Big Pharma harvests far more from transplants than homegrown meds

seedling

These days, top drugmakers don’t start their own seeds. They transplant seedlings instead.

That’s the general assumption, anyway, and it’s true that in-house development projects account for a shrinking share of Big Pharma’s sales. But according to a recent EP Vantage report, some Big Pharmas are far more productive in their own greenhouses than others.

In fact, the range of homegrown sales runs all the way from 5% at the low end--AbbVie--to 60% at Novartis.

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Drugmakers increasingly look outside their own walls for new products. Whether they’re licensing in meds from other drugmakers, setting up multibillion-dollar buyouts or partnering with small biotechs with big ideas, top-selling pharmas are taking fewer and fewer products from early stages of research all the way through to market.

AbbVie isn’t alone in the single digits, either. According to EP Vantage’s calculations, Allergan counts just 7% of its sales from in-house projects, and Roche’s homegrown sales amount to just 8% of its revenue now. At Roche, the explanation is obvious: The company’s top-selling drugs are Genentech products--the cancer meds Rituxan, Avastin and Herceptin--which Roche acquired in 2009 when it bought the share of the California biotech it didn’t already own. Roche’s share of in-house sales has dropped from 17% in 2010, EP Vantage says.

For AbbVie, the story is similar. Far and away its biggest selling drug is Humira, which, as EP Vantage notes, came to the company via an acquisition of BASF’s pharmaceuticals business back when. And it bought its share of the up-and-coming blockbuster med Imbruvica via its $21 billion Pharmacyclics acquisition last year.

Likewise, Allergan is the sum of one M&A deal after another: Actavis plus Watson Laboratories plus Warner Chilcott plus Forest Labs plus Allergan.

The difference here is that Allergan--or the company named as such in 2010--counted 39% of its sales from homegrown meds, a number that steadily declined soon after, and then plummeted beginning in 2013.

But is that a problem in itself? Allergan CEO Brent Saunders, who’s been in that job since July 2014, has no problem with a dearth of in-house-derived sales. He’s said he prefers to leave the risky early work to others anyway.

It could become a problem if buying in pipeline assets and marketed products costs more than nurturing drugs from the start. AbbVie took a lot of flak for its Pharmacyclics purchase, which analysts saw as radically overpriced at the time, given the sales estimates CEO Richard Gonzalez set out to justify the cost. Gonzalez may yet prove them wrong--Imbruvica has racked up plenty of data to expand its use to new patient populations since, and a potential companion med in AbbVie’s pipeline has made advances, too--but that buyout illustrates the risks that come with depending on outside sources for growth.

The companies with more productive in-house pipelines haven’t been immune to shrinkage, either. Novartis collected 79% of its sales from in-house meds in 2010, compared with 60% last year. AstraZeneca’s 69% in 2010 dropped to 59% in 2015. GlaxoSmithKline’s fell from 69% to 55%.

But all three of those companies suffered patent-cliff sales hits over that time period, and all reported 2015 sales lower than 2010’s. Meanwhile, on the strength of Humira, AbbVie grew sales steadily from its 2012 birth as an Abbott Laboratories spinoff, and Roche’s cancer triumvirate fueled better sales performance over the period, too. Both companies have some pain coming when biosimilar versions of their top meds come calling, but that’s another story.

Drugmakers like to have homegrown products to point to when talking about their R&D successes. A Pfizer research executive recently reminded us, for instance, that the fast-launching breast cancer drug Ibrance was a Pfizer project from beginning to end, belying the company’s rep as a dearth of in-house success.

But maybe the source of pharma’s sales pickings isn’t crucial, so long as the choices are well made. For the top line, a blockbuster product brought in from a smaller company and taken through late-stage trials trumps an in-house flop.

- see EP Vantage’s analysis

Special Report: The top 15 pharma companies by 2014 revenue

Related Articles:
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BMS, Lilly, Sanofi and Novartis top Big Pharma's growth fortunes for next decade: Analysts
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