It is by now pretty much accepted that biotech is pharma’s lifeblood, and the latest figures suggest that reliance on deal-making has reached a new high, with nine of the biggest 12 pharma groups showing a declining share of in-house projects in last year’s sales.
In fact, of this group of 12, only Bristol-Myers Squibb is bucking the trend, with in-house R&D making up 35% of its 2016 revenue, up from 17% in 2011, the EvaluatePharma data show. The numbers confirm the usual suspects – Allergan and Abbvie, for instance – as the leading deal-makers, but also throw up a few surprises (see tables below).
One surprise is Glaxosmithkline, which has long championed in-house R&D. Its in-house product share has fallen 11 points over the past five years, likely explained by the declining sales of its mega-blockbuster Advair; it will likely take a few more years before Glaxo’s own R&D picks up the slack.
Advair is big pharma’s third-biggest organically derived product, behind Roche’s Avastin and Herceptin. Of course, both Avastin and Herceptin are Genentech products, but since Roche has owned a majority of Genentech since 1990 this is being considered as an in-house strategy for the purposes of this analysis.
Although Roche has always kept Genentech at arm’s length – this is still true today even with 100% ownership – it is undeniable that all Genentech-derived drugs are examples of a long-term big pharma reliance on an external R&D strategy of sorts.
The declining share of in-house sales at Merck & Co might come as another surprise. Januvia is the company’s biggest in-house derived drug, but its importance has been eroded by Zetia and Keytruda – a drug that has helped reshaped the oncology landscape – both of which came via the Schering-Plough takeover.
|Share of big pharma sales derived from in-house projects|
|Merck & Co||40%||41%||37%||38%||38%||38%|
|Johnson & Johnson||20%||19%||18%||16%||15%||13%|
|*Products originated by Genentech are counted as organic.|
Neither was Keytruda’s rival Opdivo derived by Bristol-Myers Squibb – it came via a deal with Ono Pharmaceuticals – but despite this in-house drugs like Sprycel, Daclinza and Baraclude have helped the group buck the overall big pharma trend.
Among other companies, falling sales of Symbicort and Nexium, combined with intense deal-making, have led to Astrazeneca’s share of in-house products declining from 2011 by seven points to 57%.
Meanwhile, groups at the extreme end of the external reliance trend include Allergan, which has grown largely through acquisitions, Johnson & Johnson, which gained Remicade and Stelara through its takeover of Centocor, and Abbvie, whose two biggest drugs, Humira and Imbruvica, are derived from BASF’s pharma business Knoll and Pharmacyclics respectively.
M&A fuels the trend
Looking beyond individual company numbers another interesting trend emerges: not only has the share of in-house products experienced a five-year decline, but so has that of products derived from licensing deals.
Instead, it is company acquisitions that have fuelled big pharma’s move to rely increasingly on outside sources of R&D, with combined sales of drugs derived from M&A surging from $123bn five years ago to $158bn in 2016.
This could give some solace to M&A bankers hankering after the days of rampant biotech acquisitions; if only valuations would come off a little more, perhaps they would be in business again.