Internal R&D is still critical, but externally sourced products are increasingly representing more in revenue.
A healthy mix of internally sourced drug candidates via homegrown research and development (R&D), combined with externally accessed innovation in the form of licensing agreements or mergers and acquisitions (M&A), is critical to the pharma business model. Historically, products created entirely from internal R&D, or those labeled as “internal,” have represented a significant amount of revenue. Between 2005 and 2014, internally developed drugs across the Big Pharma, Mid Pharma, and Japan Pharma peer sets accounted for an average of 54% of revenue, and internal sales grew at a compound annual growth rate (CAGR) of 3%, rising from $221bn in 2005 to $293bn in 2014. However, that is changing as the three peer sets rely more on externalization, concentrating especially on gaining new drugs via deal-making. During 2005–14, sales of external R&D drugs (including acquired, co-developed, in-licensed, M&A, other external products) grew at a much faster pace (at a CAGR of 7%), increasing from $154bn in 2005 to $291bn in 2014, nearly matching the internal R&D total that year. Moreover, Datamonitor Healthcare forecasts that sales from internal R&D as a percentage of revenue will decrease to a 51% average over the 2015–24 period, down from 54% during 2005–14. Sales of both internal and external products will each grow at a CAGR of 1% over the forecast period.
Source: Datamonitor Healthcare
Datamonitor Healthcare’s Pharma Externalization Strategies 2016 provides analysis of broad trends in prescription revenue by the source of the drugs in the portfolios or pipelines of the three pharma peer sets: Big Pharma, Mid Pharma, and Japan Pharma.
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