Biomedical Engineering Reference
In-Depth Information
For them, in-licensing is a shortcut to quickly fi ll their product pipelines and
extend their research portfolios. As continuous innovation is imperative in the phar-
maceutical industry, replenishing drug pipelines on a regular basis is crucial for
maintaining a strong competitive standing. Large pharmaceutical fi rms are under
constant pressure to maintain full and promising project portfolios, which makes
them appealing to shareholders and can affect these fi rms' access to capital. As
shown by Grewal et al. (
2008
), shareholders tend to support the large pharmaceuti-
cal fi rms that have broad research portfolios, and are particularly interested in fi rms
with drugs in the later stages of development. In view of such considerations, pub-
licly traded fi rms will look to sustain a reasonable number of ongoing investigative
drug projects and will try to quickly replace those that have been concluded or ter-
minated. Besides, maintaining large research portfolios can lead to economies of
scale and scope, resulting in better resource utilization.
It is hardly a surprise that the largest pharmaceutical companies are the ones
advancing most new chemical entities to market.
19
These fi rms can leverage supe-
rior integrative capabilities, tacit knowledge, and abundant experience to improve
the chances of in-licensed drug candidates to get to market. For large fi rms, in-
licensing is a rather desirable business strategy geared for the realization of syner-
gies, reduction in effort duplication, and ultimately, more effi cient use of fi rms'
resources. These arguments explain why taking products discovered by their smaller
brethren—the biotechs—and bringing them to market seems like a reasonable and
savvy move for many large pharmaceutical companies.
20
It is worth noting that although large fi rms are typically drawn to in-licensing,
they may occasionally opt to out-license some of their own compounds. Even a
large fi rm may have insuffi cient capacity to handle too many projects. If a large
fi rm has a number of candidate drugs all approaching clinical trials, it may prefer
to retain those with the greatest market potential, and license out the rest. The
projects that get licensed out could be the riskiest ones or those with the lowest
expected sales, although the fi rm will still keep a stake in their future perfor-
mance. However, Danzon et al. (
2005
) fi nd no evidence of such a “lemons”
problem.
Of course, partnerships may occur between large pharmaceutical fi rms too.
A compelling reason for such partnerships is the intention to diversify the risk and
share the huge marketing costs for an impending market launch. In such cases, stra-
tegic alliances are created for the express purpose of marketing a specifi c drug jointly.
19
In fact, by the late 1990s, the large pharmaceutical fi rms were marketing seven out of the ten
top-selling biotech drugs, although
none of the drugs had been developed by them
. Those seven
drugs accounted for two-thirds of the revenues from the top ten drugs at the time (Rothaermel
2001b
). In 2000, more than half of the drugs in the pipelines of Schering-Plough, Bristol-Myers
Squibb, and Johnson and Johnson were products of in-licensing agreements (Simonet
2002
).
20
The fi rst fi rm to apply biotechnology in drug discovery was Genentech. Using recombinant DNA
technology, it created synthetic human insulin, heralded as the fi rst-ever approved genetically engi-
neered therapeutic product. But Genentech didn't take that revolutionary product to market.
Instead, it licensed Eli Lilly to navigate the FDA approval process.
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