data. This would prevent the possibility of a future suit arising from claims of using the information. This generally is most relevant for preclinical scientific studies where both companies are working in the same chemical or biological area.
Should a Licensing Group Coordinate or Conduct Reviews of Possible Opportunities?
Whether a licensing group conducts reviews of opportunities themselves or only coordinates the reviews of potential licensing products and technologies depends on its defined role. A company may provide sufficient professional staff so that the licensing group can conduct its own reviews, or they may keep the licensing group relatively small so that its staff coordinates reviews conducted by permanent staff within marketing, R and D, legal, finance, production, and other appropriate departments. Given that the greatest expertise of a company lies in its professional staff, it generally makes more sense for the licensing group to coordinate most reviews rather than to conduct them. It is the author’s opinion that when these analyses are conducted by the regular staff that a stronger commitment to the licensed drug results, although it undoubtedly takes more time for the regular staff to complete necessary evaluations than for a staff dedicated to these activities. Of course, many opportunities initially presented to the licensing group may be easily dismissed or encouraged without any formal reviews. Therefore, even when the permanent staff serve as reviewers of possible licensing opportunities, all incoming opportunities should be initially screened and filtered by the licensing staff. The fate of many opportunities may be settled through a short telephone conversation between the licensing staff and the inhouse expert in that specific scientific or marketing area.
A commonly used approach to this issue is to use a combination approach to reviews of potential licensing opportunities. For example, a company’s R and D staff could review preclinical and clinical data and assess staff resources that would be necessary for further development of the product or technology. Experts in the licensing group could review the products’ characteristics, assess competitive drugs under development and on the market, estimate sales forecasts for five to 15 years, and determine the overall strategic fit of the opportunity with the company’s objectives.
Processing Licensing Opportunities
All pharmaceutical companies should have an organized approach to handling opportunities submitted from external groups. Failure to do this would cause major problems in terms of (a) potentially losing the chance to license or acquire an important drug or technology, (b) spending excessive amounts of staff effort reviewing uninteresting opportunities that should be rapidly screened, and (c) conducting unnecessary high level meetings. Standard steps in processing a typical licensing opportunity are listed in Table 106.2 and more detailed categories of information often required as part of due diligence in Table 106.3.
Current Status Logs
A formal system should be established to record all opportunities that are received. A separate computer log should be maintained for identifying the current status of both licensing-in and licensing-out opportunities. Code numbers, with or without letter prefixes as identifiers for each licensing opportunity, should contain four or five digits. Rather than maintain a list of all opportunities that are (a) terminated, (b) undergoing active review or negotiations, (c) inactive, or (d) approved on the same log, it is easy to create four separate logs. A master log also may be established in a computer.
Evaluation and Negotiation Logs
A separate system should be established to track the progress of the reviews being undertaken within the company and/or by outside consultants. A separate system should track the progress of negotiations leading to agreements and controls. Examples of appropriate data to track are presented in Table 106.4. As part of this system (or as an independent activity), it is useful to create a method to remind one to follow-up on all opportunities being discussed or considered. This method (“tickler file”) usually involves marking a calendar for dates on which to check specific questions (e.g., on May 10, call Dr. Y to ask if the review on
Drug X is complete). This approach is necessary if the licensing group serves a coordinating function and does not conduct expert reviews (and possibly is not central to some negotiations).
Drug X is complete). This approach is necessary if the licensing group serves a coordinating function and does not conduct expert reviews (and possibly is not central to some negotiations).
Table 106.2 Standard steps in processing a typical licensing opportunitya | ||||||||||||||||||||||||
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Table 106.3 Topics to address during due diligence | ||||||||||||||||||||||||||||||||||
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