As companies grapple with expiring patents and increasing pricing pressures in developed economies, many are turning their eyes towards emerging markets to achieve growth. Between 2016 and 2020, emerging markets are expected to account for USD190 billion in sales, and China is soon expected to overtake the US as the largest pharmaceutical market, with growth also expected from many other Asian countries and also Latin America.
While the potential is huge, many small to medium pharma and biotech companies are faced with the challenge of establishing an exporting model that is both right for their business and also for the target market. The costs and risks involved with entering a new and unfamiliar market need to be strategically evaluated, and weighed against the potential rewards before expansion is undertaken.
Licensing agreements
A common model for many small to medium sized biotech companies taking a first step in exporting is to license a product or technology to a local market partner – an approach that provides access to new geographies or specific market sectors with security of opportunity. However, while this is a lower risk approach, the resulting requirement to share part of the profit with the selected partner must be a consideration.
The nature of such agreements varies depending on the company, its strategic objectives and the product or technology. For example, for a young research-based biotech company the most attractive option might be to license a technology or drug candidate to a partner with experience of the therapy area, a wide geographic reach and local marketing. However, for a more developed biotech company, it may be best to advance products through the early stages of clinical development itself before partnering to retain more profit.
Cultural awareness is crucial in order to support companies in understanding local customs and practice
My most recent assignment was at Skyepharma in Switzerland, although I have worked with both biotech and pharma companies of varying sizes, on technology transfer and licensing agreements at all stages of development, sometimes representing the licensor, and on other occasions the licensee. When looking to secure a licensing agreement, each party must first decide what it wishes to achieve, then search for a suitable partner and pitch its merits. A biotech company will need to focus on selling the benefits of the product, the technology or its research and design expertise. A local market partner will need to illustrate the strength of its infrastructure, distribution channels and the calibre of its sales representatives. This process of searching and pitching for a suitable licensing partner requires high level business development skills and can be very time-consuming.
Licensing agreements are rarely straightforward, and a level of legal expertise is required in order to reach a conclusion on contracts during negotiation periods that often extend over many months. The complexity of these contracts is often compounded by the inherent uncertainty in pharma product development and the timescales involved, with products typically taking eight to ten years, or more, to reach the market. Dedicated experts can bring vital experience to the table at all stages of licensing, from the development of an exporting strategy through initial searching and valuation to deal structuring and face-to-face negotiations.
Cultural knowledge
In addition to the knowledge required for the technical aspects of licensing, language skills and cultural appreciation are critical when attempting to expand into a new geographic market. For example, in parts of Asia and the Middle East, business and personal friendships are often one and the same, meaning the importance of establishing relationships and connections cannot be underestimated. Cultural awareness is crucial in order to support companies in understanding local customs and practice, while teaming up with experienced local business people and firms to close a big deal also makes a lot of sense.
From Eastern Europe to North America and South East Asia, business cultures vary significantly throughout the world, leading to a demand for specialised management support. For companies that don’t have these skills in-house, management teams are now regularly turning to interim executives, with the support of providers such as Odgers Interim, to offer fixed term solutions during the set-up period to secure critical contracts in new markets.
