It's autumn, the first bell rings, and it's back-to-school time for students. Some may say that biopharmaceutical companies are returning to school as well. In the case of biotechs, they're going back not to further their educational degrees, but to look for new drugs, such as Genentech's Rituxan (rituximab) for non-Hodgkins lymphoma, originally discovered at Stanford University; Novartis' Gleevec (imatinib), indicated for chronic myeloid leukemia and discovered at Oregon Health and Science University; and Roche's antiretroviral HIV drug Fuzeon (enfuvirtide), discovered at Duke University.
Indeed, those institutions are much-needed resources in the current environment. The pharmaceutical industry is on a circuitous path that includes both high euphoria and deep disillusionment, as it spends an average of $800 million per drug candidate, with only four out of 10 approved products reaching profitability. In addition, Big Pharma faces pipeline pressures—a shortage of blockbusters, and product failures in late-stage development—and intense therapeutic competition in the marketplace, coming from both branded and generic products. In order to survive and remain profitable during this period in time, companies will seek to diversify their product pipelines through inter-company licensing.
The Market is Watching
Most pharmaceutical and biotech companies know that Wall Street is watching pipelines closely.
The overall pipeline value of Pfizer, for example, is estimated to equal 52 percent, or $98 billion, of its total current market value of $188 billion. On the other hand, 94 percent of Genzyme's total value—$17.9 billion—is attributable to its pipeline value, not earnings on current products.
Further, the percentage of shareholder value attributed to pipeline value is highly correlated with price-earning ratios of companies. In other words, the stock market appears to be quite efficient at discerning differences among the pipeline values of biopharmaceutical companies. (See "Pipeline Value")
Thus, the adage that new product pipelines are the lifeblood of the biopharmaceutical industry is well-founded in historical operating experience and value creation in capital markets.
With all this shareholder value at stake, one of large biopharmaceutical companies' biggest challenges is keeping its product pipelines full of candidates. As a result, Big Pharma companies often turn to small biotech firms for alliances. To supply that demand, biotechs are turning to universities and other public-research institutions.
In the last five years, nearly half of new molecular entities, or 42 of 86, came from in-licensing versus in-house research and development, according to analysis by Windhover Information. While the increasing value of in-licensing is often spurned as a failure of internal development, it frequently serves as a source of innovation and energy, because Big Pharmas can allow internal and external programs to compete, then choose which initiatives and projects to move forward after the proof-of-principle studies are complete.