WASHINGTON, Aug. 25 (UPI) -- Mid pharma companies, such as Schering, Bayer and Merck KGaA, are expected to increase their reliance on products discovered outside of the in-house pipeline over the next few years in an effort to boost revenues while reducing R&D costs, according to an analyst report released Friday.
Mid pharma has historically relied less on externalization than big pharma, but the report, from Datamonitor, forecasts that by 2010 externalization rates will be about equal between the two.
"It appears that sourcing products externally is becoming more prevalent, especially in mid pharma," Brett Scottorn, Datamonitor's pharmaceutical markets analyst, told United Press International.
"This may be due to the general reduction in R&D productivity seen in the pharmaceutical industry," Scottorn said. "This increase may also lead to decreased value from licensing deals as more companies looking to in-license will drive up product demand and thus in-licensing costs."
Approximately 67 percent of mid pharmas' growth to 2010 will come from externally sourced products, he said. This figure could even be driven higher by further in-licensing in the future.
Datamonitor defines mid pharma as companies that had less than $10 billion in ethical revenues in 2005. This includes the "big 6:" Boehringer Ingelheim, Schering Plough, Novo Nordisk, Bayer, Schering AG and Merck KGaA, all of which have annual revenues exceeding $4 billion (This line-up will change, however, because Schering and Bayer's pending merger will result in a big pharma-sized company).
On the other end of the mid-pharma spectrum are companies with approximately $1 billion in annual revenues, such as Recordati, Ipsen, Almirall and Pierre Fabre.
The therapy areas with the highest levels of externalization include oncology, urology and infectious disease, while the lowest levels are seen in diabetes and endocrinology, women's health and gastrointestinal.
The big 6 employ a fairly balanced approach between externalization and internal R&D, but other mid pharma companies, such as Forest, King, Menarini, Shire and Almirall, rely heavily on externalization.
Some companies in this class don't use externalization much, preferring instead to focus on their in-house R&D efforts. This includes Lundbeck, Akzo Nobel, Altana and Servier.
The main externalization strategy mid pharma companies will employ is in-licensing, which involves licensing the intellectual property rights to develop and market a product from another company in exchange for an up-front payment and/or milestones and royalties.
Other strategies include co-distribution arrangements or acquiring entire corporations.
Smaller companies may opt to deal with mid pharma companies rather than big pharma because it affords them more bargaining power, the Datamonitor report suggests. The product in question will likely be more valuable to a mid pharma company because it will constitute a larger percentage of their revenue, so a smaller company may be able to use that to its advantage and secure a more lucrative deal.
Big pharma companies are also looking to externalize to expand their pipelines, but they are turning to the biotech industry.
Morrie Ruffin, formerly with the Biotechnology Industry Organization but now with Lifetech Innovations, said big pharma is increasingly turning to biotech to bolster its pipeline and recent trends indicate the pharmaceutical firms are interested in getting in during the early-stages of development, such as the pre-clinical or phase 1 level.
"There have been a number of large transactions, even more so in the first two quarters of this year, which indicate a growing interest in early-stage transactions," Ruffin told UPI.
"The number of early-stage deals, even in the last year, has increased at a very significant rate," he added.
This is significant because big pharma had previously been reluctant to get involved at the early stages of development, but now they're increasingly doing so and also paying more for the technology.
One reason is that a lot of the opportunities are gone for late-stage biotech products, Ruffin said. In addition, big pharma has come to realize that the late-stage products are not without risks and there may not necessarily be an added risk to getting in earlier.
The Pharmaceutical and Research Manufacturers of America did not respond to UPI's request for comment.
Kim Coghill, spokeswoman for BIO, told UPI their expert on this topic was unavailable to comment.
