Product deal values continue to head south in 2012

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
Marketed 182 219 279 241 954 183 307 371 1,369 730 744 786
Approved 29 20 44 29 36 2 52 50 68 7 181 184
Filed 55 39 53 42 395 138 210 242 1,017 376 526 760
Phase III 71 121 84 89 351 942 519 844 2,787 5,877 3,954 5,888
Phase II 50 93 91 82 618 483 1,534 937 5,748 4,801 10,665 7,432
Phase I 54 75 58 63 146 227 248 308 852 3,283 3,781 3,515
Pre-clinical 140 185 171 170 236 731 349 330 3,935 7,078 8,069 5,092
Research project 172 266 275 226 239 93 622 348 5,166 3,374 5,966 5,655
Other 6 19 34 27 0 0 0 1 0 210 0 43
Total 759 1,037 1,089 968 2,974 2,800 3,841 3,431 20,942 25,737 33,886 29,355
*For full five-year data please contact joannef@epvantage.com

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
Phase III 27 41 27 37 47 37 133 256 208 213 292 229
Phase II 33 32 44 38 30 37 250 253 267 291 152 250
Phase I 10 19 19 38 31 23 53 219 236 227 294 212
All clinical 24 33 34 38 38 34 156 245 245 255 250 234

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
Product count 381 378 514 523
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.

To contact the writers of this story please email Lisa Urquhart and Joanne Fagg in London at lisau@epvantage.com and Joannef@epvantage.com or follow @LisaEPVantage and @JoEPVantage on Twitter

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