Cash-rich biotechs turn down the licensing deal volume

Last year saw a dip in licensing deals across biopharma, though up-front payments held up and in some areas jumped considerably.

When cash is easy to come by, young drug makers can keep their options open. And that means not having to flog the family silver to keep the lights on.

This is one explanation for the dip in licensing deals last year; there is certainly no shortage of motivated buyers. The finding echoes a decline in company takeouts in 2019, presumably for the same reason, though this analysis also confirms that asset prices held up last year. Most notably, the average up-front fee paid for a phase II asset surged to almost $140m, a more than five-year high.

Averages can be skewed by outliers, of course, though this jump at phase II can also be seen in the median values. It is also revealing that phase III assets tend to attract lower prices than those at earlier clinical stages – hope and hype are apparently much more effective tools to drive up price tags than later-stage data, which might inconveniently reveal the true value of an asset.

Of course these charts also reflect the huge competition for promising development projects, and most large developers prefer to take over in the early stages of clinical work. Many of the phase II projects over which deals were struck will also have generated positive data, allowing them to be regarded “phase III ready”.

But these trends do support an earlier Vantage analysis of EvaluatePharma's M&A data, which found a big jump in the premiums being paid for research-stage companies (What makes a great year for takeovers?, January 9, 2020). It is not just big pharma fishing around for deals now – traditional big biotech and other maturing developers, like Vertex and Alexion, are also keen to replenish pipelines.

With more buyers at the table willing and able to compete on price, and sellers in a strong financial position, the squeeze on valuations is understandable.

The chart above looks at long-term trends in licensing deals between drug makers – it excludes medtech or diagnostic collaborations – and counts only those transactions with a disclosed up-front fee. This analysis therefore understates the real volume of licensing deals happening, though it should still reflect overall trends.

Only using deals with up-fronts allows a more rigorous look at trends here – the “biobuck” total deal values cited are rarely useful beyond headline fodder for press releases, and in most cases will go largely unpaid.

Up-front fees represent a real chunk of cash changing hands, and this analysis of EvaluatePharma data show that the sector paid out $7.4bn in these initial payments over 118 deals last year. Both of these figures are five-year lows.

While asset prices hold up sellers need not worry too much about any dip in activity. But should the financing environment tighten, the power will very quickly ebb across the negotiating table.

Biggest research-stage licensing deals of 2019
Product (status on deal) Company Deal partner Up-front fee ($m) Total deal value ($bn)
Enhertu (phase III) Astrazeneca Daiichi Sankyo 1,350 6.90
SRP-9001 (phase II)  Roche Sarepta  750 2.85
Bintrafusp Alfa/M7824 (phase II) Glaxosmithkline Merck KGaA 339 4.18
AKCEA-ANGPTL3-LRx (phase II) Pfizer Akcea  250 1.55
DCR-HBVS (phase I) Roche Dicerna  200 1.67
Source: EvaluatePharma.

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