How as­set sup­ply and de­mand is shap­ing bio­phar­ma­ceu­ti­cal deal­mak­ing

This year is shap­ing up to be an­oth­er ro­bust year for deal­mak­ing in the phar­ma­ceu­ti­cal and biotech in­dus­try, al­though it will like­ly re­main well be­low 2015 lev­els. How­ev­er, there is a much greater mis­match be­tween sup­ply and de­mand for as­sets than we saw in 2016, ac­cord­ing to the 2017 Deal­mak­ers’ In­ten­tions Study, with im­pli­ca­tions for those seek­ing op­por­tu­ni­ties and valu­ing them. Deal­mak­ers’ In­ten­tions, con­duct­ed by in­Ven­tiv Health Con­sult­ing and now in its ninth year, is the on­ly for­ward-look­ing mea­sure of deal­mak­ing in the in­dus­try.

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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, fac­tors in­flu­enc­ing deal­mak­ing and deal fail­ure, li­cens­ing hot spots and var­i­ous ap­proach­es to val­u­a­tion. In this sec­ond ar­ti­cle in a two-part se­ries, we dis­cuss the ex­pec­ta­tions buy­ers and sell­ers have for the year ahead and what the sup­ply and de­mand pic­ture looks like for as­sets by de­vel­op­ment stage and ther­a­peu­tic area.

Ex­pec­ta­tions for 2017

Con­sis­tent with his­tor­i­cal re­sults, this year’s sur­vey shows sell­ers are slight­ly more op­ti­mistic than buy­ers that deal­mak­ing will con­tin­ue to be strong in 2017 (Fig. 1), with both groups ex­pect­ing about the same amount of li­cens­ing and part­ner­ship deals as 2016 (in­clud­ing tra­di­tion­al li­cens­ing/part­ner­ship, out­right ac­qui­si­tion, ac­qui­si­tion with earn-out, pri­vate fi­nanc­ing, IPOs and oth­er pub­lic eq­ui­ty, and more deals with pro­vi­sion­al ac­qui­si­tions and pub­lic eq­ui­ty). In 2016, sell­ers had sim­i­lar ex­pec­ta­tions for out­right ac­qui­si­tions, but buy­ers and sell­ers were more op­ti­mistic for tra­di­tion­al li­cens­ing/part­ner­ships and ac­qui­si­tion with earn-outs.

Sup­ply and de­mand by de­vel­op­ment stage

Com­pared to 2016 we are see­ing a greater mis­match be­tween the as­sets buy­ers want to buy and those that sell­ers want to sell (Fig. 2). For 2017, buy­ers have a 200+% high­er in­ter­est in ac­quir­ing phase III and mar­ket­ed as­sets than sell­ers have in part­ing with them. By an equal mea­sure, sell­ers have a 200+% high­er in­ter­est in sell­ing their pre­clin­i­cal as­sets than buy­ers have in ac­quir­ing them. A full 54% of sell­ers have as­sets avail­able in pre­clin­i­cal but on­ly 24% of buy­ers are in­ter­est­ed. In con­trast, 32% of buy­ers were in­ter­est­ed in pre­clin­i­cal as­sets in 2016. The de­cline from last year sug­gests that buy­ers are be­com­ing more risk averse and are wait­ing for lat­er stage prod­ucts with more da­ta. How­ev­er, pre-clin­i­cal as­sets are still gen­er­at­ing high­er over­all in­ter­est rel­a­tive to as­sets in phase I, II or III. Pre­clin­i­cal as­sets can be ac­quired much less ex­pen­sive­ly and are at­trac­tive as buy­ers nar­row their ther­a­peu­tic ar­eas of fo­cus and en­gage in stiff com­pe­ti­tion to break in­to hot ther­a­peu­tic ar­eas or gain tech­no­log­i­cal ad­van­tage.

In con­trast, the sup­ply and de­mand dy­nam­ic in the mid­dle of the mar­ket (phase I and II) is far more bal­anced, con­tin­u­ing the trend we saw in 2016. Here, 18% of buy­ers re­port be­ing in­ter­est­ed in ac­quir­ing phase II as­sets and 14% of sell­ers re­port be­ing in­ter­est­ed in sell­ing them. Buy­er and sell­er in­ter­est are al­so close­ly matched with re­gard to phase I as­sets (at 16% and 18%, re­spec­tive­ly). Over­all, pre­clin­i­cal con­tin­ues to be a rel­a­tive buy­ers’ mar­ket, and phase III and mar­ket­ed prod­ucts are rel­a­tive sell­ers’ mar­kets.

