External innovation Biopharma dealmaking to boost R&D productivity

In the fast-evolving biopharmaceutical industry, tapping into external innovation has never been more critical. As the demand for new therapies continues to grow, pharmaceutical companies are increasingly pursuing innovative assets from external sources to expand their pipelines. While this strategy has proven successful in accelerating growth, navigating the complexities of external innovation can be challenging. By understanding key dealmaking behaviors that have propelled top-performing companies, organizations can optimize their dealmaking strategies to enhance R&D productivity and accelerate the path to new, life-saving treatments. 

The Growing Importance of External Innovation 

External innovation, defined as assets sourced before launch, has become a primary driver of pipeline expansion in the pharmaceutical industry. Since 2018, more than 70% of revenues from new molecular entities (NMEs) have come from externally sourced products, with around 45% of those sourced before launch. Companies that successfully integrate external innovation into their core R&D strategies tend to outperform their peers in both pipeline productivity and revenue growth. 

However, sourcing external innovation is not without risk. To improve their chances of success, pharmaceutical companies need to adopt best practices that drive high innovation productivity. Our research highlights four critical dealmaking strategies that have been proven to enhance the performance of externally sourced assets. 

1. Leveraging AI and Machine Learning for Early Identification

AI and machine learning (ML) technologies have transformed the way pharma companies identify and assess potential external assets. By using AI-driven tools, companies can analyze vast amounts of data to spot promising therapeutic areas (TAs), emerging targets, and novel modalities early in the process. This allows companies to secure innovative assets before they become competitive hot spots, increasing their chances of success in an increasingly crowded market. 

Top-performing companies have adopted AI/ML capabilities to streamline the identification of high-potential assets, reducing the time it takes to make informed decisions. This proactive approach enables companies to act quickly and secure valuable assets before they are scooped up by competitors. 

2. Streamlining Decision-Making and Integration Processes

Effective dealmaking requires swift and decisive action, but many pharma companies face slow and cumbersome decision-making processes. This can significantly hinder their ability to secure the best external innovation opportunities. Successful companies streamline their dealmaking processes by simplifying approval workflows and enhancing collaboration across departments, such as R&D, business development, and regulatory teams. 

It is critical to establish clear asset integration plans that allow for smooth transitions from deal closure to execution. This ensures that assets are quickly brought into the pipeline and are integrated effectively with existing R&D efforts. Streamlined decision-making helps minimize delays and accelerates the pace at which external assets can be brought to market. 

3. Building Strategic Partnerships Across the Ecosystem

Collaboration is key to maximizing the value of external innovation. Leading pharma companies understand the importance of fostering strong relationships with biotech firms, academic institutions, and other external innovators. These partnerships provide access to innovative research, novel technologies, and unique therapeutic insights that are often not available internally. 

Companies that excel in external innovation are strategic about their partnerships. They focus on creating mutually beneficial relationships where both parties bring valuable expertise to the table. In addition to securing assets, these collaborations can lead to the co-development of new therapies, sharing of risks, and access to external talent and capabilities that enhance a company’s R&D capabilities. 

4. Specializing in Therapeutic Areas and Pathway Biology

Top-performing companies have a laser focus on specific therapeutic areas or pathway biology. By narrowing their scope and developing deep expertise in a select group of disease areas, these companies can identify and assess external opportunities more effectively. This specialization allows them to act as “partners of choice” for biotech firms, which often prefer to collaborate with companies that have a clear focus and proven track record in their respective therapeutic areas. 

Additionally, these companies leverage their deep understanding of the science behind particular disease areas to identify innovative assets earlier and evaluate them more accurately. Their expertise enables them to spot high-potential assets before they become widely known or overpriced, giving them a competitive edge in securing valuable assets. 

Investment Trends in Pharmaceutical Dealmaking 

The pharmaceutical dealmaking landscape has evolved significantly in recent years, particularly in the wake of the COVID-19 pandemic. While deal volume has decreased from 4,900 in 2020 to approximately 3,200 in 2023, the value of in-licensing deals has risen. In 2023, non-M&A deal values hit an all-time high of $215 billion, with in-licensing accounting for the majority of this total. 

Oncology remains a hot therapeutic area for dealmaking, accounting for 30-40% of all deals, followed by infectious diseases, which account for about 15%. New modalities, such as antibody-drug conjugates (ADCs), have also seen a surge in deal activity, with ADC partnerships representing 30% of the total invested deal value in 2023. 

Key Drivers of External Innovation Productivity 

The productivity of external innovation is a critical metric for pharmaceutical companies, as it measures the ratio of future revenues from externally sourced assets to the invested deal value. Successful companies adopt a strategic approach to dealmaking that includes early-stage partnerships, hands-on collaborative deals, and a clear focus on high-potential therapeutic areas and modalities. 

According to research, companies that prioritize early-stage dealmaking and adopt hands-on deal structures, such as codevelopment agreements, experience higher productivity than those that engage in opportunistic or late-stage deals. By focusing on the right therapeutic areas, building strong partnerships, and streamlining deal processes, companies can increase the likelihood of success in their external innovation efforts. 

Conclusion: Driving Success in External Innovation with BioBoston Consulting 

Sourcing external innovation is a key strategy for pharmaceutical companies looking to stay ahead of the competition and fuel their R&D pipelines. By adopting the right dealmaking behaviors, including leveraging AI, streamlining decision-making, building strategic partnerships, and specializing in therapeutic areas, companies can maximize the value of externally sourced assets and accelerate their time to market. 

At BioBoston Consulting, we specialize in helping pharma companies navigate the complexities of external innovation. Our team of experts can support your organization in identifying the best deal opportunities, building strategic partnerships, and implementing the right processes to drive external innovation productivity. Whether you’re looking to enhance your R&D pipeline, explore new therapeutic areas, or streamline your dealmaking process, we can help you achieve your goals. 

Ready to accelerate your external innovation strategy? Contact BioBoston Consulting today to learn how we can help your company thrive in the competitive world of pharmaceutical dealmaking.