Bio­phar­ma­ceu­ti­cal Deal­mak­ers’ In­ten­tions in 2017: In­flu­ences and Hot Spots

Each year for the last nine years, in­Ven­tiv Health Con­sult­ing has sur­veyed phar­ma­ceu­ti­cal and biotech deal­mak­ers to as­sess their in­ten­tions for the next 12 months and put these find­ings in­to con­text for our Deal­mak­ers’ In­ten­tions Study, the on­ly for­ward-look­ing mea­sure of deal­mak­ing in the in­dus­try. Based on this year’s sur­vey, deal­mak­ing in the life sci­ences is once again ex­pect­ed to be ro­bust in 2017, but clos­er to what we saw in 2016 (ap­prox­i­mate­ly $250 bil­lion). It is un­like­ly to reach the peak achieved in 2015 when deal val­ue reached ap­prox­i­mate­ly $425 bil­lion (in­clud­ing fi­nanc­ing, M&A and part­ner­ing/as­set pur­chas­es), which was more than dou­ble the deals seen in 2014. For 2017 we are see­ing deal­mak­ing ac­tiv­i­ty con­tin­ue to lev­el out clos­er to his­tor­i­cal norms, with the M&A mo­men­tum of 2015 slow­ing as buy­ers search for more tai­lored and pre­cise port­fo­lio ad­di­tions. We project that deal­mak­ing val­ue this year will be in the low $200 bil­lion range, which will still rank it among the top three in val­ue since our first Deal­mak­ers’ In­ten­tions re­port nine years ago.

Read the full sur­vey find­ings.

To gain more in­sight in­to what the rest of 2017 holds, we sur­veyed 107 mem­bers of the bio­phar­ma­ceu­ti­cal com­mu­ni­ty who par­tic­i­pate on both sides of deals and who have pre­dom­i­nant­ly ex­ec­u­tive-lev­el in­flu­ence on de­ci­sion-mak­ing. The full re­port for 2017 cap­tures their ex­pec­ta­tions for deal ac­tiv­i­ty, sup­ply and de­mand for spe­cif­ic as­sets at dif­fer­ent de­vel­op­ment stages, and var­i­ous ap­proach­es to val­u­a­tion. In this ar­ti­cle we dis­cuss the top fac­tors in­flu­enc­ing deal­mak­ing this year and pro­vide in­sight on the hottest ar­eas for li­cens­ing.

Top Fac­tors In­flu­enc­ing Deal­mak­ing

Over­all, the ma­jor fac­tors af­fect­ing deal­mak­ing are in­ter­nal, the biggest one be­ing buy­ers’ abil­i­ties to fi­nance ac­qui­si­tions, fol­lowed by the abil­i­ty of buy­ers to ac­cess debt. While ma­jor news head­lines em­pha­size the long-term im­pact with­in the in­dus­try of the glob­al po­lit­i­cal en­vi­ron­ment and pric­ing pres­sures, the im­pact on deal­mak­ing of ex­ter­nal fac­tors like po­lit­i­cal and pric­ing pres­sures and po­ten­tial changes to the Af­ford­able Care Act are ex­pect­ed to have less im­pact than the head­lines might sug­gest. Pric­ing pres­sure, for in­stance, will like­ly be re­flect­ed in the val­u­a­tion of the deal.

But one ma­jor un­cer­tain­ty in the mix is the new ad­min­is­tra­tion’s stat­ed in­ten­tion to in­cen­tivize U.S. com­pa­nies to repa­tri­ate their over­seas cash (at a pro­posed 10% tax rate in­stead of the cur­rent 35% tax rate). Cor­po­rate Amer­i­ca had $1.3 tril­lion, or 74% of its to­tal cash, stashed over­seas in 2016, ac­cord­ing to Moody’s In­vestors Ser­vice. While the top five over­seas cash hold­ers are tech­nol­o­gy com­pa­nies, large phar­ma ac­counts for a large por­tion of that cash. For ex­am­ple, five large phar­ma com­pa­nies, in­clud­ing J&J, Am­gen and Eli Lil­ly, hold a com­bined $250 bil­lion in over­seas funds. If repa­tri­a­tion hap­pens it could spark a new wave of life sci­ences deal­mak­ing as the cap­i­tal will like­ly need to be de­ployed to build a growth sto­ry for share­hold­ers.

Over­all, in­ter­nal fac­tors (es­pe­cial­ly fi­nanc­ing) are ex­pect­ed to dom­i­nate deal­mak­ing ac­tiv­i­ties this year, while some un­pre­dictable ex­ter­nal forces (e.g., repa­tri­a­tion) are in play. The fa­vor­able fi­nanc­ing en­vi­ron­ment plus the large cash bal­ances buy­ers have on hand and the strong eq­ui­ty mar­ket – all cou­pled with the po­ten­tial for repa­tri­a­tion – could tee up the op­por­tu­ni­ty for an­oth­er ro­bust pe­ri­od of li­cens­ing and M&A.

Hottest Ar­eas for Li­cens­ing

In­no­va­tion in im­muno-on­col­o­gy and ge­net­ics re­main “hot spots” for li­cens­ing in 2017 as they were in 2016. Spe­cif­ic ar­eas of in­ter­est in­clude CAR-T ther­a­pies, CRISPR-Cas9, can­cer vac­cines, biosim­i­lars and an­ti-body drug con­ju­gates. The “oth­er genome edit­ing ap­proach­es” cat­e­go­ry has al­so emerged this year as a hot area for li­cens­ing.

