COMMENTARYHow Not to License a Drug into Japan
Doug Berger, M.D., Ph.D,
Pablo Ruano, Ph.D., M.B.A., Douglas Eames, Ph.D.
I saw a ballet the other day and it struck me that thebetter dancers were good on their toes. This gave
me a hint on improving one aspect of our pharma
consulting business: to broker a deal to license a candidate drug into Japan, or get venture capital andstart your own company with a candidate drug, youneed to stay on your toes.
* First, you need to look for candidate drugs fromoverseas. Everyone wants to be your friend until you
tell them their drug cannot make it in the Japan market. They will have good preclinical data, maybe PIdata, but no proof of concept, and maybe skeletonsin the closet you haven’t found out about yet -that is
why they have not yet sold it to a Japanese company
and are talking to you. You need an experienced
licensing person on your team. Keep on your toes.
* Find out why they have not been able to sell thedrug in Japan. Did a drug with a similar action already fail development somewhere in the world? Did
it perform worse than other competitors in development? You need a competitive intelligence person
on your team to get the information. Keep on yourtoes.
* Try to get the licensor to invest in the equity ofthe development in Japan by holding onto rights or
making a joint venture with you. This will help themget some Japan experience and will go a long way tocreate trust among the potential investors in Japan.
This scheme can also function to keep the licensor
honest and working hard for your Japan interests.
The Japanese might say, “tatami wo tatakeba hokoriga deru”, or “you won’t know how much dust is in
the tatami mat until you hit it”. Keep on your toes.
* Usual licensing costs for the Japan rights are about
20% of the estimated Japan peak sales (usually considered to be 10% of global peak sales). Some licensors expect you to fork-up the whole 20% upfront
before PII (“proof” -actually semi proof- of concept
in humans) is even completed abroad. No company
in Japan will pay the full licensing amount upfront
unless the drug is clearly going to be a big hit or already has great sales overseas. Orphan indications
or minor entry indications without a clear high-potential revenue life-cycle management program will
also not fly. Don’t waste your time or the time ofyour buyers or financers. Also confirm the patentand freedom-to-operate status in Japan. You need abusiness intelligence person on your team to get a
realistic estimate of the medical use of the drug inPage 16

Japan (i.e., its positioning in medical use) and theJapan potential peak sales based on disease demographics and present and future local competition.
Keep on your toes.
* Have a realistic idea of how much it will cost todevelop, market, and follow the safety reporting of adrug on the market. It is not simply a matter of thelicensing costs. You need to compare the sales minus all these costs with the income you would getfrom having the cash invested along with an inflation
factor. This is a calculation of a discounted cash flow
called NPV (net present value). You need an experienced finance person on your team. Keep on yourtoes.
* A drug may be a great idea abroad but may not
get past the Japanese Authority (PMDA) to enter into
man in Japan. The nature of the drug composition,i.e., using specific biologic materials (virus vectors,bovine materials), the nature of the mechanism ofaction (i.e., MAOI action), the nature of the indication (i.e., one that requires treatment with stimulant
or opioid activity), etc may make development in Japan a regulatory or clinical feasibility (recruitment)
impossibility even though it may be approved in dozens of countries already making your licensor think
Japan is a sure bet. You need an experienced clinicaldevelopment person on your team to keep your regulatory reality in check. Keep on your toes.
* You are all excited because the candidate drug
may be a new and innovative way of delivering anold standard drug into the body, e.g., patch, intranasal spray, injection pen, etc. The licensor conveniently
did yet not tell you that the device part has still notcompleted development, nor did you check with theJapanese authorities what you need to do in Japan toget approval of a drug that also uses a device fordelivery. Don’t begin a huge evaluation project before confirming whether the drug can even get inside
the human body. You need an experienced CMC (formulation and manufacturing) person on your team tokeep your drug specification reality in check. Keepon your toes.
* Be creative. See if the licensor and investors arewilling to jointly go so far as to the first PMDA consultation with an agreement in place for full licensing
if the PMDA evaluation is favorable. It is a low financial risk to go only as far as the first PMDA meeting but a great way to find out where the future roadmap for Japan leads. You may need a choreographer
on your team. Keep on your toes.
PHARMA JAPAN 2159/October 12, 2009

COMMENTARY* The drug may actually have good potential for
Japan but your strategy for licensing doesn’t workfor the licensee. Make sure the milestone payment
schedule makes sense with the progress of development abroad (i.e., an FDA letter allowing progress toPIII in the US means much more than “good” PII
results reported by the licensor). The pharma or venture capital company you want to make a deal withmay meet with you, but they do not have the time tosit down and work-out what to do with your candidate. It is your job to make a licensing strategy thatis win-win for all parties. Remember, venture capitalcompanies are essentially investors and they need anexit plan to sell the stock they have bought from yourstart-up company. Get expert advice if you don’tknow what to do. Keep on your toes.
* You need to make a contract with the licensor
before you present your new great drug candidate to
any local pharma company stating your commission
and that only you can be the go-between between
the licensor and the pharma you speak to. Your information may be on the next email from thatcompany’s licensing department to the licensor’s business development window on their home page if you
don’t. Keep on your toes.
* How will you set your fees vis-à-vis the licensor?
If your fee is too high they will not want to have you
as a go-between. If your fee is too low, you will have
low motivation to help them. Make sure they understand that. You can structure a flat success fee, or alower success fee plus per-hour fees. If you want,
you can have a pure per-hour fee and function only
as their in-country consultant. See what other people
in the industry say works for them. Keep on yourtoes.
* You need to make a contract with any venture
capital company before you present your new great

PHARMA JAPAN 2159/October 12, 2009

candidate drug to them stating they must keep yourinformation confidential and cannot present or engage in licensing this drug into Japan with anyone
other than yourself. Your information may be on thenext email from the venture capital company to thelicensor’s business development window on theirhome page if you don’t. Keep on your toes.
* Even if you are successful in getting venture capital funding, do not expect a venture capital company
to throw a big salary at you. You will need to work
hard from humble beginnings and have personal backup savings already in the bank in case there is bad
weather ahead. Try to get a few candidate drugs onboard from the start to decrease your chances of failure. Keep on your toes.
Now with this article in hand, you are ready to assemble your team and start looking for your compound for Japan. Make sure you have some othersource of income while you try to make this enterprise fly, it may take a long time. You can always
take ballet lessons if you find you have a lot of freetime.
Questions? Please ask us for help:doug(at)japanpsychiatrist.com
We will be sure to keep you on your toes.
Douglas M. Berger, M.D., Ph.D., and Associates.
Japan Pharmaceutical Consultants
www.japanpsychiatrist.com/DrugDev.html
Drs Berger and Eames are Pharmaceutical consultants in Tokyo, and Dr Ruano formerly in Pharmaceuticals in Japan for many years, now works in theEU.

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