Though there are far more preclinical than late-stage compounds available, drug firms don't license these still-early projects frequently because they prefer to reduce their risk with later-stage compounds. But by increasing the number of preclinical deals, in effect creating a venture portfolio of a few winners among many losers, drug firms would do better economically--even if they increase preclinical deal prices by 50%. That may be necessary: biotechs have held back on preclinical deals because of poor deal terms; sweetened offers, particularly in the current financing desert, would induce them to change their wait-for-late-stage-deal mentalities. Meanwhile, to alter their dealmaking habits, Big Pharma companies will need to make significant changes--among them, redrawing their financial models, elevating the role of and increasing corporate resources for licensing, and restructuring licensing's relationship to internal R&D.
By James Kalamas, Gary Pinkus and Kevin Sachs
Big pharmaceutical houses have long relied on drugs developed by others to fill the deep gaps in their product pipelines. Inlicensed drugs accounted for 30% of Big Pharma's 2001 revenues,...
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