STRATEGIC ALLIANCES: Synergistic Path to Value Creation
Author: Barry Davidson
As the first decade of the 21st century comes to an end, the pharmaceutical industry is facing a major revenue downturn. The contributing factors are the expiration of patents on a number of blockbuster drugs and the stagnant productivity of R&D. As a consequence generics are expected to seriously erode revenues and the introduction of new proprietary drugs is not adequate. The once insular pharmaceutical industry has been forced to look outside beyond its walls for drug pipeline candidates. The result has been an almost expediential growth of the past decade in the number and value of strategic alliances. This report analyses in detail the key driving forces behind the growth of strategies alliances and the changing characteristics of such deals to include:
- The pattern of escalating deal valuations
- Typical components of a strategic alliance
- Timely commentary for alliance executives
- Trends for future strategic alliance deals
- Recommendation for the future
Strategic Alliances: Synergistic Path to Value Creation reviews the structure of the past decade of strategic alliance deals in order to focus on the components, valuations and growth of such deals. Much of the growth in strategic alliances has been driven by the pharmaceutical industry’s need to add candidate products to its drug development pipelines. The industries internal R&D programs, despite escalating budget increases, have not been able to replace the blockbuster drugs coming off patent.
Wall Street analysts forecast Big Pharma to lose $140 billion in annual sales by 2016 as patents for premier products, including several major blockbuster drugs, are scheduled to expire. Today generic products are poised for rapid deployment. Substitute formulations are ready to begin cannibalizing brand name drug sales revenues once patent protection has elapsed.
Current deal dynamics are a strong reflection of greater forces at work at the negotiation table. Licensors, notably big pharma, recognize the need, significance and potential future value of the most promising technologies and molecules in development. Accordingly, companies continue to pay their partners substantial sums. Deal size and structure is just part of the whole mosaic of driving forces, strategies and considerations involved in the formation of a licensing agreement.
Strategic Alliances: Synergistic Path to Value Creation assesses pharmaceutical licensing activity of global therapeutics employing a bottom-up approach. All compiled data sets were carefully vetted and cross-checked. The outputs collected from six fiscal quarters were evaluated in the context of comparable historical information of equal caliber. A clear trend emerged from the data: total deal values and its constituents in aggregate were on the rise. Beyond the metrics and due diligent, what emerges is nothing short of a sea change in the pharmaceutical industry.
ABOUT THE AUTHORBarry Davidson has served as Director and General Manager responsible for business development and strategic marketing for two successful US biotech companies serving Big Pharma with primary international operations based in India. As a consultant, he has contributed to numerous biopharmaceutical programs in various therapeutic and technology areas. He began his business career as a Lead Analyst and Consultant in the Biopharmaceutical Group at Frost & Sullivan. He has published 28 biopharmaceutical articles and has authored over 20 public and private strategic business reports for senior pharmaceutical executives. He earned a Bachelors degree in Biophysics and a Master’s degree - Biophysics research from the University of Illinois, Urbana and studied as a pre-doctoral Board of Regents Fellow at Tulane Medical School.