Diverging average upfront trend suggests logic returning to deal terms

Amid the scramble for assets over the last few years as big and mid sized drug makers attempted to plug ailing pipelines, increasing sums of money were paid out to gain control of increasingly early stage compounds, including the $200m AstraZeneca paid out for Targacept’s phase II depression pill in 2009, for example, or the $100m cheque Amgen wrote to Kyowa Hakko the year before, to secure a phase I anti-inflammatory antibody.

This trend was particularly marked in 2008 and 2009, when the average upfront payment for phase I and II assets was almost the same, an analysis of EvaluatePharmadata shows. A look at more recent figures reveals that last year and so far this year, average upfront payments have returned to a more logical balance between the clinical stages (see tables).

Shifting values

The tables below show the number of products over which deals were struck in the last four years, by stage, for which full deal terms were disclosed.

An analysis published yesterday revealed that deal volumes overall appear to be slowing, while the total amount paid out in upfront deals dropped significantly in 2010, from the previous year (Product deal slow down continues into 2011 - phase II assets remain popular, August 1, 2011).

By excluding deals without disclosed terms, a more accurate picture of how average values are shifting can be painted.

The analysis does not include deals over medical technology or diagnostic products; it focuses only on human therapeutics.

Deals by Pipeline Phase - Average Values
Disclosed Product Deals Average Upfront Fee ($m) Average Total Deal Value ($m)
Status on Deal 2010 2009 10 vs. 09 2008 2007 2010 2009 10 vs. 09 2008 2007 2010 2009 10 vs. 09 2008 2007
 Phase III  22  28  -21%  35  24  54  54  0%  47  44  202  227  -11%  298  284
 Phase II  32  40  -20%  26  33  30  39  -23%  28  38  316  298  6%  154  380
 Phase I  12  12  0%  23  17  11  41  -73%  29  34  147  204  -28%  286  196

It is not surprising to see that phase III assets have increased in average value over the last four years, perhaps driven by a growing need for near-market products and a scarcity of available options.

A look below at these late-stage deals so far this year reveals that while these transactions are holding their value in terms of upfront, their average total deal value seems to be on a downward trend.

For phase II assets, the trend of upfront payments over the last few years is much more erratic and likely driven by a couple of large transactions. In fact, 2009 contained three of the top five single product phase II deals of the last few years – AstraZeneca and Targacept mentioned above, AstraZeneca and Nektar over NKTR-118, which cost $125m upfront, and Sanofi’s purchase of rights to Exelixis’ XL147 for $140m.

What is interesting with the deals at this mid stage is the average total deal value – other than in 2008 - the figure is clearly higher than for phase III assets. Again, this picture is being repeated so far this year, confirming that if the maximum is to be extracted from an asset, finding a partner at this stage can lock in the most potential value. The caveat being of course that in most cases a large proportion of these future milestone payments are unlikely to be paid out.

Diverging values

Perhaps the most interesting trend to emerge from this analysis, however, is the divergence of average upfront payments across the stages, over the last four years.

In 2007, there was only a $10m difference between the average upfront for a phase III and phase I asset. Last year, this had widened to $43m, when the spread between each stage seems to more realistically reflect the relative value of clinical stage assets.

Again, this trend appears to be continuing in 2011, the table below shows.

Big pharma is still on the hunt for valuable assets and this does not meant that big bucks will not be paid for promising early stage compounds. This year alone has seen Vertex pay $60m to Alios BioPharma for access to two pre-clinical hepatitis C candidates and Sanofi pay $50m upfront to Glenmark for rights to a phase I anti-inflammatory antibody, GBR 500 (Glenmark boosted by second Sanofi deal, May 16, 2011).

What it could mean is that there are fewer bidders at the table, driving deal terms higher. A decline in the overall volume of products being licensed would support this theory.

Product Deals in H1 2011
Status on Deal Disclosed Product Deals Average Upfront Payment ($m) Average Total Deal Value ($m)
 Phase III  18  48  195
 Phase II  11  27  263
 Phase I  6  16  197

All data sourced to EvaluatePharma.

Share This Article