Licensing plays an increasingly important role in the business model of pharmaceutical and biotechnology companies. In 2004,
26.1 percent of the top 15 pharmaceutical companies' sales were derived from in-licensed drugs. Large pharmaceutical companies
that in the past were proud of their "not invented here" mentality, have subsequently developed impressive and effective licensing
organizations. However, while the large financial burden of maintaining an effective in-licensing process remains a luxury
of big pharma, more and more biotechnology and specialty pharma companies are realizing they must match competencies to stay
competitive and achieve the maximal market valuation possible.
In a survey conducted by 2Value of 261 CEOs and licensing executives of biopharma companies, 84 percent acknowledged they
are challenged by one or more of the following: 1) ability to identify quality candidates, 2) competition for attractive compounds,
3) overexposure of US-based licensing opportunities that drive up headline values.
The art of licensing deal making is a craft developed over time and experience. Therefore, it is no surprise that many emerging
companies are facing challenges while trying to identify in-licensing opportunities that will simultaneously serve as growth
engines and maximize shareholder value.
The following is a description of vital elements that are essential for executing a successful in-licensing strategy.
SET REALISTIC SEARCH CRITERIA
The importance of setting realistic search criteria cannot be understated. Generally unrealistic expectations involve the
perception of a large market opportunity, low developmental risk, and the unanticipated constraints of limited capital to
establish an attractive licensing arrangement. Having unfocused (too wide or too narrow) criteria makes the search inefficient
and very expensive considering the time and opportunity cost (i.e., spending internal resources that can be better utilized
if a proper strategic evaluation process has occurred earlier).
Companies should approach a licensing strategy process by reviewing the licensing landscape (including an accurate analysis
of unmet medical needs), correlating the target market with investment trends, and clearly defining their ability to raise
capital around the licensed assets. Utilizing a measured approach can increase the probability for identifying search criteria
that fulfill a company's strategy. Companies stating that they are "opportunistic" regarding licensing activities find themselves
floundering with an inefficient and resource consuming process resulting in few successful licensing candidates.
ESTABLISH DEAL FLOW
. To ensure that relevant opportunities will be properly reviewed by an internal evaluation team, a hierarchical review process
is usually established. The high costs of hiring an experienced business development (BD) team forces many companies to remain
understaffed. The 2Value survey found on average 2.6 staff members dedicated to BD functions, which can limit networking efficiencies
and analytical processes, and dramatically decrease the ability to find attractive and affordable licensing opportunities.
Value-added Licensing Deals — Amgen's Acquisition of Tularik
The internal team should define a process to identify, review, and evaluate a licensing opportunity within a certain timeframe
and to recommend further action to management. Proactive efforts to source licensing opportunities include, but are not limited
to: reviewing scientific journals; attending scientific, financial and partnering conferences; and conducting a creative survey
of the target market(s) for niched opportunities.
. The use of a professional BD company or investment bank can dramatically expedite and increase productive deal flow. Considering
the fierce competition for the few attractive opportunities available, having introductions to relevant opportunities ahead
of the competition can become a critical advantage.
Website and Collateral
. Publish in-licensing/partnering search criteria and contact information of staff members responsible for new opportunities
on the company's website. Spread the word about the search among employees and create a process to capture ideas stemming
from the employees' industry network. Scientific expertise frequently overlaps and the dissemination of new findings is often
discussed among scientists with little regard for the proprietary nature of potent avenues to new products.