What’s so special about pharmaceutical transactions?

Discussing licensing and distribution arrangements for an over-the-counter pharmacy product with a potential client today, the conversation turned to the ways in which deals and deal structures in the pharmaceutical sector tend to differ from their equivalent in some other commercial sectors.

The main differences that this blogger identified were:

Regulatory – transactions must take account of the extensive regulation of the sector, covering widely diverse areas such as notification of adverse events, the use of Qualified Persons in manufacturing, the requirements for obtaining regulatory approval to market the product, etc.

Government purchasers – in many cases a Government body may be involved in purchasing decisions and/or the setting of the price of the drug.

Patents – the importance of having good patent protection, given how technically easy it often is to replicate a drug once it is on the market.

Trade marks – the importance of having good trade mark protection for the “brand”, and yet the difficulty of preventing parallel imports of the branded product from other countries, eg under EU laws on the free movement of goods.

Cost of goods – the fact that manufacture of the drug usually costs a trivial amount compared with the price of the product as sold. This (together with IP protection considerations) may affect decisions on whether to have manufacture done in a country such as China.

Distribution channels – the distribution of pharmaceutical products has some distinctive features, eg the mechanism of appointing a “pre-wholesaler” who sells on to a wholesaler. Also, in the UK, the importance of certain retail pharmacy customers such as Boots and, increasingly, the major supermarkets such as Sainsbury’s.

People – in our experience, many clients working in this sector favour a thorough, meticulous approach to contract drafting and negotiations. It is important to “get it right”. This approach can be contrasted with the sales-driven approach in some other technology sectors, where contract terms are sometimes not regarded as so important.

On reflection this is a rather diverse set of distinctive features. Have we missed any? Do you agree with the above list? Comments welcomed.

2 Comments

Filed under General Commercial

2 responses to “What’s so special about pharmaceutical transactions?

  1. I agree with this list of distinctive features. I would add:-

    Critical, high value products. Although a drug’s critical nature is well reflected in the comprehensive regulatory environment, the fact that a good drug will transform patients’ lives and a bad drug may harm patients is a major factor that distinguishes pharma transactions from other technology transactions.

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