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Making Licensing Pay

Executive Summary

Does in-licensing improve attrition rates? It hasn't reversed the R&D productivity decline-in part because while in-licensed candidates are less risky than internally invented ones, they generate lower average revenues. But companies can do better: we show statistically that they need to place more emphasis on licensing products early. Moreover, to be successful at early-stage licensing, drug firms need focus, not on specific therapeutic areas, but on specific biological mechanisms.

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Pharma R&D: Doing the Same Thing That Didn't Work Before

New data from Credit Suisse and Booz & Co. show that drug research is less novel and even more insular than it was in 2000, with lower percentages of novel targets and biologics in its pipeline. Moreover, Big Pharma has generally licensed less than it should. Nor has Big Pharma been particularly aggressive in copying Big Biotech's focus on developing a robust understanding of underlying disease biology-and reaping Big Biotech's higher approval rates. The cure: companies can significantly improve their odds of success through new approaches outside R&D (with payors, for example) and new capabilities in target selection and validation.

Why Products Fail in Phase III

Half of the small-molecule drugs that fail pivotal trials can't prove better efficacy than placebos. The most important predictor of failure: a drug with a novel mechanism of action. But for the most part, companies are pursuing a one-size-fits-all development strategy, using the same methods for developing drugs that modulate novel and precedented targets. Companies need to better differentiate their development strategies based on risk.

Know Thy R&D Enemy: The Key to Fighting Attrition

By and large, drug companies have sharply reduced their emphasis on novel targets and, they assume, pipeline risk. But detailed analysis shows that more important risk-reducers are the molecular approach (biologics targeting novel mechanisms fail less frequently than small molecules targeting precedented mechanisms) therapeutic approach (targeted is less risky than broad), therapeutic area, and stage of development.

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