Sev­er­al fac­tors are con­tin­u­ing to con­spire to make these ar­eas ripe for deal­mak­ing. To start with, T-cell im­munother­a­py re­mains a hot area for fund­ing and re­search. It is still not clear whether CAR-T ther­a­pies will be wide­ly used in the fu­ture for a broad­er range of can­cers. But the op­por­tu­ni­ties for a break­through are con­tin­u­ing to fu­el high in­ter­est this year and will like­ly do so for the fore­see­able fu­ture. In ad­di­tion, there al­so con­tin­ues to be ex­ten­sive in­ter­est in ge­nomics and cell ther­a­pies. CRISPR/Cas9 has the at­ten­tion of hun­dreds of re­searchers world­wide, and in­ter­est in gene ther­a­py has de­vel­oped in­to a high in­ter­est area among buy­ers.

In­ter­est con­tin­ues in can­cer vac­cines as an area for li­cens­ing, dri­ven by de­vel­op­ments over the past few years in im­muno-on­col­o­gy and sev­er­al high-pro­file suc­cess­es in treat­ing pa­tients with var­i­ous con­di­tions in­clud­ing metasta­t­ic squa­mous non-small cell lung can­cer.

The CNS space is al­so hot go­ing in­to 2017, with deals that in­clude Vt­esses’ sale of its pre­clin­i­cal as­set VTS-270 (for Nie­mann-Pick Dis­ease Type C1) to Su­cam­po for $200 mil­lion up­front plus mile­stone pay­ments; Neu­rovance’s sale of its phase IIb com­pound cen­tanafa­dine (for AD­HD) to Ot­su­ka for $100 mil­lion up­front plus up to $250 mil­lion in mile­stone pay­ments; and Lyso­so­mal Ther­a­peu­tics sale of its phase Ib com­pound LTI-291 (for Parkin­son’s) to Al­ler­gan for $125 mil­lion up­front.

Al­so in ear­ly 2017, there have been two deals of com­pounds for non-al­co­holic steato­hep­ati­tis (NASH) with Al­ler­gan and J&J as buy­ers; in 2016 there were six NASH deals com­plet­ed with two of them val­ued at over $1 bil­lion. Most of the com­plet­ed deals in NASH have been for as­sets in ear­li­er stages of de­vel­op­ment. NASH is an at­trac­tive ther­a­peu­tic area be­cause there is a sig­nif­i­cant un­met need (no cur­rent­ly ap­proved treat­ments) and a large po­ten­tial pa­tient pop­u­la­tion. Some an­a­lysts val­ue the mar­ket at $20 bil­lion or more by 2026

Strate­gic Im­pli­ca­tions

One of the key take­aways from the 2017 Deal­mak­ers’ In­ten­tions Study is that while deal­mak­ing vol­ume in 2017 may con­tin­ue to lev­el out clos­er to his­tor­i­cal norms (al­though still rank­ing among the top three years in to­tal val­ue since 2009), de­ci­sion mak­ers are con­tin­u­ing to think cre­ative­ly about new part­ner­ship op­por­tu­ni­ties. True in­no­va­tors can ex­pect to ben­e­fit from the emer­gence of new buy­ers and more fi­nanc­ing op­tions from the cap­i­tal mar­kets, per­mit­ting them to hold on to as­sets through to com­mer­cial­iza­tion in some dis­ease ar­eas. How­ev­er, suc­cess with this strat­e­gy re­quires a clear un­der­stand­ing of the long-term po­ten­tial of their as­set in a rapid­ly evolv­ing buy­er’s mar­ket and pay­er land­scape. Cur­rent buy­ers may find high as­set prices a chal­lenge to get­ting deals done; how­ev­er, their abil­i­ty to raise cap­i­tal and the po­ten­tial for tax re­form in the US may cat­alyze deal­mak­ing.

This is the first post in a se­ries re­lat­ed to the 2017 Deal­mak­ers’ Study.  The next ar­ti­cle will re­port on ex­pec­ta­tions for sup­ply and de­mand of as­sets by ther­a­peu­tic area and stage of de­vel­op­ment.  Fol­low my LinkedIn page and check back on End­points News to read fu­ture ar­ti­cles on fac­tors im­pact­ing deal­mak­ing.

Au­thor Neel Pa­tel is Man­ag­ing Di­rec­tor in the Com­mer­cial Strat­e­gy and Plan­ning Prac­tice at in­Ven­tiv Health Con­sult­ing. in­Ven­tiv Health Con­sult­ing is an in­dus­try-lead­ing con­sult­ing firm spe­cial­iz­ing in the bio­phar­ma­ceu­ti­cal in­dus­try. Rec­og­nized by Forbes mag­a­zine as one of Amer­i­ca’s Best Man­age­ment Con­sult­ing Firms for two years run­ning, in­Ven­tiv Health Con­sult­ing pro­vides ser­vices across a com­pre­hen­sive range of key ar­eas, in­clud­ing com­mer­cial strat­e­gy and plan­ning, med­ical af­fairs, risk and pro­gram man­age­ment and pric­ing and mar­ket ac­cess.