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Business Development – The Contracts
In the last blog, I talked about product selection vis-à-vis organization capability. We move this discussion further towards contractual process.
The Contracts – legal and regulatory aspects
International contracts are generally more elaborate and at times may be very complex. These will require strong negotiation skills and expert understanding. For this reason, the teams comprising of legal, technical and business development professionals handle international contracts. Domestic contracts may be simpler and easier to handle.
- Nature of Contracts. Contracts may be of several types.
- In-licensing Contracts. True in-licensing contract would entail licensing of intellectual property, technology and geographical rights. Internationally, such contracts may be early stage when one company has just completed early development of a product. The later stages may be handled by the second company. Or the first company would have completed all stages till commercialization and then out-license to other company. Another model has become popular lately. There are several research companies who work full time to develop new molecules or technologies. These companies out-license after the discovery and initial investigation. All product development work is done by the licensee company. From Pakistan, early stage or developmental contracts are not done. Reason being that our pharma companies neither have capability nor resources to undertake such work.
- Marketing Rights Contracts. This is a more common type, particularly from countries like Pakistan. The contract gives marketing rights for one or more countries. Internationally also, such contracts are done. Companies may agree to divide various territories for marketing activity. The product is developed and commercialized by the first company. They may not have enough resources to enter into all major markets, so they agree to sell marketing rights to one or more companies. Unlike in-licensing, the intellectual property in this case is entirely held by the first company and the other companies may get conditional permission for use.
A local form of Marketing Rights Contract is when a manufacturing company gives out products to other manufacturing or marketing companies. Such manufacturing companies offer regular generics and their products get accepted on pricing basis.
Innovative as we are, local Pharma has evolved a form of marketing rights which is popularly called ‘Franchising’. It has nothing to do with the real franchising, like you bring franchise of McDonald or Hardees etc. Franchising in Pharma currently means getting one or more products for small or large territories. And it is being taken by individuals; not companies.
3. Distribution Contracts. This is another type in which you just negotiate for distribution rights. There is no marketing involved. Examples are that you bring latex gloves or disposable syringes or a range of small medical disposables. There is no promotion; only making the product available at outlets. In recent times, many Nutraceutical products are also being brought under this arrangement and put in the pharmacies.
We shall continue the discussion on contracts.
To be Continued……