Licensing in Pharmaceuticals

Cost of drug discovery and development is going increasing day by day. On an average 1 billion USD is required for the research and development of any NCE molecule (New Chemical entity or new drug molecule). The way of new drug development is changing from development of NCE molecule through its own R&D to in licensing of molecule in early stages of development from other company. External sources are rapidly becoming as important as internal R&D. There are lots of advantages of in licensing which includes addition of new products to its product pipeline and it also saves time of the company to develop new molecule.

In–licensing has its own advantages as well as disadvantages in terms of cost and the risk involved. Pre-clinical compounds and compounds in early stages of clinical trials are cheaper compare to compounds which are in later phase of clinical trials or near to the market but the risk involved in it is many times higher, in terms of success of molecule.

Out licensing is a good way of generating the cash as well as minimizing the risk involved in later phases of clinical trials for small and mid size research based pharmaceutical companies, specially those, who do not have a good idea or experience of the market.

Company can take one strategic decision out of two alternatives both of which can be a win-win situation for a company: Either both partners share the upside or the company out licenses, get the high payments for the work done so far. If the company, which is out licensing the molecule does not want to wait and take risk, than it can choose reward immediately. This involve less risk and high rewards in short term but if the molecule turnout to be blockbuster in long run, the same arrangement can give a very upside to the other partner.