Deloitte research finds enhanced management helps fulfill medical product licensing deals

Deloitte China today releases Challenges and Value Creation in China Life Sciences Licensing, a report outlining the practical challenges Chinese companies face in medical product licensing deals. Summarizing the key issues transaction parties face in licensing deals, it shares some best practices from strategic, operational, and business levels to build and enhance licensing transaction management capabilities,  along with an execution roadmap for companies to take immediate action.   

In recent years, medical product licensing deal volume and deal value have surged in China. Licensing activity was particularly vibrant in 2021, with record-breaking deal volume and deal value. Data shows that there were 174 publicly reported cross-border drug licensing deals involving Chinese enterprises last year, including 133 license-in and 41 license-out deals. There were a further 107 licensing deals between Chinese pharmaceutical enterprises.

Deloitte China Life Sciences and Health Care Industry Consulting Partner Carrie Xiao says, "Licensing deals have become the most sought-after business development model in China’s pharmaceutical industry, driven by policies stimulating R&D and innovation, along with the pressure on pharmaceutical and medical device enterprises in China to maintain profitability and good returns on investment. However, the parties involved in fulfilling a licensing agreement and realizing strategic goals face many challenges that can hinder their success."

The report points out that licensing deals go way beyond just buying the rights and interests of a product. Instead, they require long-term collaboration for each party to fulfill their responsibilities diligently.

Issues encountered by Chinese enterprises can be due to external policies and the market environment, or insufficient management capabilities of those involved in cooperation. Moreover, the potential challenges usually stem from an unclear purpose and an inadequate understanding of the parties’ capabilities, and insufficient capacity to predict and cope with emerging difficulties.

"To address these challenges, these parties should work with industry professionals to identify common pitfalls, establish and optimize a license management process, form a dedicated department to track progress, train employees, communicate early in negotiations to address possible risks, and formulate a detailed execution roadmap. The goal is to maximize the potential value of each deal," Carrie Xiao adds.

The management of licensing deals should pivot from 'individualism and opportunism' with reliance on individual professionals, to 'collectivism' based on inter-functional collaboration, and then progress to incorporate 'endemic and characteristics' factors into the company's management system to accomplish development goals.

Carrie Xiao concludes, "Whether it is to address domestic operational pressures, or to achieve overseas expansion, Chinese pharmaceutical and medical device companies must enhance their management of licensing deals to maximize the value of licensed products."

Click here to read the full report.