First half 2010 sees a return to more conventional deal values

Analysis

If one of the underlying and intriguing themes of the deal-making scene last year was one of big pharma targeting and paying more for earlier stage products, a review of deals struck in the first half of 2010 indicate a return to more conventional terms while overall upfront fees continue to decline (see tables below).

The average disclosed upfront fee for a phase III asset in the first half was $35m, significantly higher than $15m for a phase I candidate, a complete reversal of the picture in the first half of 2009 when phase I drugs were the most expensive at $47m a pop. Meanwhile, AstraZeneca again demonstrates its commitment to ‘externalising’ its pipeline by signing the biggest single deal in the first half, paying $100m upfront for Rigel Pharmaceuticals’ phase II RA drug, R788 (Rigel delivers top-dollar deal with AstraZeneca for oral RA candidate, February 16, 2010).

Declining upfronts

The table below, taken from EvaluatePharma, summarises the total numbers of products that have been licensed in the first half of the last three years, divided into the stage at which the product was partnered.

Deal by Status Product Deal Count Total Upfront Fee ($m) Total Deal Value ($m)
H1 2010 H1 2009 H1 2008 H1 2010 H1 2009 H1 2008 H1 2010 H1 2009 H1 2008
Marketed 51 107 92 58 24 514 121 657 469
Approved 14 13 14 8 41 303 84 135 871
Filed 21 16 10 50 63 8 196 715 95
Phase III 35 15 27 351 123 583 2,367 1,023 3,758
Phase II 27 27 36 298 492 283 3,750 4,029 1,038
Phase I 18 27 25 91 284 333 787 1,921 2,872
Clinical stage sub-total 80 69 88 740 898 1,199 6,904 6,973 7,667
Pre-clinical 54 58 77 80 99 230 1,844 542 1,056
Research project 69 68 58 355 108 157 1,547 2,964 3,432
Total 289 331 339 1,292 1,233 2,410 10,696 11,987 13,591

Given the huge variability in deals for very early stage research or pre-clinical products, and also for those already filed, approved or marketed, it is perhaps more meaningful to look at data and trends for clinical stage assets.

Looking at the clinical stage sub-total line, while the number of product deals has not changed significantly, the aggregated upfront fees appear to be in decline from $1.2bn in the first half of 2008 to $740m in the first half this year.

Interestingly, total deal values have not changed dramatically, suggesting that not only are big pharma partners driving down the price of upfront payments, deals are increasingly option-based, or back-end loaded.

The ability of big pharma to use their position of heightened strength during the financial crisis, compared to supposed weaker bargaining points of small biotech, appears to be borne out by this data, but what is interesting is that the trend seems to be continuing even now that financial constraints are thought to be easing.

The second table below illustrates the average upfront and deal values taking into account only those deals where the main financial details have been disclosed.

For example, Sanofi’s deals last month with Ascenta Therapeutics and Metabolex, both private companies, were each worth nearly $400m overall, yet specific details on the upfront fees were not disclosed and are therefore not included in this analysis.

Deals by Pipeline Phase - Average Values
Disclosed Product Deals Average Upfront Fee ($m) Average Deal Value ($m)
H1 2010 H1 2009 H1 2008 H1 2010 H1 2009 H1 2008 H1 2010 H1 2009 H1 2008
 Phase III 10 6 13 35 21 45 237 170 289
 Phase II 11 17 13 27 29 22 341 237 80
 Phase I 6 6 9 15 47 37 131 320 319
Total deals / average fees 27 29 35 26 32 35 236 243 229

Of the 35 deals for phase III products in the first half this year, financial terms were disclosed in just ten of these partnerships. Dividing the total upfront fees of $351m by ten derives the average upfront for a phase III product at $35m.

These average fees support the thesis that upfront fees are declining, but also perhaps show a return to more conventional valuations in the first half this year. Whereas in the first half of 2009 the payments made upfront were increasingly higher for earlier stage assets, this year sees fees being paid more in accordance with the stage of development.

Top of the deal charts

Finally, the table below lists the top ten single-product deals signed in the first half of 2010. Interestingly, for all the clamour to develop a robust pipeline of biotech products, none appear within the top five, and only two in the ten overall.

Likewise, cancer drugs also appear to have taken a bit of a back seat on the partnering scene so far this year, with a much more diverse mix of therapeutic areas than in previous years.

Top 10 biggest deals in H1 2010 - ranked by upfront fee
Rank Product Therapeutic category Technology Company Deal Partner Status on Deal Upfront Fee ($m) Deal Value ($m)
1 R788 Immunosuppressant Small molecule AstraZeneca Rigel Pharmaceuticals Phase II 100 1,245
2 Elagolix (NBI-56418) Genito-urinary agent Small molecule Abbott Laboratories Neurocrine Biosciences Phase II 75 575
3 Isavuconazole Anti-fungal Small molecule Astellas Pharma Basilea Pharmaceutica Phase III 70 535
4 Feraheme Anti-anaemic Small molecule Takeda AMAG Pharmaceuticals Phase III 60 273
5 Axiron Male sex hormone Small molecule Eli Lilly Acrux Phase III 53 335
6 KB001 Anti-bacterial Monoclonal antibody Sanofi-Aventis KaloBios Pharmaceuticals Phase II 50 414
7 SER-120 Genito-urinary agent Small molecule Allergan Serenity Pharmaceuticals Phase III 43 165
8 EHT/AGN 0001 Non-narcotic analgesic Small molecule Bristol-Myers Squibb Allergan Phase I 40 413
9 AZ-004 Anti-psychotic Small molecule Biovail Alexza Pharmaceuticals Filed 40 130
10 OMP-18R5 * Cytostatic Monoclonal antibody Bayer OncoMed Pharmaceuticals Pre-clinical 40 400

* Bayer’s deal with OncoMed for OMP-18R5 actually includes a number of different candidates and technologies, such as antibodies, protein therapeutics and small molecules, targeting the Wnt signalling pathway. Deal values have been assigned to the lead candidate, OMP-18R5.

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