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Licensing Strategies: Benchmarking Analysis of the Top 20 Pharmaceutical Companies
Datamonitor, May 2003, Pages: 177
EXECUTIVE SUMMARY 3
Scope 3
Insight into R&D licensing strategies 3
Licensing is a major part of pharmaceutical companies' business models. However, the deal attrition rate is very high 4
As target validation becomes the key technology to in-license, competition to partner with target validation companies will increase dramatically 7
Despite the high cost, accessing late-stage products will continue to be a priority for pharmaceutical companies 9
Cancer and CNS products are the most competitive areas where companies are making licensing agreements 11
CHAPTER 1 PROBLEM DEFINITION 18
Key findings 18
Why do pharma and biotech companies have to make licensing agreements? 19
Many existing blockbusters are the result of licensing agreements 19
The incentives for licensing 20
Pharmaceutical companies – drivers for licensing 21
Pharmaceutical companies – resistors to licensing 25
Biotechnology companies – drivers for licensing 27
Biotechnology companies – resistors to licensing 31
Current problems with licensing agreements: where are companies going wrong? 32
Increasingly complex licensing deals making them difficult to manage 33
Non-compatible goals and working cultures of partner companies 34
Key personnel leaving 34
Most large pharmas are increasing their reliance on licensing from 2001 to 2007 34
Further licensing must be conducted for pharmaceutical companies to reach the elusive double-digit growth year-on-year 36
Current licensing strategies 38
Licensing trends 39
US pharmaceutical companies spent 11.7 per cent of their R&D budget on biotechnology licensing deals in 2001 39
2002 – a bad year for licensing deals 40
Top 20 pharmaceutical companies have reduced the number of deals by a third 41
The drug development process – where are pharmaceutical companies making licensing deals? 42
Large pharma focus on technology licensing deals 43
CHAPTER 2 DEAL STRUCTURE AND VALUE IN DISCOVERY 46
Key findings 46
Why are technology licensing deals important? 47
Why not acquire technology companies? 48
Technology deal trends 48
Technology deals are increasing in value 49
Target validation – the key area in technology deal making 49
Pharmacogenomics is now seen by the industry as the most important technology 51
One in five drug development collaborations are for monoclonal antibodies 53
Cancer and CNS – key areas of drug development activity 54
Technology licensing deals – will companies continue to invest in discovery technologies? 55
Bioinformatics 56
Microarray 64
Proteomics 70
Pharmacogenomics 73
Target validation 79
Drug development licensing deals 84
Millennium and Aventis 85
CuraGen and Bayer – a $1 billion collaboration 85
Millennium and Abbott – collaborating on obesity and diabetes drug development 86
Typical deal structure 87
Upfront payments 87
Milestone payments 88
Drug royalties 88
Expected return on investment 89
The cost of developing a drug beyond target identification 90
The cost-benefit trade-off – technology agreements versus product licensing 90
CHAPTER 3 DEAL STRUCTURE AND VALUE IN CLINICAL DEVELOPMENT 94
Key findings 94
Clinical deals are the focus for company investment 95
High failure rates of key licensing deals, 1999-2002 96
Large pharmaceutical companies are reliant on in-licensing products to improve their growth prospects 97
GlaxoSmithKline case study – license, license, license! 98
R&D productivity is low 101
Large pharma are committed to in-licensing development compounds 104
Early-stage deals are increasing in importance because phase III product licensing deals are in short supply 106
The choice of therapy areas that large pharmaceutical companies in-license products for, is dependent on the market growth and level of unmet need they offer 107
Cancer is the therapy area of choice 109
Typical deal structure – minimizing upfront investments 117
There are no fixed rules in deal structures 119
Two emerging trends in the structure of licensing agreements: minimizing upfront payments and offering 'quid pro quo' drugs 123
Minimizing upfront investments – reduce losses if the deal fails 123
Offering 'quid pro quo' drugs – maximizing the effectiveness of biotechnology companies' input. 124
Expected return on investment 125
Net present value 126
Monte Carlo simulation 128
Real options 128
Adjusted present value 129
CHAPTER 4 BEST PRACTICE DEAL CREATION AND MAINTENANCE 130
Key findings 130
The in-licensing process from a pharmaceutical company's perspective 131
Specify – licensing deals must support overall corporate strategy 133
Identify – companies must be proactive in searching for licensing opportunities 134
Evaluate – companies must consider both the technical and cultural aspects potential licensing deals 136
Secure – pharmaceutical companies must be positioned as the 'licensing partner of choice' 139
Initiate – companies must actively manage licensing agreements from the outset 141
Manage - managing relationships and maintaining trust is critical for the success of licensing agreements 143
Termination 145
Pharmaceutical companies should buy biotechnology companies, if the conditions are right 146
Acquiring a company following a successful licensing agreement 146
Acquiring a biotechnology company without full integration 147
Gaining access to biotechnology company pipelines without acquiring the company 148
The biotechnology sector will consolidate – decreasing the number of partnership opportunities 148
Implications for pharmaceutical-biotechnology licensing deals 149
CHAPTER 5 APPENDIX 150
R&D expenditure 150
The success rates of compounds: from discovery to approval 150
R&D spend per product approval 153
Conclusion 161
