This text is an extract from the Financial Times Pharmaceuticals report 'Successful Licensing — negotiating and drafting optimal pharmaceutical deals'

There are many alternative routes by which a product can be brought into a company's portfolio. Some of the most common are identified here.

Product acquisition

Product acquisition is where a company 'purchases' an existing product licence from another company, that is, obtains the right to market an existing fully developed product plus customer lists and stocks. Such deals often include access to the trade name as well as a licence to any existing patents. This is a rapid way to grow a business by effectively buying turnover; however, it usually applies to smaller and older products rather than NCEs.

With increasing numbers of major multinational mergers and acquisitions there has been a resultant increase in the number of smaller national products available for acquisition, either singly or in batches, as the newly merged companies rationalise their portfolios.

To be a viable acquisition candidate, the product does need to have some merit; either some unique selling points or residual growth potential via re-marketing, further product development or internationalisation. Alternatively, such products may be valuable in building or completing a complete range of products.

Product fostering

On a local basis, some companies are anxious not to lose turnover (and possibly slip down the IMS ranking system) but are still unable to maximise the return on their full product range. For instance, as new products are introduced, the products which were No. 2 or 3 detail and still growing have to be put aside to concentrate on the launch of a new product. These, plus other non-promoted products, can benefit from a short-term fostering arrangement whereby another company takes over the promotion of the product(s) in question. The profit from the arrangement is then shared between the parties in agreed proportions.

Product fostering can also be used as an entry strategy to a new market. There can be a short-term licence to allow an experienced company to launch the product with gradual hand over thereafter. This type of arrangement can include an element of training for new representatives as well.

Co-marketing

Co-marketing is a potentially long-term strategy where two or more companies sell the same product under different trade marks, with both companies investing in the build of their own brand name. It was widely employed during the late 1980s/early 1990s, particularly in the more competitive therapeutic segments, for example anti-hypertension, anti-ulcerants and anti-infectives.

For the product owner, co-marketing offers the prospect of maximising sales penetration for a product whilst retaining ownership of the proprietary brand name. It is particularly suited to entering a new therapeutic category where co-marketing offers a lower, shared risk.

A very early example of successful co-marketing was the co-operation between Roche and Wellcome with trimethoprim, under the trade names Bactrim and Septrin, respectively.

Co-marketing can occur for different reasons:

• to allow full exploitation of different indications of the same active ingredient;
• for different drug delivery forms of a product;
• to access different market segments;
• to enter a new therapeutic category;
• for co-operation between a foreign and a domestic company;
• where there is need for a high level of promotional 'noise', expenditure or number of representatives;
• to establish a new therapeutic principle.

Other examples of co-marketing include the ACE inhibitors in Germany, where most of the multinationals elected to co-market with a national company, for example captopril is marketed by BMS as Lopirin and by Schwarz as Tensobon. Co-marketing is also used widely in Italy, where co-promotion is not permissible and there is a need for a large sales force to access the 200,000 physicians. A recent review of product launches in Italy showed that 87% of new products, as well as all the largest established products, were being co-marketed. [Source: industry source.] There are, however, some disadvantages to co-marketing. Co-marketing may cause customer confusion between the two brands, particularly if there are two different promotional platforms being promulgated. There is the danger that the promotional focus is to compete with the other brand of the product as the key competitor instead of other competing products. This occurs when the focus is on the brand name rather than the active ingredient. On a long-term basis, co-marketing can result in price instability as one company may elect to undercut on price to gain market share. There can be a propensity for greater generic prescribing when the product goes off patent as the active is more widely known and used. Co-marketing is not encouraged by the European Commission because it is seen as a method of dividing the market.

Co-promotion

Co-promotion is where two or more companies promote the same product with the same trade mark or brand name. This maximises the visibility of the trade name but does not necessarily offer the same exposure for the company.

