A Decade (and 1/2) of Deals

As the industry focuses on late-stage deals, Big Pharma takes on the risks of compounds in preclinical development.
Oct 01, 2004

In 2003, licensed products accounted for more than $70 billion in revenues for the top 20 global pharma companies. And according to research by Wood Mackenzie, that figure will top $100 billion by 2008 and will represent nearly a third of the industry's total projected revenue. By these measures, licensing is and will continue to be big business for Big Pharma. In fact, some companies embrace it as their core business development strategy. This article highlights some of the findings of a 2004 study that reviews the evolution of Big Pharma's R&D licensing strategies during the last 15 years. (See "Study Methodology,".)

Total Annual Deals by Development phase
Following steady growth from 1989 to 1998, the number of deals has declined, even as the value of those deals' revenues has grown. In particular, preclinical deals dramatically declined after 2001 but have begun to level off at approximately 25 percent of all deals. The total of clinical-stage deals (Phases I and II) has continued to decline from a high point in 2001. However, for advanced clinical licensing arrangements (Phase III through registration), deal making appears to be on the rebound. (See "Total Annual Deals by Development Phase,".)

Total Company Deals by Development phase
What accounts for this apparent slowdown in what otherwise appears to be a white-hot market? It's possible that licensing has become so competitive that late-stage deals and even pre-clinical agreements are simply too costly. Rather, the largest of the Big Pharma companies are increasingly licensing Phase I and II compounds—cheaper but riskier investments. (See "Total Company Deals by Development Phase.")

GlaxoSmithKline leads in total volume, with almost 90 deals secured since 1989. Next is Pfizer, followed by Sanofi-Aventis and Bristol-Myers Squibb. GSK currently manages more licensed products through development than any other large pharma company.

Interestingly, the greatest number of deals is not the same as the greatest degree of financial success. Pfizer has the most revenues from licensed products, although it has fewer deals than GSK. Pfizer's revenues from licensed products, including Lipitor and Celebrex, topped $15 billion in 2003. Bristol-Myers Squibb pulls in the most money in terms of pure sales from licensed products.

Geographically Desirable The United States continues to be the most active region for licensing activity, with 55 percent of the deals struck by large pharma companies taking place with US-based companies. Europe accounts for 28 percent of the total, Japan contributes 15 percent, and the remainder is spread throughout the world.

An interesting cultural difference is playing out on the global stage. European and US companies collaborate with US, European, and Japanese companies in similar proportions, reflecting the global nature of pharma R&D on both sides of the Atlantic. In contrast, Japanese companies strike the greatest proportion of deals locally. Takeda, for example, positions itself as the partner of choice for smaller firms in Japan, but also for Japanese companies seeking to extend their international presence.

A few companies exhibit geographic preferences—80 percent of Pfizer's deals are with US companies, for example, while 70 percent of BMS's agreements are with non-US companies.

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