From torrent to trickle, the decline of product licensing

Analysis

The slide in licensing activity that began last year has continued into the first half of 2012, with the number of products partnered and their associated financial metrics showing a worrying decline across the board, EvaluatePharma data reveal.

After a bumper 2009/10 a falling off early last year did not come as a particular surprise, but this has since gathered pace: the number of products partnered fell to 344 in the first half of this year – a decline of 31% year on year or 27% compared with the second half of 2011 (see tables below). Moreover, deal metrics are down across the clinical-stage deal sweetspot, with up-front payments falling from $31m to an average of $18m per project.

The table below, extracted from EvaluatePharma, charts the numbers of all licensing deals struck in the first six months of this year broken down into the status of the product at the time, and compares these against the first and second halves of 2011. Medtech and diagnostics are excluded.

Product count Up-front payments ($m) Deal values ($m)
H1 2012 H2 2011 H1 2011 H1 vs H2 Year on year H1 2012 H2 2011 H1 2011 H1 vs H2 Year on year H1 2012 H2 2011 H1 2011 H1 vs H2 Year on year
Marketed 101 106 104 -5% -3% 714 43 140 NA NA 1,021 276 435 NA 135%
Approved 17 10 10 70% 70% 19 2 0 NA NA 21 4 0 NA NA
Filed 24 18 20 33% 20% 145 0 88 NA 64% 695 0 326 NA 113%
Phase III 29 64 54 -55% -46% 182 260 682 -30% -73% 1,830 1,931 3,720 -5% -51%
Phase II 22 41 50 -46% -56% 240 241 257 0% -6% 1,678 1,188 2,628 41% -36%
Phase I 21 35 33 -40% -36% 77 121 92 -36% -17% 521 1,770 1,396 -71% -63%
Preclinical 60 81 88 -26% -32% 125 673 107 -81% 17% 869 3,926 4,089 -78% -79%
Research project 66 108 131 -39% -50% 170 40 52 NA NA 1,930 903 2,296 114% -16%
Other 4 11 9 -64% -56% 0 0 0 NA NA 0 0 0 NA NA
Annual totals 344 474 499 -27% -31% 1,673 1,380 1,419 21% 18% 8,566 9,998 14,891 -14% -42%

It is clear that not only has deal-making declined year over year, but total deal values have fallen progressively from $14.9bn through $10.0bn to $8.6bn across three six-month periods (Product deal slow down continues into 2011 - phase II assets remain popular, August 1, 2011).

This analysis counts all deals announced, but includes up-front payments and total values only where these have been disclosed; however, it is a safe bet that this captures all the important partnerships, given that financial details tend to be excluded from a company’s announcement when they are relatively insignificant.

Although the table indicates an apparent increase in up-front payments during the latest six months, this is largely due to Forest Laboratories’ $357m purchase of rights to Johnson & Johnson’s marketed hypertension treatment Bystolic; if this is excluded – which it could be since it involved a straight sale of rights and replaced an earlier licensing alliance – total H1 2012 up-front payments fall to $1.2bn (-13% year on year).

Average up-front payment ($m) Average deal value ($m)
H1 2012 2011 2010 2009 H1 2012 2011 2010 2009
Phase III 20 41 27 33 203 246 215 228
Phase II 22 28 40 36 153 212 275 291
Phase I 11 18 17 33 74 264 235 191
All clinical 18 31 32 34 149 238 250 254

Looking only at clinical-stage deals with disclosed financials illustrates a noteworthy decline in what used to be the bread and butter of pharma/biotech deal-making (table above). Despite several recent single-product partnerships of note, the average up-front payment has slid from $34m three years ago to $18m, and deal values are down from $254m to $149m across the same period (Single-product deals stand out as licensing slows in 2012, August 21, 2012).

Licensing vs M&A

Perhaps the rot that set in in 2011 followed big pharma’s realisation that most of the good projects had already been snapped up, but it must surely also have been due to M&A re-emerging as an important deal driver.

The totals for last year show across-the-board declines in partnering, with up-front payments falling 29% to $2.8bn and deal values down 23% to $24.9bn versus 2010. Admittedly, deal values is a somewhat spurious metric, given that they can – especially in the case of early-stage licensing – represent huge biodollar amounts that might never be achieved in a realistic time frame.

But the fall is evident even though the 2011 numbers include the massive $400m that Abbott paid up front for Reata Pharmaceuticals’ preclinical antioxidant inflammation modulators, and the previous year includes an even higher amount for Reata’s bardoxolone methyl.

Still, the Reata situation is likely an outlier, and in most cases a takeover would have seemed a more obvious course of action. Indeed, given recent successful fund-raising activity by public US biotechs it might be that acquisitions will continue for some time to be necessary over partnering as the route to a biotech company’s assets.

With investors seemingly unfazed by bubbles being inflated under some biotech stocks, big pharma might have to pay top dollar or resign itself to the fact that the source of many of its projects seems to be drying up.

Product count Up-front payments ($m) Deal values ($m)
Status on deal 2011 2010 '11 vs '10 2009 2011 2010 '11 vs '10 2009 2011 2010 '11 vs '10 2009
Marketed 210 260 -19% 267 183 306 -40% 155 710 749 -5% 345
Approved 20 44 -55% 27 2 52 -95% 45 4 129 -97% 343
Filed 38 48 -21% 42 88 210 -58% 439 326 511 -36% 1,474
Phase III 118 86 37% 77 942 549 72% 837 5,651 4,304 31% 5,701
Phase II 91 88 3% 100 498 1,474 -66% 1,461 3,816 10,163 -62% 11,951
Phase I 68 55 24% 61 212 248 -14% 456 3,166 3,529 -10% 2,675
Preclinical 169 164 3% 149 781 349 123% 240 8,015 6,938 16% 2,576
Research project 239 254 -6% 226 92 769 -88% 458 3,199 5,966 -46% 6,698
Other 20 38 -47% 32 - - - - - - - -
Annual totals 973 1,037 -6% 981 2,799 3,957 -29% 4,091 24,888 32,289 -23% 31,763

All data sourced to EvaluatePharma

To contact the writer of this story email Jacob Plieth in London at jacobp@epvantage.com

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