The principle advantages of co-promotion is that for a new product launch a company can draw on additional representatives, experienced and fully trained in the therapeutic field in question, without needing to employ new staff. This may be critical for success in highly competitive fields. Moreover, when compared with co-marketing, there is no confusion over brand names with an undiluted effort being focused on promoting just one product. An additional and important factor is the reduction in price competition when only one brand is being marketed.

In particular, co-promotion is considered to be an excellent strategy as a patent approaches its expiry because it can maximise the exposure of the trade name before generic competition arrives. An example of this new line was Hoechst's co-promotion of Wellcome's prescription acyclovir in Germany. Smaller companies wishing to gain marketing experience can also benefit from co-promotion. By choosing a major company as the co-promotion partner the return on the NCE is assured and the major company is unthreatened by the smaller company. This also allows the small business to start building its own reputation in the market-place. An example of this is Amgen's co-promotion of Neupogen with Roche.

Inevitably, there are some disadvantages with co-promotion. There can be real difficulties in motivating representatives because they face direct competition from the sales force of the other co-promotion partner.

Co-promotion can be a short-term solution as, with changing products lines, one company may wish to redeploy its staff to a more profitable product or switch the promotion from No. 1 detail to No. 3.

There may be no sense of 'ownership' with the product, particularly if the reward system is not effective.

There are also geographical limitations to co-promotion. Co-promotion is permitted only in certain territories in Europe (as noted below), and certain countries prohibit a second company name appearing on the pack.

Co-promotion in Europe

When negotiating co-promotion agreements, the following points, inter alia, need to be addressed:

• sampling — what level of free samples is permissible? How will this be tracked and monitored?;
• position of the detail — will this be the same for both companies? How does the product fit with others being detailed?;
• number of details: planning of the frequency and concentration of calls;
• is there reference to both companies on the promotional literature (where permissible)?;
• any additional activities over and above detailing; for example any joint conferences, seminars;
• training — are both sales forces working to the same brief or are different tactics being employed?;
• additional clinical studies — how are these funded, what visibility and participation is there for each partner?;
• post-market surveillance — who is responsible for the co-ordination, collation and analysis of data?;
• incentives for good performance by the representatives;
• term of arrangement;
• monitoring of the arrangement.

In addition to the above, profit-sharing can be a problem area. The proposed deal may be a straight share proportional to the promotional effort or on a commission basis. The commission will be based on an agreed forecast for the product being established as the base rate. For performance above the base rate, different rates of commission apply. These are usually tiered to provide an incentive to reach higher levels of sales. Alternatively, one can use a leasing system where there is a fixed charge paid per detail for the product plus a sum for access to, and use of, the sales force overall.

Licensing

Licensing both products and technologies is employed extensively and is a very flexible tool. It carries low risk (assuming that due diligence has been performed effectively) and any opportunity may (subject to sub-licensing rights being granted) be licensed on if it proves to be a poor strategic fit.

There is also generally a wide range of opportunities to choose from at all stages of development although, because of the demand for in-licensing candidates, available candidates in phase III are rare.

Licensing is used effectively either for products in development or products that are fully registered. It involves taking a licence to some tangible rights such as IPR or to a marketing authorisation. Thus, it differs from other business development strategies such as co-promotion which, whilst they may have some access to know-how or trade marks, are primarily a framework for operational co-operation.

Research collaboration

Collaborative development has many advantages. Co-development offers the opportunity to bring products through as quickly as possible and on a risk-adjusted and cost-effective basis. For biotechnology companies it is particularly appealing as it reduces the cash burn and allows the company to gain experience of full drug development from the partner. It can also ensure that the persons involved with the project at its inception, and with most experience, retain involvement, thereby giving a synergy of skills.

© Sharon Finch

This text is an extract from the Financial Times Pharmaceuticals report 'Successful Licensing — negotiating and drafting optimal pharmaceutical deals', by P. Ranson & B. Driscoll of Simmons & Simmons and S. Finch of Medius Associates. For information on how to order call FT Business on +44 (0) 171 896 2031 or www.pharma.ft.com

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