As big pharma companies continue their pursuit of the next blockbuster drug, whilst trying to maximise shareholder value, they are increasingly doing deals with medium-sized drug development businesses, which are keen to run programmes under licence agreements.

This 'out-licensing' trend can help big pharma companies boost shareholder value whilst allowing them to focus on core strengths by investing in R&D activity that has the best chance of delivering drugs with strong market potential. To make a success of this approach, however, pharma companies must make sure any intellectual property (IP) rights linked to their development programmes are in order.

Over the past decade or so, the flow of licensing deals in the pharmaceutical sector has taken a change of direction. Whereas big pharma companies would commonly license in development opportunities from smaller companies, nowadays they are perhaps just as likely to license out programmes to agile, mid-sized competitors. In the past, some of these rivals lacked the financial resources to conduct clinical trials and bring new drugs to market, but many are now snapping up opportunities to pick up where big pharma has left off.

For thriving mid-sized pharmaceutical companies, the opportunity to lead drug development programmes under licence agreements is not without risk, however. Even if the larger company has already taken the programme as far as Phase 2 clinical trials, there is still a high probability that it could fail during Phase 3 when undergoing placebo or comparative drug trials. Naturally, any decision to invest in such activity requires careful planning and it is important to have strong finance arrangements in place.

In a recently publicised transaction, Allergan has paid $1.3 billion to AstraZeneca to develop an experimental medicine, which could be used to treat inflammatory gastrointestinal diseases. The company has also confirmed that it is ready to conduct Phase 2 clinical trials on the drug. While we obviously can't be sure of the circumstances leading to this specific deal, it seems reasonable to assume that AstraZeneca was seeking to monetise a non-core development programme and there are many more examples of 'out-licensing' in action.

Before pursuing such a strategy, companies seeking to license out development programmes may need to adapt their IP strategy. When licensing in activity, it is important to consider the risks associated with the asset – for example, does it have robust IP protection and are there any freedom-to-operate restrictions? When licensing out, it is crucial to make the asset as attractive as possible by making sure IP rights for the lead candidate are already in place and the lifecycle of the product has been fully considered; ensuring that there is potential to extend any period of exclusivity beyond the life of the original patent. Lifecycle management should be an integral part of any IP portfolio that is likely to be licensed out in the future.

Companies that might be planning to license out development programmes in the future should make any associated IP portfolio look as saleable as possible. It should also be closely aligned with the commercial objectives of the deal; demonstrating the ability to deliver value over time. Investors must be able to see that the development programme has real commercial potential and could result in them bringing a new medicine to market that represents a novel or improved treatment for a currently poorly-served group of patients. Working with IP professionals who fully understand the industry and the scope of any IP assets can obviously make this process a lot easier. 

For big pharma companies, the key to driving shareholder value in the future will require them to focus on adapting to the increasingly-homogenised marketplace and using licensing deals to open up new revenue streams. Of course, there is also the chance that concentrating on core areas of strengths could turn up the next blockbuster drug.

Dr Nicholas Jones is a partner and patent attorney at intellectual property firm, Withers & Rogers