Faced with the escalating cost of product development, more competitive markets and increasingly discerning consumers, pharmaceutical companies and drug makers are turning to out-licensing partnerships to sustain their profitability.
Out-licensing is not entirely new to the healthcare industry, in recent years many pharmaceutical companies have chosen this path. In the past companies would do everything – from research and development (R&D) through to commercialization – but that is quickly changing.
Out-licensing generally refers to a business that after taking initial steps to create a product, tasks an external business partner to help bring the product to the intended markets. A pharmaceutical company usually considers out-licensing assets for two main reasons: first, to secure a partner early in the product life cycle who offers resources to develop a product. Second, to secure a partner who can manage the commercialization of the product more efficiently.
As it becomes more expensive to develop new drugs, licensing collaborations are fast becoming a favored option for pharmaceutical companies as they look to offset research and development investments. According to GlobalData, overall licensing deal values in the pharmaceutical industry across the globe exceeded USD 46.2 billion in 2015.
There are many reasons why a pharmaceutical, biotechnology or drug maker would consider this method to move its invention forward. These include expanding their 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.
Based on my experience working with pharmaceutical companies and manufacturers throughout Asia Pacific, the following four points are crucial factors for companies to consider as they ponder the next moves for their innovations.
For any company, more so start-up businesses, getting a product through the approval process and into commercialization is often a lengthy, expensive and risky process. These companies, no matter how established, must make choices and prioritize their limited budget, especially if they are keen to access multiple markets.
Having spent a substantial amount on R&D investment and possibly clinical trials, these companies must consider if it continues to be cost-effective for them to commercialize into the next phases of the product life cycle including marketing, distribution and sales.
For companies who have not established a presence here in Asia, coming to terms with the local culture, regulatory knowledge, business contacts and local relationship building can be a major challenge.
Without an in-depth industry insight and broad local knowledge, companies may struggle with differences in culture, experience difficulty capitalizing on the current economic standing and government policies, as well as not being able to ascertain the country’s existing infrastructure facilities.
With the global demand for pharmaceutical products continuing to rise – BMI Research projected that medicine sales in the Asia Pacific region will reach USD 321 billion by end of the year – companies just do not have the time or luxury to learn about the markets they are going into.
By leveraging expertise of the right business partner, a product owner can eliminate the time risk of learning the market, finding out what works and what doesn’t. With the partner managing all aspects of the product’s commercialization from day one, including managing the registration process and regulatory affairs to pre- and post-launch marketing activities, the owner can be assured that everything will be managed.
Irrespective of the size of a pharmaceutical company, R&D activities by themselves often take a lot of resources and time. Thus, manufacturers are not able to apportion their capacities and resources equally while maintaining as wide a product portfolio as possible.
Brand owners may also have non-strategic products in their portfolio that, with the right resources, still have market growth in them and can contribute meaningfully to the bottom line. So instead of using scarce resources on these products, it can be more advisable for owners to appoint a business partner to keep sales going and continue serving their existing markets.
Laden with these considerations, pharmaceutical companies partaking in annual marketing reivews, must challenge themselves whether to undertake the commercialization aspects of the product in-house or to out-license it to an experienced business partner to maximize portfolio growth.
Peter Dolinsky is a familiar face in the healthcare industry in Asia. He is currently responsible for DKSH’s Healthcare Own Brands in Asia Pacific under reputable names such as Medinova and Favorex.