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Making Licensing Pay

Executive Summary

Does in-licensing improve attrition rates? It hasn't reversed the R&D productivity decline-in part because while in-licensed candidates are less risky than internally invented ones, they generate lower average revenues. But companies can do better: we show statistically that they need to place more emphasis on licensing products early. Moreover, to be successful at early-stage licensing, drug firms need focus, not on specific therapeutic areas, but on specific biological mechanisms.

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New data from Credit Suisse and Booz & Co. show that drug research is less novel and even more insular than it was in 2000, with lower percentages of novel targets and biologics in its pipeline. Moreover, Big Pharma has generally licensed less than it should. Nor has Big Pharma been particularly aggressive in copying Big Biotech's focus on developing a robust understanding of underlying disease biology-and reaping Big Biotech's higher approval rates. The cure: companies can significantly improve their odds of success through new approaches outside R&D (with payors, for example) and new capabilities in target selection and validation.

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