Understanding Franchise vs Licensing Agreement in Drug Development

When considering the impact of any commercial strategy, the question of governance structure comes into play. The strategic choice between a comprehensive franchise vs licensing agreement is particularly important in pharmaceutical research, where rapid changes in product development can lead to losses of hundreds of millions of dollars if not properly anticipated. Yet too few researchers in drug development are equipped with the strategic legal know-how to better inform their commercial strategy choices.

For example, when planning for the next decade of drug product research, a developer must determine how to allocate and sequence research and development programs to do so within budget. With so many strategic factors to wrestle with, small management teams are left in the dark without a good legal advisor to chart a controlled course.

Experienced law firms such as TigerTox understand the importance of efficient resource allocation in drug development studies, and how this intricately relates to broader decisions about governance structures. As a result, they are able to provide the kind of nuanced analysis needed to make key decisions about the choice between a franchise vs licensing agreement.

And yet, the strategic choice between the two types of agreements is not always obvious, which is one reason why it’s necessary to consult legal experts to chart a way forward. For example, what if the developer operates in an industry with a complex intellectual property governory structure, and needs to avoid inadvertently taking on management responsibilities of the partner company? Furthermore, similar decisions will need to be made somewhere further down the road, only now with respect to product sales strategies, market penetration and so forth. What if a franchise agreement makes more sense on this second time in?

In other words, while it may be tempting to opt for a “narrower scope” agreement once a legal partner has taken you through the process, the ultimate choice needs to be understood in terms of a larger balance sheet of costs and benefits, as well as likely future strategic needs.

More broadly, the right law firm will have expertise in the regulatory and compliance aspects of drug development that are particularly unique to the pharmaceutical industry. This can offer insight into how regulations may impact the governance structures selected in various strategic scenarios.

For example, licensing agreements often cover the worldwide territory, meaning that the licensee agrees to commercialize a product throughout the world. This requires that the licensee deal with myriad regulatory jurisdictions, and the costs can add up. But should this be the first go-to agreement for your drug development company or not? It’s best not to jump to a conclusion without a thorough analysis.

This renders issues of licensing agreements and related legal frameworks key to any drug development goals. The right law firm will actually understand the operational execution strategies that should be considered before entering franchise or licensing agreements, while also understanding how to navigate evolving regulatory landscapes. When you’ve planned carefully and gotten help from the right law firm, drug development companies can feel confident that they’ve covered their bases sufficiently enough that it’s time to put their knowledge to the test out in the market.

A case study on the topic may be found in the product commercialization strategies that have played out over the last several years. It was only a matter of time before the developing nations began to present huge growth opportunity for drugs and health products. But how does a company take best advantage of such emerging nation growth, without getting themselves into trouble?

This is where licensing came into play, and again the question of a single, global agreement versus several region-specific agreements. These agreements were often structured so that licensors needed to approve of all local sub-licensees, which helped to alleviate regulatory and compliance issues, but the market risks and returns were still higher than in other developed markets (which were subject to separate licensing agreements). But was this still the right way to go, if negotiations led to high management costs?

The choices made in such scenarios can have very significant effects on the trajectory of a new pharmaceutical product, and that’s why the legal impact of a franchise vs licensing agreement needs to be understood in terms of both legal and operational execution strategies.

Given the choices drug development companies have been making in these past few years, it’s clear that the licensing route is a relatively safe and strategically sound way of acquiring and managing intellectual property. In order to strike a fine balance between a company’s desire to maximize profitability and minimize risk during the commercialization of any given product, careful planning is essential. Look to leading law firms such as TigerTox for help in this area.