Somewhere in the deep recesses of our collective memory, the Concentration Ratio resides. It’s a quick measure of how competitive an industry is. You can read all about it here.
Concentration came to mind when speaking to a colleague about licensing. I made the statement that the industry (specifically, the major multinationals) are becoming increasingly focused on several therapeutic areas (like oncology) at the expense of others (like metabolic diseases, for example).
But is this actually true? And how do we measure this?
Partnership Data
In an attempt to characterize industry in-licensing concentration, we pulled data from MedTrack. Specifically, we looked at Partnerships by Therapeutic area from 2013-2018. We made no attempt to check the data for accuracy, double counting, etc. Note these data exclude M&A, IPOs, etc.
What Did We Learn?
The first figure is an aggregation of all partnerships during this time period, by therapeutic area. It is not surprising that Oncology routinely accounts for 30-40% of all partnerships every year. And we are also not surprised that the trend is towards an increasing number of partnerships over time.
However, what did surprise us was how concentrated the partnerships have been in Oncology and CNS. Those two categories alone accounted for 50%+ of partnerships in 2015 and 2016 before dropping off slightly (see figure below).
The next three most popular therapeutic areas (from a partnerships perspective) were Endocrine, Metabolics and Genetic Disorders, Immunology and Inflammation, and Infectious Disease. We will discuss these categories in a moment. But looking at the data, these three categories accounted for >30% of partnerships in 2014 before dropping off, partly to the benefit of Oncology and CNS.
Since 2016, things appear to be leveling off. Yet, these categories combined account for nearly 70% of all pharma transactions.
Now there are several flaws in this analysis, not the least of which is our dependence on the proper categorization of these individual partnerships by the data supplier. No database is perfect, but hopefully the sample size is large enough to support the notion that these general trends are correct.
We also recognize that these are very broad categories. Even CNS can mean many things, like migraine or Parkinson’s. A bit more granularity would be good.
Are Partnerships Increasingly Concentrated?
While partnerships in oncology dominate the partnerships market, they are tapering off slightly. Meanwhile, other areas are experiencing some growth.
Growth in therapeutic area diversification is undoubtably a good trend. As we have discussed previously, there are plenty of unmet medical needs outside oncology and CNS which need our collective attention. So the uptick in Endocrine and other areas is certainly positive.
However, companies tend to behave rationally. And so if they choose not to in-license compounds in a specific area, such as Infectious Disease (8%) or Dermatology (<3%), then there must be good reasons (expensive development, poor reimbursement, expensive sales and marketing, etc.).
Thus, new business models are sorely needed if many of these unmet medical needs are ever to be satisfied with innovative new therapies.