Pharmaceutical companies are increasingly adopting technology transfer strategies to gain a foothold in the Russian, Chinese and Brazilian markets, where there are high barriers to entry. Technology transfer helps companies increase cost competitiveness by leveraging the low manufacturing costs in those regions. The traditional model of setting up subsidiaries is complicated, time consuming and capital intensive. Additionally, these countries have strict regulations on importing drugs and low FDI investments, as they seek to protect their local companies and production.
Some Recent Examples
In 2016, Pfizer transferred their rights and technologies to NovaMedica (Russia) to produce 30 medicines in Russia. This gave Pfizer direct access into the Russian market, where the earlier stringent regulations had made it difficult for them to enter. In 2017, Otsuka Pharmaceutical (Japan) and R-Pharm Group (Russia) collaborated to manufacture and market Deltyba, a drug for the treatment of pulmonary multidrug-resistant tuberculosis, in Russia and the Commonwealth of Independent States.
Reasons for the Adoption of Technology Transfer
- Regulatory Landscape – In developing countries there are strict laws and regulations that block the market mainly for foreign corporations. These laws protect local production in their own countries, especially in drug manufacturing, thereby making technology transfer for all foreign corporations a more feasible option.
- Competitive Pricing – Transferring technology to local manufacturers in developing countries leads to cheaper production and labor costs, thereby reducing the cost of drug manufacturing and widening margins.
- Increase in Manufacturing Capacity – Companies’ manufacturing capability can potentially increase by two to three times, eventually transforming into actual savings of 30-40% in production cost over one to four years. Dishman Pharmaceuticals, a recipient of technology transfer from a Swiss-based corporation, gained nearly 40% savings using a manufacturing facility in Gujrat, India.
Key Pointers and Contractual Insights to Consider Before Engaging in Technology Transfer Relationships
- Licensee Selection and Identification – While selecting a licensee, their reputation, including whether there are any ongoing litigations on the supplier, must be checked. The scaling ability of the licensee should be high, to allow scope for higher production capabilities in the future. The equipment that the licensee uses must be able to manufacture the product to the desirable specifications.
- Scope – Defining the scope of the agreement and its specifics is of utmost importance, as going forward it will dictate the concise outcomes expected from the licensee and determine whether the transfer was successful or not. The parameters defined in the scope could be the specifications of the product being manufactured, the scale at which the product must be manufactured, or even a research objective.
- Payment Terms – It’s important to consider placing contingencies into the payment terms based on the scope and specifications. These can include granting incentives in terms of royalty bonuses or milestone payments for reaching certain milestones, or disincentives in terms of penalties or deductions if the desired criterion is not met.
- License Grants – The contract will contain the information of all the rights and licenses which the licensee has access to. If the licensee is manufacturing an intermediate part of an API, then it will also include any licensed ingredient of the licenser which the licensee requires as an active ingredient.
- Technical Assistance – This section in the contract will cater to the technical aspect of the transfer of information. It will include the documentation and the service package which the licensee might require.
- Pharmacovigilance and Quality – Clearly mention the steps the licensee must take if an adverse event occurs and the contract is breached in any manner. In case of a breach of licensed products or quality issue, the licensee is subjected to inform the licenser in a short timeframe, generally decided to be a day or two.
- Non-disclosure of Agreement (NDA) – This part prevents the two parties from divulging any confidential information between them to any third party. The NDA makes sure that the patented rights and technology of the parent corporation is safe and not subject to any infringement by a third-party company.
- Audit and Reports – The licenser has the option here to seek audit reports on the project progress on a monthly, quarterly or half-yearly basis depending on the type of process involved.
- Exit Planning – A exit strategy should be included in case either party does not wish to continue with the existing contract. Protection of the intellectual property of the licenser, along with the penalties either of the party will bear because of the early exit, will be mentioned in this section.
Technology Transfer has gained traction in the last few years because it allows corporations to break into untapped markets while simultaneously providing an opportunity for competitive pricing. Communication between the licenser and the licensee plays a key role in a successful technology transfer process. A precise and transparent contract between the two companies is important for a successful collaboration where both the companies can benefit.