As competition in the pharmaceutical market continues to grow, effective business development strategies become critical to maintain momentum and improve global market share for the leading pharma companies. As the illustrative chart in Figure 1 shows, an increasing proportion of revenues are expected to be generated from licensed products and as a result licensing will become an ever more important component of the overall business development mix.

Wood Mackenzie’s Licensing Insight Multi-Client study (produced in April 2003) analyses cross company licensing trends and corporate licensing strategies to provide a clear understanding of the following issues:

Licensing Activity

Licensing activity for the Top 20 pharma companies steadily increased in the decade between 1988 and 1998, but has since started to flatten off (Figure 2). Indeed, recent evidence would suggest that we have started to witness a declining trend in licensing activity, in particular late-stage deal making. To a large extent this reflects the increasing cost of securing access to late-stage development candidates, with companies now shifting their focus to securing rights to products in earlier-stage clinical development where such a premium price does not have to be paid.

As would be expected, there is a considerable difference between the extent of licensing activity across big pharma companies and the focus on early (pre-clinical to proof-of-concept) and late stage licensing activity. Figure 3 highlights where the Top 20 companies fit in terms of overall number of deals over the last 15 years and the ratio of late to early stage deal-making.

As can be seen, GlaxoSmithKline stands out from the pack in terms of overall deal-making since 1988 (this figure includes licensing activity by all pre-merger constituent parts). Indeed, GSK significantly stepped up its licensing activity since the merger with the primary aim of securing the industry’s broadest R&D pipeline (from licensed and in-house activities), and, as a result, is currently managing more than twice the number of licensed products through development than any other pharma company.

Companies with the greatest focus historically on late-stage deal making include Schering-Plough and Abbott. However, neither company has many live licensing projects – Abbott’s business development focus has shifted to integrating BASF Pharma’s MAb technology, while Schering-Plough’s licensing activity has dried up due to its internal growth problems and lack of clarity on future strategy.

Several companies have only had a marginal historical interest in licensing activity over the past 15 years, notably Merck and Amgen who have entered into few deals most of which have been for compounds in pre-clinical development. Both companies, however, have significantly stepped up licensing activity in recent years recognising the importance of bolstering their in-house R&D activities. Indeed, Merck has publicly stated its intention to source promising compounds in early clinical development in order to shape the subsequent late-stage trials and commercialisation – witness the alliance with Kyorin for the novel anti-diabetic KRP-297.

Clearly, licensing strategies for big pharma companies are constantly evolving based on specific individual circumstances. Figure 4 highlights the change in focus on licensing activities by the leading pharma companies in the three year period immediately before the end of the millennium (1998 to 2000) and the period since (2001 to April 2003).

What is perhaps most notable from Figure 4 is the fact that the European majors Roche, Novartis and Aventis have embraced licensing activity as a core component of their business development strategies since 2001. In contrast, none of these companies were ranked in the Top 10 for total number of deals in the three-year period previously. Indeed, just four companies – GSK, Roche, Novartis and Aventis – secured over 50% of the licensing deals struck since 2001 by the Top 20 pharma companies.

Licensing Success

In addition to identifying those companies currently most active in the licensing area, Wood Mackenzie’s Licensing Insight study also benchmarks the success of licensing activity (see Figure 5). This includes development success rates for licensed products (proof of concept or late stage) and annual revenues from licensed products.

* Source Wood Mackenzie’s PharmaQuant® Plus

In terms of overall commercial success of licensed products, Pfizer is by far the leader with total revenues of $15.1bn in 2002 from licensed products. That total includes sales of the primary care blockbusters, Lipitor and Celebrex, licensed by Pfizer several years before the acquisition of the licensors Warner-Lambert and Pharmacia, respectively. Pfizer’s commercial success reflects its more selective approach focused on late-stage deals and marketing opportunities. Despite the integration of Pharmacia, Pfizer clearly remains active in securing promising late-stage R&D candidates – witness the recent agreement with Neurocrine Biosciences for global co-development and marketing rights to the potential insomnia treatment indiplon.

Conclusion

Licensing activity remains a key component of the business development mix at the vast majority of big pharma companies. By analysing licensing strategies for the Top 20 pharma companies (see below), Wood Mackenzie’s Licensing Insight study identifies the companies most likely to be interested in securing licensing rights for specific compounds, at various stages of development, across all major therapeutic areas.

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