1. Pharmaceutical Licensing Overview 2010
Creative Solutions Needed as
Pharmaceutical In-licensing
Competition Heats-Up
Continued demand for innovative and potentially first-in-class medicines is driving up the
cost and driving down the potential return on investment for late stage in-licensing deals,
pushing the pharmaceutical industry to be more creative as it tries to lessen the impact of
patent expiries, finds independent market analyst Datamonitor*.
The number of healthcare-focused licensing deals entered into by the top 10 pharmaceutical
companies in 2009 rose by 12% 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.
Martin Adams, senior healthcare analyst at Datamonitor, comments: “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.”
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.
Martin adds: “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.”
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% 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” adds 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.
The global generics industry has evolved significantly over the past decade; it has become an
increasingly integral element of the prescription pharmaceutical sector and, helped by aggressive
M&A strategies, its two leading players—Teva and Sandoz—sit just below the Big Pharma peer

2. set in terms of scale.
Simon King, pharmaceutical analyst at Datamonitor, comments: “Sales growth has been driven by
two key factors; growing demand for cheaper pharmaceuticals as a means to contain healthcare
expenditure and a succession of patent expirations on heavily prescribed branded ‘blockbuster’
products, which the generics industry has capitalized on.
“As a result, a robust period of growth for the generics industry has run concurrent to an
‘indifferent’ performance for the much of the branded pharmaceutical sector.”
However, Datamonitor forecasts that sales growth for the generics industry will begin to slow, with
a CAGR of 5.0% forecast for the period 2009–15. Closer analysis reveals that a deceleration in
sales growth will take hold from 2012 onwards as demonstrated by a global CAGR of 3.7% for the
period 2012–15 versus a 6.3% CAGR for the period 2009–12.
This pattern maps to the widely perceived end of Big Pharma’s ‘patent cliff’, with 2012 often
viewed as a nadir given the anticipated loss of exclusivity for the branded industry’s biggest
selling product—Pfizer’s $12 billion-a-year Lipitor (atorvastatin) franchise—in late 2011.
Simon concludes: “In short, the level of branded revenues associated with blockbuster products
that have become exposed to the generics industry via patent expiration will begin to decrease
sharply from 2012 onwards.
“This sharp decline—driven partly by a fall in Big Pharma’s blockbuster productivity over the past
decade—will deprive the generic industry of significant revenue injections. The end of this ‘golden
era’ of patent expiries will fundamentally shift the generics landscape as sections of the wider
pharmaceutical market become more commoditized.”
Ends
Find out more with Datamonitor's Pharmaceutical Licensing
Overview 2010!
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