Product deal trends in 2008

With the credit crunch focusing the minds of senior management on cash preservation it seems pharma and biotech companies became a little more cautious in 2008 with a declining number of licensing deals compared to 2007, down 23% to 422 individual product deals.

With total potential deal values falling 17% to $28bn, dealmakers also appear to have become more risk averse with a significant shift from phase II to phase III product deals in terms of dollars committed, driving the average disclosed upfront payment for a phase III drug up 51% to $51m. The general shift away from conventional drugs to biotech products is reflected in 100 fewer deals over small molecules, while oncology remains the hottest research area as deals in this therapeutic category rise 16% to 114 partnerships.

Of the 422 deals signed last year, detailed financial terms were disclosed in just 123 of these partnerships, compared with term disclosure for 135 of the 511 deals signed in 2007. 

Oncology still hot

Only two therapy areas showed an increase in the number of deals signed in 2008, oncology and cardiovascular, with 114 oncology deals almost double the 60 deals within the CNS field, the next most active therapy area. Perhaps a reflection of the pitfalls increasingly associated with developing and commercialising drugs for central nervous system disorders, dealmakers shied away from this therapy area last year, almost halving the number of deals signed in this field.

Shift away from conventional

Although the number of deals for biotech based products remained fairly constant with 2007, as a proportion of the total deals signed, biotech products made up 35% of all deals last year compared to 27% in 2007. Deals for monoclonal antibodies remained the most popular for biotech products, with more companies starting to place increasingly large bets on as yet unproven technologies, such as antisense therapies.

A driving force behind the decline in overall product deals appears to be due to an aversion to signing deals for small molecule drugs, with 102 less deals last year making up the bulk of the overall 129 fewer partnerships signed in 2008.

Shift to late-stage products

Although the number of deals signed at each developmental stage, as a proportion of the total number of deals signed, has remained largely constant, there seems to have been a significant increase last year in terms of upfront fees and deal values assigned to phase III products.

With financial term disclosure on 26 phase III products in 2008 and 23 drugs in 2007, not only has the average upfront fee for a phase III product increased to $51m, but total deal values have also risen significantly from $285m in 2007 to $375m last year.

As overall disclosed deal values declined in the 2008, the increase in value for phase III products has come mainly at the expense of phase II drugs. Whereas the average disclosed deal value at phase II in 2007 stood at a staggering $391m, this fell dramatically last year to an average of $149m.