External sourcing fuelling mid pharma development

By Kirsty Barnes

- Last updated on GMT

Related tags Novo nordisk

By 2010 nearly half of all mid pharma firm revenues will be derived
from products that have been discovered outside of in-house
development pipelines, says a new report from independent market
analyst Datamonitor.

This estimate is even based upon the absence of any further external sourcing activities between now and then, and as the trend towards external sourcing is expected to continue to grow, the real figure is likely to be higher.

"With two-thirds of absolute revenue growth for mid pharma between now and 2010 coming from externally sourced products, externalisation strategies will remain vital to the continued success of the mid pharma peer group,"​ said Datamonitor analyst Brett Scottorn.

"Even further externalisation could boost these growth rates higher."

Externalisation of traditional in-house aspects of drug discovery can reduce R&D costs and infrastructure and allow pharma firms to boost revenues, at a time when internal R&D is failing to bring sufficient products to market.

It also allows mid pharma companies new access to a broader range of R&D opportunities that it may not have had otherwise.

These agreements either involve the licensing of intellectual property rights to develop and market a product; distribution deals that are a contractual agreement to distribute another party's products; or a product acquisition, where a company secures full rights to a product - typically for a one-off payment.

As a group, mid pharma recorded total ethical sales of $66bn (€51.6bn) in 2005, which is forecast to grow almost five per cent over the period until 2010 and during this time period, mid pharma growth is expected to outstrip big pharma growth, slowing again by the end of the decade, said the report.

In the report, titled "Mid Pharma Sector: In-licensing and other externalization strategies,"​ mid pharma firms were defined as those companies with less than $10bn in ethical revenues.

The big players in this group are Boehringer Ingelheim, Schering Plough, Novo Nordisk, Bayer, Schering AG and Merck KgaA - all with global revenues of over $4bn.

Generally these firms currently have a fairly balanced approach between sourcing products and services externally and relying on internal capabilities and thus there is a large scope within this group for externalisation strategies to grow.

Smaller mid pharma firms include those focused on the central nervous system (CNS) market, those focussed on the cardiovascular (CV) market, and domestic players and these companies are generally already highly dependent on externalisation.

As a whole externalisation strategies are expected to remain an integral part of the mid pharma business model, said the report.

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