Out-licensing, Is it growth or survival strategy

Indian majors are exploring out-licensing deals for lower risks and bigger profits. The strategy of the fittest is finally coming into play in the Indian pharma market. Some of the strongest pharma companies are flexing their muscles across Europe and announcing their arrival on the global platform in the process.

As in-licensing deals become a norm, out-licensing deals are the latest to catch the fancy of Indian pharma majors. Out-licensing deals are deals wherein an Indian pharma company licences a foreign pharma company for the development of a particular molecule into a drug. Dr Reddy’s Laboratories, for instance, entered into an agreement with ClinTec International in 2006 for the development of an anti-cancer compound. Having completed the first phase of clinical trials for the compound, Dr Reddy’s has allowed ClinTec to carry out phase II and III of the trials. Once the product is commercialised, Dr Reddy’s will receive royalty on sales by ClinTec International in its designated territories and ClinTec International will receive royalty on sales by Dr Reddy’s in the US. The trend of out-licensing deals has recently picked up in India because Indians have now started working on basic research and discovery of molecules. If the international companies see value in the molecule, they pick it up. But what is really taking Indian companies to foreign shores is the unavailability of expertise or resources to take a molecule through its various stages in the drug development cycle. Such deals usually spell a win-win situation for an Indian company, which is investing only half the capital, bringing down cost and risk factors. The royalty acquired from the deal is often much more than the investment.
By out-licensing, the new innovator, with a high potential molecule in early stages of development, has an opportunity to take it through the expensive stages of development and a share in the risk and reward. Glenmark Pharma was an early bird to join the out-licensing bandwagon. In 2004, the company entered into a collaboration agreement with Forest Laboratories for the development, registration and commercialisation of a compound for North America. Experts, however, don’t see the trend trickling down to smaller pharma companies in the country any time soon. “Even though this would be an ideal route for any new entrant in the field. Out-licensing requires a lot of investment, and for a small company, this might not be possible. Breaking even also takes a long time, and smaller companies may not have the staying power to wait that long. Big and small pharma companies can, however, look forward to more and more in-licensing deals, raking in more investment than ever before. And the benefits are passed on to the consumer, who get new products at lower costs. In-licensing in the post-patents regime has enabled us to have a stronger product pipeline and provided Indian physicians and patients with novel products meeting their unmet needs.
But despite the piling up of in-licensing deals, the involvement of the Indian pharma in the deal is still restricted only to the packaging and marketing of the drug and not its manufacture. Foreign companies don’t want to out-licence to India for manufacture because the market here is still very small, thus increasing the risk factor.

BS