The pharmaceutical sector continues to suffer from a slowing market, declines in R&D productivity and swelling R&D costs, and little improvement can be expected before the end of the decade.
And this has led to drugmakers ramping up their in-licensing activities, with increased competition for the plum projects inflating the costs of this licensing activity, according to UK-based consulting group Wood Mackenzie.
The cost of a late-stage licensing deal has increased from an average $60 million in 2000 to $390 million in 2005; a near seven-fold increase in just five years, according to Wood Mackenzie's report. This has been accompanied by a trend towards earlier-stage licensing, with pharmaceutical companies now having to pay more for riskier projects.
The increase in the value of deals favours companies with greater financial muscle, so while large pharmaceutical companies are able to cope with this changing environment, mid-sized enterpises that rely on in-licensing are finding it hard to compete.
Wood Mackenzie believe that there are limited strategies which mid-sized pharmaceutical companies can follow to make them attractive licensing partners in this competitive market. They can either focus on one therapeutic area and dominate it, or they can become experts in a geography that is unattractive to large pharmaceutical companies.
"It is clear that mid-sized pharmaceutical companies looking to attract products from innovator ones are faced with significant competition," said Stuart Bowman, Vice President of Research at Wood Mackenzie.
"In order to become an attractive partner, the mid-sized company needs to develop a compelling reason for the deal to happen. Without a change in strategy, mid-sized companies reliant on in-licensing will find themselves priced out of the auction for good late-stage products," he added.