Report finds licensing offers hope for what ails Big Pharma
Pharma’s top 20 are in crisis, the group says, with most facing poor growth in coming years.
By on Jan 4, 2006Pharma's top 20 are in crisis, the group says, with most facing poor growth in coming years. In fact, Datamonitor forecasts that, among the top 20, only Amgen will achieve double-digit growth over the next six years.
Romita Das, pharmaceutical industry analyst for Datamonitor, says that despite pouring more money into R&D, the industry is failing to generate promising new drug candidates that will provide high returns on that investment. Licensing, however, may provide hope if companies can broker deals under favorable terms, Das says.
The group reports the number of licensing deals signed by top-20 pharmas have risen 16% in the past five years. And companies are becoming increasingly dependent on licensing to generate sales, with an average of 19.5% of their ethical sales being derived from licensed products in 2004, up from 17.5% in 2002.
In 2004, $63 billion in sales came from licensed products, compared to $48 billion in 2002 a difference of nearly one-third.
Datamonitor reports that GlaxoSmithKline and Merck were the most active dealmakers between 2000 and 2004. But Merck's deal-making activity waned in 2005, with only six deals signed in the first nine months, compared with 30 in 2004.
The two companies, however, have different licensing strategies, Das says. While GSK's approach follows a more traditional strategy of acquiring the rights to compounds in clinical development, Merck focuses on drug discovery alliances. But Das speculates that Merck may now turn to late-stage product licensing to find new revenue streams quickly in the wake of its withdrawal of Vioxx.
Datamonitor forecasts an increased dependence on licensing over the next five years among the top-20 pharmas, with Roche seeing the greatest increase as a result of its relationship with Genentech. In fact, the group predicts Big Pharma will reap 26.1% of its ethical sales from licensed products by 2010. That's more than $100 billion in sales or double what top-20 pharmas generated from licensed products in 2002.
And the number of licensing deals, Datamonitor says, will rise although growth will be tempered some by stiff competition for a limited number of lucrative licensing opportunities. Das says it will become more important than ever for companies to leverage their tangible assets, including marketing experience and licensing history, as well as intangible assets, such as reputation and good alliance management, to gain a position as a partner of choice's and to attract and secure high-value deals.
Companies also need to offer more creative deals that make them stand out from the crowd and exploit synergies, Das says.
The group points to Pfizer's co-development and co-promotion deal with Neurocrine for Indiplon, in which it agreed to train Neurocrine's sales team, as a good example.
The structure of the deal was designed to help Neurocrine's capabilities, while from Pfizer's perspective, Neurocrine's resultant sales force is likely to be compatible with Pfizer's marketing approach, says Das. And, of course, the deal ultimately gave Pfizer access to the product.
The group says the deal also highlights the rising complexity of licensing agreements.
But Datamonitor says its research indicates that companies are not fully capturing the opportunities of in-licensing early-stage compounds, where competition to secure the best deals is less fierce and lower costs are involved. The group says early-stage deals are ideal for smaller players, allowing them to license products before their competitors do.
The early-stage product licensing is a more even playing field, Das says, but the higher risk of such products and difficulty in assessing the potential has deterred companies from pursuing the deals. But Datamonitor says the higher risk is counterbalanced by substantially lower licensing costs and far lower royalty rates.
In the end, licensing deals are becoming more complex, the group says, as companies seeking to out-license products become more demanding and potential licensees concede to the demands to gain access to high potential products over their competitors.
It's now crucial for companies to ensure they optimize their licensing strategies to fully extract the value that licensing can offer, Das says.