Solutions Needed as Pharmaceutical In-licensing Competition Heats-Up

The number of healthcare-focused licensing deals entered into by the top 10 pharmaceutical companies in 2009 rose by 12 percent over the previous year. With the pharmaceutical industry seeking to reshape its development pipeline amid widespread cost-cutting and restructuring of internal R&D activities, deal numbers are expected to continue growing.

“The annual increase in in-licensing deal activity confirms that Big Pharma is actively seeking acquisitions and licensing agreements as a more cost-effective means of gaining access to novel products than carrying out extensive in-house R&D.” comments Martin Adams, senior healthcare analyst.

However, as companies compete to secure late stage deals that offer a short to mid-term solution to the pending patent cliff of 2011, the cost of acquisitions is inevitably rising.

“Companies of all sizes have to be far more creative and flexible in their approach to securing the best deal terms if they want to maintain healthy returns on investment (ROI) and, as a result, relationships between Big Pharma and its partners are becoming increasingly dynamic. Traditional licensing deals, for example, continue to be replaced by option arrangements or heavily back-ended deal structures,” adds Adams.

Another consequence is that as competition for the most attractive candidates intensifies, would-be licensees are being forced to look at either less commercially attractive late-stage drugs, or earlier-stage licensing opportunities. In 2008-09, 57 percent of all product in-licensing deals involved drug candidates at the earliest stages of development (pre-clinical).

“The structure of these early-stage deals is evolving with licensees becoming more risk-averse and placing increasing emphasis on commercial milestone payments (back-loading) supporting smaller upfront fees,” concludes Martin.

Datamonitor also expects out-licensing deals, which have been relatively sparse historically, to rise over the coming years as Big Pharma seeks local marketing expertise to increase the regional commercial prospects of marketed products and free up resources and cash that can be put to other uses.