Sup­ply and de­mand by ther­a­peu­tic area

Com­par­ing ther­a­peu­tic ar­eas of in­ter­est with sell­ers’ avail­able as­sets, one can see there are sig­nif­i­cant ar­eas of dis­par­i­ty in de­mand or sup­ply of as­sets in the cur­rent deal­mak­ing en­vi­ron­ment (Fig. 3). A sell­ers’ mar­ket ex­ists at all phas­es in the ar­eas of he­pat­ic dis­ease in­clud­ing non-al­co­holic steato­hep­ati­tis (NASH), women’s health and most of the CNS-neu­rol­o­gy space.

Ad­di­tion­al­ly, a sell­ers’ mar­ket ex­ists in pain, re­nal and vac­cine ther­a­peu­tic ar­eas and in some phas­es of the on­col­o­gy, au­toim­mune, in­flam­ma­tion and CNS-psy­chi­a­try spaces. The sell­ers’ mar­ket in these ar­eas will like­ly re­sult in sig­nif­i­cant in­creas­es in val­ue for the more promis­ing as­sets.

On the oth­er hand, the sup­ply of as­sets – most no­tably, pre­clin­i­cal as­sets – over­shad­ows buy­er de­mand in sev­er­al ther­a­peu­tic ar­eas in­clud­ing car­dio­vas­cu­lar, on­col­o­gy, CNS-psy­chi­a­try, in­flam­ma­tion and au­toim­mune dis­eases, mak­ing these buy­er mar­kets. Com­pared to last year, buy­er en­thu­si­asm ap­pears to have ta­pered rel­a­tive to sup­ply with re­gard to in­fec­tious dis­ease, on­col­o­gy, au­toim­mune and CNS-psy­chi­a­try as­sets. How­ev­er, with re­gard to on­col­o­gy, the vol­ume of de­vel­op­ment ac­tiv­i­ty has kept this ther­a­peu­tic area in a buy­er’s mar­ket mode over­all for the sec­ond year in a row.

Be­low are the spe­cif­ic com­bi­na­tions of ther­a­peu­tic ar­eas and stages of de­vel­op­ment an­tic­i­pat­ed to have the high­est sup­ply and de­mand im­bal­ances this year (Fig. 4):

• De­mand sur­plus (i.e., sell­ers’ mar­ket):
  • CNS-Neu­rol­o­gy (phase I-III, mar­ket­ed)
  • He­pat­ic (phase II)
  • Hema­tol­ogy (phase I, III)
  • Women’s Health (phase II, mar­ket­ed)
  • On­col­o­gy (phase II and mar­ket­ed)
  • En­docrine/Meta­bol­ic (phase II)
• Sup­ply sur­plus (i.e., buy­er’s mar­ket):
  • Gas­troin­testi­nal (phase II)
  • On­col­o­gy (pre­clin­i­cal, phase II)
  • Au­toim­mune (pre­clin­i­cal)
  • In­flam­ma­tion (pre­clin­i­cal)
  • CNS-Psy­chi­a­try (pre­clin­i­cal)
  • Car­dio­vas­cu­lar (pre­clin­i­cal)

Strate­gic Im­pli­ca­tions

In many re­spects, this is still a sell­er’s mar­ket as buy­ers nar­row their ther­a­peu­tic ar­eas of fo­cus and fierce­ly com­pete for en­try and lead­er­ship in hot ther­a­peu­tic ar­eas or to gain tech­no­log­i­cal ad­van­tage. How­ev­er, buy­ers and sell­ers must be aware of im­bal­ances in sup­ply and de­mand as a way of iden­ti­fy­ing op­por­tu­ni­ties and un­der­stand­ing val­ue. Specif­i­cal­ly:

• A sell­er’s mar­ket ex­ists for all phas­es of he­pat­ic dis­ease, women’s health and most CNS-neu­rol­o­gy as­sets.
• The vol­ume of de­vel­op­ment ac­tiv­i­ty in on­col­o­gy has kept this ther­a­peu­tic area in a buy­er’s mar­ket for the sec­ond year in a row.
• In­no­va­tion con­tin­ues to dri­ve de­mand in im­muno-on­col­o­gy and ge­net­ics. Hot ar­eas and tech­nolo­gies of in­ter­est in­clude CAR-T ther­a­py, CRISPR-Cas9, can­cer vac­cines, biosim­i­lars and an­ti­body drug con­ju­gates.

This is the sec­ond post in a se­ries re­lat­ed to the 2017 Deal­mak­ers’ Study. The first ar­ti­cle re­port­ed on the top fac­tors in­flu­enc­ing deal­mak­ing this year and pro­vid­ed in­sight on the hottest ar­eas for li­cens­ing. Fol­low my LinkedIn page to read fu­ture blogs and in­sights 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.