Phase II values remain high but pharma licensing slows

Date August 14, 2013

(This story has been amended to contain corrected data related to the Celgene/Forma and Gilead/MacroGenics deals.)

Deal-making across the first half the year suggests that licensing activity this year could struggle to come up even to the slow 2012. EvaluatePharma counts deals struck over 416 projects in the first six months of 2013 in transactions valued at $12.59bn, a performance that largely echoes the previous two periods.

Meanwhile, average deal values show that phase II remains the sweet spot, with terms agreed for assets at this stage of development remaining buoyant. The average up-front payment for a phase II asset once again surpassed that for phase III, the data show (see tables).

Pharma and biotech licensing deals 
  Product count  Up-front payments ($m)  Deal values ($m) 
  H1 2013  H2 2012  H1 2012  H1 vs H2  Year on year    H1 2013  H2 2012  H1 2012  H1 vs H2  Year on year    H1 2013  H2 2012  H1 2012  H1 vs H2  Year on year 
Marketed  142  95  123  49%  15%    523  240  765  117%  -32%    621  404  1,089  54%  -43% 
Approved  16  18  -56%  -61%    41  15  20  173%  105%    239  18  50  1228%  378% 
Filed  13  29  28  -55%  -54%    266  147  -98%  -96%    368  594  728  -38%  -49% 
Phase III  30  50  30  -40%  0%    130  168  183  -23%  -29%    966  931  1,831  4%  -47% 
Phase II  32  49  22  -35%  45%    434  529  328  -18%  32%    3,201  4,898  2,844  -35%  13% 
Phase I  30  44  32  -32%  -6%    80  131  77  -39%  4%    775  403  948  92%  -18% 
Preclinical  52  83  76  -37%  -32%    49  114  126  -57%  -61%    1,648  3,125  1,239  -47%  33% 
Research project  107  112  99  -4%  8%    324  71  170  357%  91%    4,339  3,001  2,167  45%  100% 
Other  –  –  -50%    –  –  25  –  –    –  –  25  –  – 
Annual totals   416  478  434  -13%  -4%    1,587  1,533  1,840  4%  -14%    12,157  13,374  10,921  -9%  11% 

The table above breaks down licensing deals struck by pharma and biotech companies over the last three six-month periods – activity in the medical device and diagnostics spaces is excluded.

In terms of the number of products that have changed ownership, overall there has been a slight dip on the previous period and year on year. However, this picture could improve in the second half of the year, as was seen in 2012.

Within that total figure, deals struck at either end of the spectrum have remained buoyant, with marketed products and research projects showing big jumps in popularity. The value of these seems also to have climbed, although drawing firm conclusions from the data has caveats, in particular the fact that big one-off deals can skew the picture.

For example, two substantial research project deals struck this year will have inflated these numbers with their substantial "bio dollar" valuations. Celgene’s deal with Forma Therapeutics was worth $200m in up-front and R&D funding, with future milestones reaching into the hundreds of millions, while Gilead’s collaboration with MacroGenics could potentially be worth over $1bn.

And to paint a picture of underlying deal trends, these analyses exclude Elan’s sale of Tysabri rights to Biogen Idec. This unique transaction, worth $3.25bn, would have substantially skewed the data for marketed product deals, and the total for the half year.

The annual totals in the table below show that, if activity in the second half of this year remains at the same level, total deal values in 2013 should pick up slightly on last year, although up-front payments and the volume of deals have some way to catch up. One reading of this data could be that the biotech bubble has caused perceived asset values to become so bloated that buyers are being deterred.

It also suggests that licensing activity continues to dim in the wake of the scrabble of assets that was seen in 2009 and 2010, ahead of the patent cliff and when big pharma's productivity woes were the subject of much scrutiny.

Annual licening deal activity 
Deal date  Up-front payment ($bn)  Deal value ($bn)  Product count 
2013 H1  1.59  12.16  416 
2012  3.37  24.30  912 
2011  3.27  27.08  1,111 
2010  3.96  33.41  1,137 
2009  4.14  35.11  1,069 
2008  3.43  32.26  984 
2007  3.33  38.38  1,025 

However these data also appear to show that phase II assets remain in demand, with volume of deals, up-front payments and total deal values up over the same period last year.

This trend is also borne out by a look at average deal values over the past couple of years, the table below shows. The average up-front payment to secure compounds at this stage of development climbed to $39m in the first half of 2013, up from $34m last year, and remains the highest average across all stages of clinical development.

The table below is calculated using only the product deals for which terms were disclosed.

This analysis also reveals very little difference between the average terms for phase II and III projects – in fact average deal values for phase II compounds have in every year come in higher than phase III, and all bar one year up-front payments have been greater.

This no doubt reflects the big promises that partners are frequently willing to make for phase II assets, in the knowledge that in many cases these bio-buck values will never be achieved. Once a project is in phase III its potential can in many cases be visualised more accurately and partners are perhaps less willing to promise the earth, while licensees seek higher royalty payments.

Either way, it seems phase II remains the sweet spot for small drug developers to extract maximum value for their experimental medicines.

Average deal terms for clinical assets 
  Average up-front payment ($m)    Average deal value ($m) 
  H1 2013  2012  2011  2010    H1 2013  2012  2011  2010 
Phase III  33  27  40  27    161  138  260  208 
Phase II  39  34  34  46    229  267  272  281 
Phase I  10  12  16  15    97  61  202  164 

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