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economics and drug development

PostPosted: Fri Feb 05, 2010 11:43 am
by dignan
A very interesting post at the "In the Pipeline" blog about the economics of drug development -- particularly the difference between developing a drug at a large pharma company and licensing a compound from another (presumably smaller) company. It includes this quote from Morgan Stanley:

Reinvestment of internal research savings into in-licensing will yield three times the likely return, we calculate. Under in-licensing deals, downside risk for pharma companies is currently materially lower than for internally developed drugs. Although upside is also capped by pay-aways and milestone obligations, the net present value of these payments is more than offset by the lower risk-adjusted invested capital. Over one-third of pharma R&D spend is in pre-phase II, where the probability of reaching the market is <10%. our proprietary analysis indicates that, unless the probability of an in-house molecule reaching the market is 30% or more, the risk-adjusted economic value added, or eva, is three times higher under the external research model, with a greater predictability. ... is_fix.php