Transfer Pricing Associates

In-license IPRs in pharmaceutical industry

post Tuesday June 11, 2013

Tags: in-licensing, ipr, pharmaceuticals, r&d

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by Yariv Ben-Dov, Bar-Zvi & Ben-Dov Law Offices
The pharmaceutical marketplace is undergoing vast changes, whereby conventional and traditional approaches are foreseen to be abandoned. The recent recession, governments' pressure and new regulation (aimed at decreasing prices and controlling the general expenditure on healthcare), and the "patent cliff" - as most of the top bestselling ethics companies are losing their patent protection, are the prominent forces that affect the industry.  This new reality drives the pharmaceutical industry to face the sharpest revenue decline in history, and increases fierce price competition from generics, which results in declining R&D expenditure and productivity.
While traditionally, most of the large pharmaceutical companies have done everything from research and development to marketing themselves, in today’s intensely competitive business environment, this business model, as most industry expert foresees, is doomed for failure. In order to keep up with the future pace, improve R&D productivity while reducing costs, establish a good position in the emerging markets, and dictate innovation and the future trends, pharmaceutical companies need to act in two parallel strategies: first, augmenting their product pipelines by both developing drugs on their own, and in collaboration with different organizations in various development stages; second, reducing their risks and the expenditure cost.
These companies, which used to singlehandedly oversee and manage complex, knowledge intensive operations, cannot continue on placing big bets on the entire process from the development of new molecules and medicines to turning them into blockbusters. One of the possible approaches is collaborating with various companies, from university laboratories to start-ups and biotech companies, in a way of in-licensing. This model draws a broad range of resources outside the company’s borders - effective capacity and access to external capabilities, to reduce its level of risk and accelerate development and help decrease the average cost of R&D. Those alliances enable companies to operate as independent entities, and to avoid complex mergers and acquisitions while continuing to form platforms for innovation. Furthermore, with respect to the aforementioned, the in-licensing and the collaborations agreement frequently involve competitors, or at least potential competitors. This means that the ability of large pharmaceutical companies monitoring the competition and entering the market of generic companies is increased.
Nowadays, it is clear that in order to stay above water, the pharmaceutical companies have to collaborate with other organizations and develop new products more economically. But what will be the transfer pricing consequences of focus shift from the traditional business model to the “new” model? How are those going to be reflected in the companies’ costs? Who is the IP owner? How should one valuate the consolidated IPR, both the wholly owned as well as the in-licensed portion?
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