arrangements in the Pharma and Biotech Industry
In the last ten years, alliances among
biotech and pharma companies doubled to around 700 per year per sector (pharma /
biotech sectors), although most of this increase came in the early years. So why
are alliances becoming so common ? The answer lies partly in another question:
how can the industry sustain the necessary growth to provide good shareholder
value ? Let´s take a fictional, but rather characteristic example; a large
pharmaceutical company with a turnover of $5 billion has target sales growth of
10% for the next 10 years; on first impression this sounds like a reasonable
target and certainly a 10% growth would not be at the high end of analysts' and
investors' expectations. However, such a growth would take this company in 10
years´ time to the current size of the very top players; perhaps an ambitious
objective bearing in kind that most of its peers would also have similar goals.
If we correlate such a growth with NCEs
the company launches, it becomes apparent that it will be necessary to have 4
NCEs with the current industry average of $300m peak sales each (unfortunately
not many products reach sales of $1 billion !). Moreover, these should be
launched in the next 3-4 years, in time to peak at the incremental $1,200m at
year 10.
Even the largest pharmaceutical companies
have certain limitations in their own Research although usually they have enough
capacity in Development to bring new compounds to the market very effectively.
However, on a number of occasions, the in-house development capacity may get
prioritised in favour of other products within the company´s portfolio.
A product may also be facing competition
internally from other projects, not necessarily similar compounds, but perhaps
programs better aligned to the overall R&D activities. In extreme cases, where a
company has one major product in the same area, competition law may force the
company to out-license the other candidate. A clear case exists therefore for
big pharma alliances with biotech and start-up companies on collaborating both
"in" and "out" as in some cases a small partner may be the best option. The
"Licensing" deals we used to see years ago are becoming a lot more like
collaborations between true partners and perhaps even the term
"licensing-in/out" should be modified in the future to reflect more accurately
the partnering trend in the industry.
While shareholder value is the ultimate
driver for most partnerships, access to new compounds, novel technologies, or IP
rights not the only reason; sharing risk in product development can be just as
important a reason for partnering. In addition, even though all big pharma
companies have a good selling and marketing capacity (and can always increase it
as needed) many alliances are created to optimise the commercialisation of
products through, for example, detailing to different audiences, marketing with
synergistic products or in particular territories where a partner is stronger
than the originator.
All big pharma and biotech companies have
in fact become quite dependent on products deriving from collaborations and the
top 20 companies have on average 15-20% of their sales coming from licensed
products, while around 40% of their pipelines is due to compounds externally
sourced.
