The numbers are in.  And the days of the same firm developing a drug from pre-clinical research all the way through marketing approval are over.  More and more, we are seeing that the company which eventually brings a drug to market is NOT the same one where it initially began its R&D life.  Faced with shareholder pressure to continually drive revenue growth, companies are looking to keep their pipelines robust by any means necessary.  And while this phenomenon of externalizing R&D – through licensing, development partnerships, acquisition, open source innovation models and more – is far from revolutionary, several market forces are increasingly making this the new normal. These forces include:

– heightened regulatory pressure to show greater than marginal efficacy improvements,
– greater reluctance from insurers to pay for incremental improvements over existing therapies,
– political pressure from patient lobbying groups to reduce drug prices while continuing to innovate, and
– decreased R&D success rates as drug manufacturers pursue more complex biological targets.   

Since at least 2010, we have known that over half of later stage (phase II and III) pipeline compounds are externally-sourced; four years later, that trend seems here to stay.  New research from Goldman Sachs declares that externally-sourced compounds are the name of the game not only in sheer percentages and numbers, but also in economic value.  Commenting on a list (exhibit 1) of 30 late-stage “drugs that could transform the industry” with “game changing commercial potential” according to Goldman Sachs, Forbes contributor and industry insider, Bruce Booth, notes that over 75% of the compounds originated at companies different from the one that owns them today.[1]

And while Booth notes that Goldman’s list does not include several exciting pipeline drugs that were developed in-house, such as Novartis’ secukizumab/IL17A and Roche’s lebrikizumab, he is confident that this imbalance would remain if all late stage drugs were studied.

In terms of economic value, a recent Burrill Media report found that almost two thirds of the valuations of big pharma’s late stage pipelines are externally sourced, as seen in exhibit 2 below.

Similarly, another Goldman Sachs report[2] found that the financial returns of externally-sourced drugs exceeded those of drugs developed in-house by a factor of 4!

So, with these types of industry trends and results, pharma companies should simply increase their external deal volume and then wait for their ships to come in, right?  Not so fast.  A quick look at external deal volume and financial return in 2013 for Novartis and Pfizer tells a different story (exhibit 3).

Clearly all external R&D deals are not created equal, and there is much going on behind the scenes to determine the winners from the losers.  Here at Capgemini, we do a lot of work around R&D collaboration management, trying to make more winners rather than losers of these external R&D partnerships.  The first step is usually engaging clients with our patented Accelerated Solutions Environment (ASE)™: a tested approach to address complex, multi-stakeholder strategic issues. The ASE has proven ideal for discussing and solving collaboration management issues across biopharmaceutical companies of all shapes and sizes.  To date, over 50 pharma companies and over 4,000 pharma execs have participated in one of Capgemini’s ASEs.

Click here to learn more about Capgemini’s work in R&D collaboration, and stay tuned for more on the different types of innovative partnership models popping up in pharma to accelerate drug development.

Special thanks to Kristin Talsky and John D’Antonio for their contributions in delivering this blog post.

Capgemini Consulting Life Sciences Blog Editors:  Joe Medel and Jeremy Golan

[1] Booth, Bruce.  “Transformational Late Stage Drugs Delivered Through Deal Making,” Forbes. March 21, 2014. Accessed on 5/12/2014.
[2] Goldman Sachs Pharmaceutical Industry Report 2011.