Of course, deals will continue to occur, but a shakeout is coming to the pharma and biotech industry. Surviving in an environment like this starts with understanding the current situation, which presents industry leaders with a challenge because strong forces are pulling in opposite directions. The three sets of conflicting pressures are:
1. The exclusivity cliff vs. the Phase II "baby boom"2. Financial distress of emerging companies vs. reduced appetite for risk of larger companies
3. Competition for products in select fields vs. an oversupply of development programs in de-prioritized areas
This article explores these conflicting pressures and discusses the five actions that smart out-licensing companies should take to thrive in this bifurcated market. On one side are factors that suggest licensing activity could "catch fire" in 2009; on the other, factors indicating that licensing activity could collapse. In the end, neither extreme is likely to be the case. Rather, we are likely to see a flurry of activity in selected areas and strong declines in others. Most importantly, success is only likely to come to the out-licensors who recognize the new perspective of in-licensors and adjust their licensing approach accordingly.
Massive Patent Expirations Vie with Surplus of Pipeline Products
Deal Upside: The Exclusivity Cliff
Certainly, the industry has spent years planning ahead for the patent cliff. Logically, these major patent expirations should fuel pharmaceutical and biotech companies' interest in licensing. That need for near-term revenue was reflected in 2008 licensing trends; deals with large up-front payments (above $10 million) for Phase III deals increased in the second half of 2008, as deals for Phase II products declined sharply. With all this activity, there aren't many more late-stage products with high sales potential still available for licensing—but it's certain there will be a bidding war for the attractive ones that remain. (See "Deal Trends Reflect the Needs in the Pipeline".)