Any hope that licensing activity might have ticked up to match the bullish performance of the biotech industry last year can now be firmly quashed. The fall-off in the number of deals seen at the mid-point of the year carried on resolutely until the close of 2012, EvaluatePharma data show (From torrent to trickle, the decline of product licensing, August 22, 2012).
After the good times of 2010, when pharma companies competed with one another to fill pipelines at threat from the patent cliff, the amount of money spent on licensing deals has declined steadily with 2012 showing a 19% fall to $20.9bn, against $25.7m in 2011, itself a lacklustre year. The decline in the number of partnering deals was even more marked at just 759, compared with 1,037 in 2011 and a five-year average of 968 (see table below).
|Deals by pipeline phase|
|Product count||Up-front payments ($m)||Deal values ($m)|
|Status on deal||2012||2011||2010||5-year average*||2012||2011||2010||5-year average||2012||2011||2010||5-year average|
|*For full five-year data please contact firstname.lastname@example.org|
This table, with data from EvaluatePharma, shows the number of licensing deals struck in 2012, broken down by the status of the product at the time, and compares them against the previous two years and a five-year average. Medtech and diagnostic companies are not included, and the deal values and up-front fees are those disclosed by companies.
What the data show is that, while the product count dropped off significantly, up-front payments are in line with last year, although again they are down on the five-year average, showing pharma’s reluctance to spend at the same levels it has in the past. But this figure has been heavily flattered by Forest Laboratories' $445m deal to license in Johnson & Johnson’s marketed hypertension drug Bystolic.
Even excluding this deal, which itself was a restructuring of an existing agreement, marketed up-front payments last year were significantly ahead of 2011. This indicates that companies are more interested in signing deals for products with proven track records and sales that add instantly to the bottom line.
This flight from risk is also shown by the higher number of deals involving both filed and approved products since 2011 and the fact that the 55 deals involving filed products has exceeded the five-year average of 42.
The amounts of money spent on early-stage deals have also declined significantly, with deal values for phase I assets falling off a cliff at $852m compared with $3.28bn the previous year. Total up-front payments for phase I projects were also down significantly year-on-year, dropping more than a third to $146m.
Staying away from the clinic
Indeed the general appetite for clinical-stage deals appears to have waned during 2012, as deal metrics across all clinical assets have fallen.
|Average values for disclosed clinical-stage deals|
|Average up-front payment ($m)||Average deal value ($m)|
|2012||2011||2010||2009||2008||5-year average||2012||2011||2010||2009||2008||5-year average|
Average up-front payments for all products in the clinic were just $24m in 2012, down on the $33m seen in 2011 and the $34m over the past five years.
While phase I deals bore the brunt of this tightening of purse strings, average deals values for phase III projects also came off the boil, dropping from $41m in 2011 to $27m in 2012. Average deal values in phase III almost halved in the same period. The fall-off in average deal values, however, could presage the start of a much-needed reality check in the number of deals structured around high future milestone payments.
As such the pricing of phase I deals – the area that has suffered the most – could mark a realisation that the huge bio-dollars attached to a deal are rarely realised. Indeed only three deals featured milestone payments above $70m: Merck & Co’s in-licensing of Chimerix’s HIV drug CMX157 promised $169m in the future, while Biogen Idec will have to find $299m to satisfy its commitments to Isis Pharmaceuticals for ISIS-SMNRx, and Tesaro, which got rights to Merck’s niraparib, might be hoping it not to have to pay out the $181m on top of the $7m up front.
While there may have been wide variations in deal values and up-front payments across the past five years, both deal values and up-fronts stayed pretty much constant during 2012, with no clearly discernible difference between the first and second halves of the year.
|Half-year deal values|
|H2 2012||H1 2012||H2 2011||H1 2011|
|Up-front payment ($m)||1,362||1,611||1,391||1,409|
|Deal value ($m)||11,465||9,476||11,626||14,111|
If this subdued trend continues into the current year, then smaller companies looking to strike transformational deals with big pharma groups could find themselves sorely disappointed, unless they have phase II assets – the one area where average deal values and up-front payments have stayed relatively stable.