Big pharma pays more upfront than SMEs

Academics from Trinity College Dublin have shed light on the market dynamics and potential in licensing deals with big pharmaceutical companies. Their findings, published in the journal Nature Biotechnology, are of particular relevance to those working in and funding drug development worldwide.

By analysing over 800 licensing deals, totalling over US$16 trillion, the authors sought to discover whether small and medium-sized enterprises (SMEs) receive more lucrative deals licensing their drugs to large pharmaceutical companies than to their smaller SME counterparts. Contrary to assumptions, smaller companies were able to attract higher upfront payments selling to big pharma than to other SME market players.

Compared with SMEs, big pharma paid on average at least 35% more in upfront payments at all phases of research and development, including for filed therapies, drugs in phase I-III clinical trials, and preclinical and early research compounds. Furthermore, the total number of upfront payments made by big pharma (more than $100 million) is two and a half times greater than those made by SMEs. The researchers also found that pharmaceutical companies are much more active than SMEs in licensing assets in early research or preclinical development, an important point for those researchers and spinout companies who are considering out-licensing deals.

Professor Kumlesh Dev, leader of the research group, said, “These findings suggest that engagement of SMEs, research institutions and universities with internationally renowned large pharma can be profitable at all stages of drug development and commercialisation. Our research shows that attracting lucrative out-licensing deals with large pharma is worthwhile, and indeed possible, at early stages of research as well as in the preclinical and clinical development phases.

“We were also interested to see that early research activities can be equally commercially rewarding as late development products. We think that while there is a drive to push research toward later phases of drug discovery, it appears that large pharma are in need of new and early research projects and are thus willing to pay well for such early research products.

“Over half of revenues in big pharma come from in-licensed drugs. As such, knowing the buying behaviours of these corporations is of fundamental importance to understanding the market dynamics of this sector.”