The Shakeout

What pharma wants, biotech has. So how can it be that large pharmaceutical and biotech companies face an unprecedented need for products at the same time that emerging companies with promising drugs face—in large part—bankruptcy?

Of course, deals will continue to occur, but a shakeout is coming to the pharma and biotech industry. Surviving in an environment like this starts with understanding the current situation, which presents industry leaders with a challenge because strong forces are pulling in opposite directions. The three sets of conflicting pressures are:

1. The exclusivity cliff vs. the Phase II "baby boom"

2. Financial distress of emerging companies vs. reduced appetite for risk of larger companies

3. Competition for products in select fields vs. an oversupply of development programs in de-prioritized areas

This article explores these conflicting pressures and discusses the five actions that smart out-licensing companies should take to thrive in this bifurcated market. On one side are factors that suggest licensing activity could "catch fire" in 2009; on the other, factors indicating that licensing activity could collapse. In the end, neither extreme is likely to be the case. Rather, we are likely to see a flurry of activity in selected areas and strong declines in others. Most importantly, success is only likely to come to the out-licensors who recognize the new perspective of in-licensors and adjust their licensing approach accordingly.