Drugmakers are desperate to fill their pipelines but going down the licensing route may not be the best option, according to a new report from Datamonitor.

The study notes that several factors are currently negatively affecting pharma R&D productivity and sales, such as the reduction in the number of innovative drugs being approved, increasing cost of developing such treatments and a “harsh pricing and reimbursement environment”. These, coupled with patent expiries and “historical over-reliance on blockbusters” means that drugmakers are increasingly turning to licensing products. Furthermore there has been a recent resurgence in preclinical and Phase I licensing deals made by the top 20 companies, Datamonitor senior pharmaceutical analyst Alistair Sinclair says.

However he notes that although the level of licensing is on the rise, such drugs produce a lower return-on-investment (ROI) than those developed in-house, which implies that the growth of licensing is not sustainable. “Pharma companies therefore need to make significant internal changes if they are to continue to remain profitable,” Mr Sinclair says.

By 2012, Datamonitor forecasts the top 20 pharmaceutical companies will derive one-third of their revenues from licensed products. However, while they face patent expiries of key revenue drivers between 2006 and 2012 and have in-licensed products to counteract sales erosion, this tactic, for six of 20 companies at least, “is not expected to produce positive growth in the short term, although it will at least offset part of their revenue deficit”.

Many firms have already missed the boat
Mr Sinclair argues that: “In hindsight, in-licensing more products earlier in the life of a potential blockbuster might have prevented this expected static or declining period of company revenues.” As for future opportunities, the report sees biologics driving market growth and in oncology in particular, but warns that despite the increasing interest in entering those areas, “questions have been raised as to whether companies looking to enter the market now have already missed the window of greatest opportunity”.

Datamonitor also points out that as the complexity of deal structures increases, “licensors, emboldened by the knowledge that pharma companies are increasingly reliant upon licensing deals to ensure their future profitability, are demanding more in the negotiation stage”. Biotechs are now preferring to retain certain rights to the future development, manufacturing and product marketing, says Mr Sinclair, but this ultimately means that while licensors increase their potential ROI, they also increase their burden of risk.

He concludes by saying that “in order to prevent overlap of responsibilities between companies, licensing deals now need to be sufficiently flexible to minimise the duplication of activities by each party, which can cause confusion, while also wasting time and money and putting the deal itself in jeopardy”.