Surge in Strategic Alliances and Licensing Deals to Boost Productivity of Pharmaceutical Companies

12-May-2006

A steep decline in innovation levels, combined with the threat from generics and drug recalls is causing concern to several pharmaceutical companies. As a result, pharmaceutical companies across the world are collaborating with biotech companies, thus relying on external resources to boost their innovation and productivity levels.

"Having unsuccessfully implemented merger and acquisition (M&A) strategies to boost their falling productivity levels, pharmaceutical companies are now developing strategic alliances and licensing deals to improve weakening drug pipelines and achieve sustainable revenue growth", notes Frost&Sullivan Research Analyst Raghavendra Chitta.

In keeping with the trend of licensing deals, currently, 70 per cent of the industry's drug pipeline is with biotech companies. Moreover, the industry is exhibiting significant changes as an increasing number of pharmaceutical companies are focussing their efforts on licensing early-stage compounds due to spiralling costs of late-stage compounds. However, while early-stage compounds are less expensive, they possess a higher risk quotient.

The Pharmaceutical Index has been continuously underperforming the S&P Index, with negative returns for the first time in 2004. In addition, the recent high-profile drug recalls of Vioxx and the impending patent expiry of drugs that account for $72.00 billion in present-day sales, have adversely affected the pharmaceutical industry. Further, fast-growing generic drugs are contributing to about 48.0 per cent of the total drug sales in the U.S. pharmaceutical market (currently the world's largest pharmaceutical market), thereby creating impediments for pharmaceutical companies.

Although research and development (R&D) expenditure has been rising steadily, the number of new molecular entities (NMEs) submitted to the Food and Drug Administration (FDA) has drastically reduced, thereby indicating a drop in R&D productivity.

"In response to this, pharmaceutical companies will need to intensify their efforts to reformulate and discover new applications", states Mr. Chitta. "While this may involve reduced costs in comparison to the costs involved in the discovery of new drugs, it will become essential for pharmaceutical companies to concentrate on improving their productivity and efficiencies to sustain long-term growth."

The strategic alliance forged between Roche and Genentech in 1990 that provided Roche with access to Genentech's innovations has set a precedent, driving large pharmaceutical companies to focus on licensing and alliance deals with other companies. In addition, as pharmaceutical companies such as Merck, best known for their internal R&D efforts, are pursuing feasible alliances and licensing deals, this trend is expected to continue.

With more than 1,500 alliances formed in the period 1997-2002, the contribution of licensed products towards total sales is predicted to increase from 20 per cent in 2002 to 40 per cent in 2010.

The completion of the human genome project (HGP) has had a significant impact on the drug discovery industry, radically transforming beliefs related to disease and patient homogeneities. At the same time, significant advances are being made in genomics, proteomics and other allied areas, which are expected to encourage pharmaceutical companies to revise their R&D operations. Over the period of the next five years, pharmaceutical companies will need to increase efforts to strengthen their pipelines in order to sustain the historic growth rates of sales revenues.

If you are interested in a virtual brochure, which provides manufacturers, end users, and other industry participants with an overview of the latest analysis of the Key Alliances and Partnerships in the World Drug Discovery Industry, send an e-mail to Radhika Menon Theodore using the 'Contact' button below.

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