BioEquity - Big pharma slowing the pace of deals

Despite mounting pressures to fill pipelines, big pharma is slowing down the pace at which it strikes licensing or M&A deals, according to panellists at today’s BioEquity meeting in Paris. “The process is definitely getting slower and our deal teams are getting bigger”, says Peter Kerrane, global head of M&A at Novartis, pointing to the extra demands of researching every possible angle of a product’s potential, including manufacturing and reimbursement analysis. “There is too much risk involved not to look at everything”, he says.

Countering these arguments is the venture capital (VC) sector, naturally keen to strike deals with big pharma, which remains the best exit given the lack of alternative escape routes. “We understand the hurdles are higher” argues Denise Pollard-Knight, chief executive of Phase4 Ventures. “But we still think the process could be streamlined.” With big pharma slower and increasingly risk averse, a deal crunch is developing and VC firms like Phase4 are starting to look elsewhere for partners, particularly big biotech and specialty pharma.

Rock and a hard place

Product partnering data from EvaluatePharma reveal a decline in both the number and value of products being licensed by big pharma over the last few years, as the table below shows.

Big pharma licensed 110 products in 2010, the lowest annual total since 2007, while with over a quarter of the year gone, just 24 products have been licensed by big pharma so far in 2011. The data certainly point towards a slowing trend for deals by big pharma.

Big Pharma Product Licensing Record
Deal Date No of products licensed Total upfront fees ($m) Total deal values ($m)
2011 (YTD)  24  434  3,645
2010  110  1,962  17,055
2009  189  2,575  22,430
2008  132  1,725  18,581
2007  216  2,212  28,977

Faced with huge patent expiries, struggling pipelines and higher hurdles to regulatory approval and reimbursement by governments, big pharma is certainly in a tight spot. Internal R&D is being cut back and restructured and more emphasis placed on external sources of pipeline candidates.

As such, the pressure on these externally sourced products to succeed is increasing all the time. “There is no room for error”, says Mr Kerrane, who estimates some deal teams at Novartis to be not far off 60 people. The deal teams are so large because of the need to consider increasingly complex technological, competitive, regulatory and reimbursement environments.

Ms Pollard-Knight, who says she has seen up to 30 researchers from one big pharma company alone review the R&D database behind one product, believes the decision-making process at big pharma is also stalling because of a lack of ‘champions’ for a product and the high turnover of personnel within big pharma, the result of a swathe of restructuring programs across the sector.

Looking elsewhere

Understandable as the reasons may be for big pharma slowing down its decision-making process, it seems VC firms are not going to hang around. Big biotechs, with significant cash reserves, but with increasing pipeline issues of their own, seem to be increasingly attractive potential partners.

Amgen’s $425m upfront purchase of BioVex, with a further $575m in potential milestones, is just such an example of big biotech looking to strengthen their pipelines (Amgen provides BioVex investors a welcome early exit, January 25, 2011).

Bernard Davitian, vice president of deputy corporate licenses at Sanofi, agrees that big biotech can move faster on deals, although he says that if the conditions are right big pharma can still go quickly, pointing to Sanofi’s $500m purchase of Fovea in 2009 which was completed within six months (Vantage Point - Is big pharma spending its way out of trouble?, October 2, 2009).

Similarly, some of the bigger specialty pharma groups are generating decent cash flows, are still in growth mode, and can execute deals quickly when the competition for assets is high. Shire’s acquisition of Advanced BioHealing last week is another example (Shire finds its fourth way, May 18, 2011).

Indeed, this concept of competition for particularly hot assets is also a bone of contention between big pharma and VC firms. Mr Kerrane is somewhat sceptical of the deal deadlines that potential partners and their VC backers propose, while VCs insist there are genuine time pressures and that competition is real. The search for alternative partners to big pharma is one way that VCs are trying to introduce a sense of urgency and competition into the process.

If deals with big pharma are indeed slower and tougher to execute, the need for biotech and their investors to find alternative partners is clear. However, in the absence of a viable IPO market, big pharma will remain the sector’s biggest buyer. So biotechs and VCs will have to work out how to help to speed up the decision making process, perhaps by conducting some of the additional diligence research work themselves.

As Ms Pollard-Knight says in a plea to big pharma: “We are currently waiting a long time to get a ‘no’. If it is going to be ‘no’, please say so sooner.”

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