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  • 1. Pharmaceutical Licensing Overview 2010Creative Solutions Needed asPharmaceutical In-licensingCompetition Heats-UpContinued demand for innovative and potentially first-in-class medicines is driving up thecost 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 ofpatent expiries, finds independent market analyst Datamonitor*.The number of healthcare-focused licensing deals entered into by the top 10 pharmaceuticalcompanies in 2009 rose by 12% over the previous year. With the pharmaceutical industry seekingto reshape its development pipeline amid widespread cost-cutting and restructuring of internalR&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 licensingagreements as a more cost-effective means of gaining access to novel products than carrying outextensive in-house R&D.”However, as companies compete to secure late stage deals that offer a short to mid-term solutionto 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 tosecuring the best deal terms if they want to maintain healthy returns on investment (ROI) and, asa result, relationships between Big Pharma and its partners are becoming increasingly dynamic.Traditional licensing deals, for example, continue to be replaced by option arrangements orheavily 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, orearlier-stage licensing opportunities. In 2008-09, 57% of all product in-licensing deals involveddrug candidates at the earliest stages of development (pre-clinical).“The structure of these early-stage deals is evolving with licensees becoming more risk-averseand placing increasing emphasis on commercial milestone payments (back-loading) supportingsmaller upfront fees” adds Martin.Datamonitor also expects out-licensing deals, which have been relatively sparse historically, torise over the coming years as Big Pharma seeks local marketing expertise to increase theregional commercial prospects of marketed products and free up resources and cash that can beput to other uses.The global generics industry has evolved significantly over the past decade; it has become anincreasingly integral element of the prescription pharmaceutical sector and, helped by aggressiveM&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 bytwo key factors; growing demand for cheaper pharmaceuticals as a means to contain healthcareexpenditure 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, witha CAGR of 5.0% forecast for the period 2009–15. Closer analysis reveals that a deceleration insales growth will take hold from 2012 onwards as demonstrated by a global CAGR of 3.7% for theperiod 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 oftenviewed as a nadir given the anticipated loss of exclusivity for the branded industry’s biggestselling 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 productsthat have become exposed to the generics industry via patent expiration will begin to decreasesharply from 2012 onwards.“This sharp decline—driven partly by a fall in Big Pharma’s blockbuster productivity over the pastdecade—will deprive the generic industry of significant revenue injections. The end of this ‘goldenera’ of patent expiries will fundamentally shift the generics landscape as sections of the widerpharmaceutical market become more commoditized.” Ends Find out more with Datamonitors Pharmaceutical Licensing Overview 2010!If you have any questions regarding this report please feel free to email us. Alternatively contactus on +1 312 416 2834 or 44 (0) 161 238 4040 for more information.