Pharmaceutical Licensing Forecast: Exploring Innovative Business Development and Licensing Strategies

Pharma IQ

While licensing deals have perhaps been born out of necessity – the patent cliff coupled with a dwindling pipeline has left big pharma in a tricky position – they are more than proving their worth, and necessity is the mother of all invention.

Figures published by CBR Pharma Insights show that since 2007 the number of licensing deals has been increasing every year. 

The largest increase was witnessed between 2008 and 2009, where a 20 percent rise came from pharma companies no doubt looking to beef up their portfolios before the patent cliff hit. Licensing deals are now numbering more than 400 per year, and one of the key reasons is economics. 

The cost of developing drugs is on the rise, while the expiration of patents on blockbuster drugs is wiping billions off the bottom line. 

Creating a partnership agreement balances the risks and costs of early stage drug discovery, where only a fraction of candidates will make it to market, although licensing deals are increasingly moving further up the pipeline.

Compared to M&A deals, which also appear to be on the rise, licensing also presents lower risk, removing the need for the integration of business cultures, a sticking point that has seen more than one promising merger fail to produce the results required. 

Of course on the other hand, licensing deals are unlikely to provide a future boost in revenues that M&As have the potential to. But with investors calling for greater returns on research and development investments, collaborations are a way to address the challenge of balancing costs and innovation. 

Licensing deals are more about complimentary expertise, particularly as more deals are done between big pharma and small biopharmaceutical start ups. 

The larger companies get the innovation and novel molecules offered by biopharma companies, without needing to build the in house expertise to move to a new therapeutic area, and with a lower risk than in-house research and development. 

Licensing deals have also been known to bring new uses to existing drugs.

At the same time, the smaller biotech companies receive the funding needed as other sources dry up. Robert Burns, chief executive of small biopharmaceutical company 4-Antibody, was reported by InPharma as saying: "Small companies have to do deals like this to get non-diluted funding as raising money from VCs is so hard."

Big pharma also has the expertise when it comes to commercialising drugs, navigating through the regulatory process and ultimately setting up the marketing, sales and distribution channels needed.

The question then posed is at which stage should this complimentary expertise merge?

Later stage deals, those in phase II or III, certainly bring with them lower risk and a reduced time to market. These proved particularly popular a few years ago as companies looked ahead to stem the gap in the pipeline presented by the patent cliff. 

According to the figures reported by CBR Pharma Insight, these deals were more likely to be exclusive for both development & commercialization where the licensee was assuming control, compared to deals done in the discovery/pre-clinical phase, at 42 percent and 31 percent respectively. 

Competition, however, means that these highly-prized later stage drugs bring with them a significant level of competition and price premium. Paul McCubbin, writing for Touch Health Sciences, suggested there could be as few as three or four late stage compounds sought after by multiple bidders.

With this in mind, companies are looking to move further back down the drug development pipeline. This also reflects the longer term nature of these licensing deals – it is no longer about the quick hit but rather building something sustainable to build a future pipeline on and in some cases carve out a new niche. 

In theory, earlier stage deals, those done during the pre-clinical phase, should come at a more reasonable price reflecting the higher level of risk attached and competition is also less fierce. 

However, as more search for these promising molecules in the early stages of development, chances are prices will also head in an upward trajectory. 

Signs are also being seen that the deals being made are becoming more complex. 

Now licensing agreements have proved their worth, big pharma is doing what it does best and is becoming more savvy and negotiating better deals  - and biopharmaceutical companies are responding in kind with greater demands for things other than cash. 

Finding a speciality and a transfer of knowledge will likely make up a greater part of future licensing agreements. Indeed, biopharma companies could open up a niche for themselves in working on those promising compounds which never made it out of the lab when the need to innovate was not quite so pressing.

 Polyplus Transfection, a French biotech firm, chief executive Mark Bloomfield explained: "These could perhaps be commercialised by biotech companies, but it is hard to communicate with the right person to get the conversation started. Rules need to be changed to allow a different way to dispose of these assets."

Personalised medicine also has its role to play in the development of these licensing deals. An increasing number of products are being developed in conjunction with diagnostic tests as work on biomarkers increases.

According to a recent Research and Markets report, the market is primed for growth of 11.56 percent annually and is primed to hit $148.4 Billion by 2015. 

The fastest growth will be seen in the proteonomics and genomics sectors, while a bright future is also seen for targeted biologics. The report suggests targeted biologics may represent one in four newly commercialised drugs in the future.

For pharmaceutical companies that have lived based on the blockbuster drug model, this new way of thinking presents a significant challenge. Partnerships with biopharmaceutical companies are a key way in which many companies will seek to make the transition simpler, the model once again goes back to complimentary expertise. 

Big pharma can no longer afford to place all its eggs in one basket, and there will be no single one partner - as in the future licensing deals will become increasingly partnership based - that will be able to fulfil all the R&D functions required. 

Companies are likely to be managing multiple partnerships at the time, potentially over a number of geographies. 

The emerging markets of India and China are key targets, with long-term growth, lower overheads and a shorter time to market all seen as major attractions. As biosimilars move to take a bigger share of the market, the appeal of emerging markets is expected to increase even further. 

Ajit Mahadevan, partner at the Life Sciences division of Ernst & Young, told Express Pharma: "Licensing agreements with Indian companies have helped pharma MNCs access a ready basket of generic products. 

"Going forward, these deals are likely to accelerate the launch of products in various emerging markets while offering MNCs the advantage of cost-effective manufacturing."

According to PwC figures, licensing deals were up 14 percent on 2010 in 2011, placing them in line with M&A activity, and have seen a huge 178 percent rise since the year 2000. 

Signs suggest innovative business development and licensing strategies will continue to move from strength to strength as the industry adjusts to new dynamics and new business models.

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