Experts advise Big Pharma to shift to in-licensing

Morgan Stanley's experts are suggesting a new drug development model for Big Pharma that will surely tickle most biotech execs pink.

Rather than continue to develop new therapies in-house, says Morgan Stanley, pharma companies should abandon their R&D empires in favor of in-licensing drugs that have reached the proof-of-concept stage. And they add that Sanofi-Aventis and AstraZeneca--which announced plans last week to carve $1 billion out of its R&D budget--would benefit most by this strategy while Bayer and GlaxoSmithKline would see a big jump in valuations.

The economics in play: Big Pharma companies spend a third of their R&D budget on early-stage drug development, which is an odds-makers' nightmare. Only one in 10 early-stage drugs make it to the market, with the odds rising to 20 percent at Phase II and 50 percent at Phase III. Maximum returns dictate later-stage bets, which is where in-licensing can be most effective.

- check out the article in the Financial Times