Biding your time buying is becoming costly

Companies with late-stage assets have been attracting ever higher price tags over the past five years, Evaluate Vantage finds.

It goes without saying that a project backed by phase 3 data is worth more than an asset earlier in development. But how much more?

At least four times more, according to our latest deep dive into Evaluate Pharma’s M&A data. This finds that, over the past five years, the median cost of buying a developer whose most advanced asset was in phase 3 was almost $1bn, compared with $174m for companies in phase 2, and even less for those at earlier stages.

There is a good reason for this, of course: with phase 3 data in hand valuations can be calculated more soundly and the risks for the buyer are lower overall, justifying a higher price. Scarcity value will also be playing a role as not many projects make it all the way through the clinic.

For this analysis, which draws on Evaluate Pharma's M&A data, takeover targets were categorised by the stage of their most advanced asset at takeout, a caveat being that said asset might not always be the main motivation for a buyout.

Notwithstanding this, it is interesting to find that biopharma has spent a very similar amount on companies in the phase 2 and phase 3 cohorts over the years in question here. However, many more bets have been placed in the former category – the so-called sweet spot that many larger developers claim to be chasing.

Note that the count below includes all deals, around half of which did not disclose terms.

A final observation is that the median cost of these buyouts has risen over the past five years, for companies at every stage of development. This is much more evident at phase 3, however. During this period the last two years saw the biggest acquisitions of pivotal-stage developers. Bristol Myers Squibb's move on Myokardia for $13bn is an example, as is Merck & Co's $11.5bn swoop on Acceleron. 

Last year was considered disappointing for M&A, with the volume of deals decreasing, though prices held up. However, with biotech firmly into year two of a bear market, it is easy to imagine a reversal of these trends in 2022.

Evaluate Vantage has publishes a series of articles on biopharma M&A trends this year; check out our content here.

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