Specialty Pharma: Eating Big Pharma's Lunch, Not Just its Leftovers?

While not yet rivals to Big Pharma when it comes to clinical-stage licensing, spec pharmas have in some individual cases proven to be more favored partners than their Big Pharma competitors.

Since last covered in this space (see "In-Licensing in Specialty Pharma, Revisited," IN VIVO, Nov. 2004 (Also see "In-Licensing in Specialty Pharma, Revisited" - In Vivo, 1 Nov, 2004.)), the popularity of the in-licensing focused specialty pharma business model has continued to grow—particularly among venture capital investors, who have grown weary of the vagaries of drug discovery. With eyes on the sales- and acquisition-fueled growth of such specialty pharma successes as cancer specialist MGI Pharma Inc. —whose sales grew 43% in 2005—and Cephalon Inc. —whose 19% growth in 2005 put it over the $1 billion mark for the first time—VCs are largely eschewing platform and discovery-stage companies in favor of those that, while not necessarily staying out of the discovery game altogether (Cephalon and MGI, after all, started as drug discoverers), are focused on market entry, be it via in-licensing, acquisition, or otherwise.

In Exhibit 1, we've broken out in-licensing deal counts and dollar volume by specialty pharma since 2001, splitting the deals by whether the product acquired was already marketed, or in the clinic. (Since our previous coverage, we've revised our definition of specialty pharma to include any in-licensing based, therapeutic market-focused company, not necessarily those devoted to repurposing failed or underperforming products. Due to this, our universe of specialty pharma companies has grown from 29 to just over 100.)

As we noted then, 2004 saw a shift in in-licensing emphasis from late-cycle marketed products to ones in clinical development, with an attendant rise in average in-licensing price. In 2005, specialty pharmas again in-licensed more clinical-stage than market-stage products, and paid more for them.

While not yet rivals to Big Pharma when it comes to clinical-stage licensing—as Exhibit 2 shows, Big Pharma not only signed considerably more clinical deals than specialty pharma over 2004 and 2005, but did so at a higher annual rate of growth—specialty pharmas have in some individual cases proven to be more favored partners than their Big Pharma competitors. Cephalon, for example, was able to convince Alkermes Inc. that its CNS expertise would give the best possible push to naltrexone (Vivitrex), a candidate coveted by some Big Pharma would-be licensees [See Deal] (see "Licensing Vivitrex: A Win for the Mid-sized Pharma and Specialists," IN VIVO, Jul. 2005 (Also see "Licensing Vivitrex: A Win for the Mid-sized Pharma and Specialists" - In Vivo, 1 Jul, 2005.)).