Source data 161
Technology licensing deals 161
GlaxoSmithKline's forecast sales, 2000-2007 162
Glossary of terms 162
References 164
Healthcare Strategy Business Unit 165
How to contact experts in your industry 166
List of Tables
Table 1: A dependence on licensed drugs for sales is not a new concept for large pharmaceutical companies 20
Table 2: Royalty payments are calculated into licensing deals from target validation upwards 89
Table 3: Success of selected licensing deals, 1999-2002 – 30 per cent have already failed 97
Table 4: GlaxoSmithKline's pipeline is increasingly dependent on licensing deals 102
Table 5: Key deals of 2002 118
Table 6: Milestone triggers for the Aventis-Genta phase III license deal 121
Table 7: Average royalty rates for product licensing deals 122
Table 8: Global R&D spend of US-based companies, 1980–2001 150
Table 9: NDAs and NMEs annually approved by the FDA, 1986–2001 152
Table 10: Calculation of US R&D spend per NME approved, 1986–2001 156
Table 11: Calculation of Global R&D spend per NME approved, 1986–2001 158
Table 12: Drug development times (years), 1960–1998 160
Table 13: Target validation is the only technology that is maintaining the level of investment in 2002 161
Table 14: GlaxoSmithKline's forecast ethical sales by therapy area, 2000-2007 162
List of Figures
Figure 1: Only four of the top 20 pharmaceutical companies are reducing their dependence on licensing in 2007 compared to 2001 5
Figure 2: Target validation is the only technology that is maintaining the level of investment in 2002 8
Figure 3: Phase III clinical deals retain importance for pharmaceutical companies 10
Figure 4: The R&D productivity crisis has resulted in pharmaceutical companies seeking innovation from the biotechnology industry 22
Figure 5: The R&D productivity crisis in the pharmaceutical industry 23
Figure 6: The increased power that biotechnology companies hold over pharmaceutical companies during deal negotiations, combined with the difficult market for gaining funding are strong drivers for biotech entering into licensing deals 28
Figure 7: The value of licensing deals is increasing but the volume is decreasing 33
Figure 8: Only four of the top 20 pharmaceutical companies are reducing their dependence on licensing in 2007 compared to 2001 35
Figure 9: Licensing patterns across the top 20 pharmaceutical companies 36
Figure 10: Only Amgen is forecast to achieve year-on-year double-digit growth from 2001-07. Other companies must increase their licensing efforts to make up the revenue gap 38
Figure 11: Roche leads the large pharmas on number of licensing deals 39
Figure 12: A lull in 2002 US license deal revenues 41
Figure 13: Top 20 pharmaceutical companies continue to in-license drugs for their clinical pipeline 42
Figure 14: The drug development process 43
Figure 15: Focus of licensing activity for the top 20 pharmaceutical companies, from 2000 to 2002 44
Figure 16: Type of licensing deals made by the top 20 pharmas from 2000 to 2002 45
Figure 17: The number of discovery deals being made has remained constant while the frequency of clinical phase agreements has dropped, 1997-2000 49
Figure 18: Target validation deals were made more frequently than other technology agreements, 2000-2002 50
Figure 19: Target validation is the only technology that is maintaining the level of investment in 2002 51
Figure 20: Pharmacogenomics is viewed by the industry as the most important technology in 2003 52
Figure 21: Monoclonal antibody alliances are a priority for large pharma 54
Figure 22: Cancer and CNS are the key therapy areas for drug development agreements, 2000 to 2002 55
Figure 23: Pharmaceutical companies have greater control over bioinformatic licensing deals than the biotechnology vendor 61
Figure 24: Balanced power between pharmaceutical and biotechnology companies when negotiating microarray licensing deals 68
Figure 25: The link between personalized medicine and R&D productivity 75
Figure 26: Target validation in the post-genomic era 80
Figure 27: Clinical deals are the key focus of large pharmaceutical companies, 2000-2002 96
Figure 28: GlaxoSmithKline tops compound licensing activity among the leading pharmaceutical companies 99
Figure 29: GlaxoSmithKline is not forecast to achieve year-on-year double digit growth, from 2001 to 2007 100
Figure 30: GlaxoSmithKline: low R&D productivity and a low reliance on licensing compared to many of its peers 102
Figure 31: Phase III clinical deals retain importance for pharmaceutical companies 105
Figure 32: Cancer is the therapy area of choice among large pharma 109
Figure 33: The cancer market is forecast to grow by a CAGR of 11.2 per cent from 2001 to 2010 110
Figure 34: The estimated incidence of key tumor types in the seven major pharmaceutical markets, 2001 112
Figure 35: Net present value model is the industry standard for calculating expected return on investment in licensing deals 126
Figure 36: Best practice recommendations for conducting licensing deals 132
Figure 37: Pharmaceutical companies must continuously gain feedback about the success of their alliances. Lilly's Voice of the Alliance uses 14 categories to assess the 'health' of its partnerships 145
Figure 38: Compound success rate from discovery to approval 151
Figure 39: NMEs and NDAs annually approved by the FDA, 1986–2001 152
Figure 40: Approval time for NDAs and NMEs approved by the FDA, 1986–2001 153
Figure 41: US annual R&D expenditure by US-based companies, 1980–2001 154
Figure 42: Global annual R&D expenditure by US-based companies, 1980–2001 155
Figure 43: Estimated US R&D spend per NME approval, 1986–2001 157
Figure 44: Estimated Global R&D spend per NME approval, 1986–2001 159
Figure 45: Drug development times, 1960–1998 160
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