Bio­phar­ma­ceu­ti­cal Deal­mak­ers’ In­ten­tions in 2018: Bull­ish Run to Con­tin­ue Amidst Signs of Greater Risk Aver­sion

By Neel Pa­tel and Sachin Pur­war

Ret­ro­spec­tive da­ta on deal­mak­ing in the bio­phar­ma­ceu­ti­cal in­dus­try is fair­ly easy to ac­cess from a num­ber of sources. Crys­tal balls are hard­er to come by, but the Deal­mak­ers’ In­ten­tions Study, con­duct­ed by Sy­neos Health Con­sult­ing each year for the last 10 years, comes close. As the on­ly for­ward-look­ing mea­sure of deal­mak­ing in the in­dus­try, the study pro­vides a re­view of bio­phar­ma­ceu­ti­cal deal­mak­ers’ in­ten­tions around li­cens­ing and ac­qui­si­tions for the next twelve months and iden­ti­fies ar­eas of great­est op­por­tu­ni­ty – and po­ten­tial pit­falls – for buy­ers and sell­ers.

Based on this year’s study, we pre­dict that deal­mak­ing val­ue (M&A and part­ner­ing) could reach $200-$300 bil­lion in 2018 – the sec­ond high­est lev­el in a decade, al­though still on­ly about 60 per­cent of the record lev­el seen in 2015 (Fig. 3). This ac­cel­er­a­tion in deal­mak­ing is an in­di­ca­tion not just of the mon­ey flood­ing the sys­tem—thanks to a ro­bust fi­nanc­ing en­vi­ron­ment, tax re­form in the U.S. and the ex­pect­ed repa­tri­a­tion of sig­nif­i­cant funds from over­seas, which is an episod­ic bump like­ly to have rip­ple ef­fects in­to 2019 as well—but al­so re­flects a thirst for in­no­va­tion as com­pa­nies seek to re­plen­ish de­plet­ed pipelines, strength­en their po­si­tions in tar­get­ed ther­a­peu­tic ar­eas, and race to stay ahead of the tech­nol­o­gy curve.

Read the full study find­ings.

 

To gain more in­sight in­to what the rest of 2018 holds, Sy­neos HealthTM sur­veyed deal­mak­ers across the in­dus­try to as­sess their in­ten­tions for the next 12 months and put these find­ings in­to con­text for the year ahead. This year, we sur­veyed 66 mem­bers of the bio­phar­ma­ceu­ti­cal com­mu­ni­ty who par­tic­i­pate on ei­ther or both sides of deals and who are pre­dom­i­nant­ly ex­ec­u­tive-lev­el in­flu­encers on de­ci­sion-mak­ing. The 2018 Deal­mak­ers’ In­ten­tions Study, the 10th in our se­ries, cap­tures their ex­pec­ta­tions for deal ac­tiv­i­ty, sup­ply and de­mand for spe­cif­ic as­sets at dif­fer­ent de­vel­op­ment stages, and var­i­ous fac­tors af­fect­ing deal­mak­ing. In this ar­ti­cle, we dis­cuss high-lev­el deal­mak­ing trends for 2018, ex­pec­ta­tions by deal type, and fac­tors in­di­cat­ing buy­ers are be­com­ing a bit more se­lec­tive about the as­sets they are pur­su­ing and more risk averse.

IPOs vs. Ven­ture Fi­nanc­ing in 2018

The ini­tial pub­lic of­fer­ing (IPO) land­scape is pro­ject­ed to be around the av­er­age of the five-year trend, with ex­pect­ed vol­ume of just over $2.5 bil­lion. Al­though IPO vol­ume is not ex­pect­ed to reach the lev­el we saw in 2017, this year is shap­ing up to be a rel­a­tive­ly strong en­vi­ron­ment com­pared to his­tor­i­cal stan­dards.

In con­trast, ven­ture fi­nanc­ing in the life sci­ences has wit­nessed a bull mar­ket run that start­ed in 2014 and re­sult­ed more than dou­bling in an­nu­al ven­ture fi­nanc­ings in 2015-2017 ver­sus the his­tor­i­cal av­er­age in 2009-2014 (Fig. 5). Ad­di­tion­al­ly, we are see­ing a greater amount of fund­ing per in­di­vid­ual ven­ture fi­nanc­ing deal, which has more than dou­bled across all ven­ture in­vest­ments in life sci­ences when you com­pare the av­er­age of 2009-2013 ver­sus 2014-2017. Based on Q1 2018 num­bers, 2018 ven­ture fi­nanc­ing is on pace to reach $10-11 bil­lion, which will put it just be­hind the un­prece­dent­ed ~$12 bil­lion that we saw in the peak in 2017. In par­tic­u­lar, Se­ries A fi­nanc­ing stands out as it is ex­pect­ed to see more than 80 per­cent growth in 2018 (sim­i­lar to the jump from 2014-2016). The in­crease in Se­ries A fi­nanc­ing in­di­cates a ro­bust in­vestor ap­petite to fu­el new com­pa­ny for­ma­tion that is like­ly the re­sult of the ex­it op­por­tu­ni­ties in life sci­ences cre­at­ed through M&A and part­ners in the last few years. A large in­crease in Se­ries D+ in­di­cates that many com­pa­nies are opt­ing to stay pri­vate longer to avoid an IPO and de­vel­op their pipeline to more mean­ing­ful val­ue in­flec­tion points or com­mer­cial­ize them­selves.

Signs of Greater Risk Aver­sion

Over­all, there is a strong con­sen­sus among buy­ers and sell­ers that deal­mak­ing will ei­ther in­crease or stay the same. Both groups ex­pect about the same lev­el of out­right ac­qui­si­tions. How­ev­er, buy­ers are more op­ti­mistic than sell­ers that there will be an in­crease in tra­di­tion­al li­cens­ing/part­ner­ship deals in 2018. This is in spite of an ex­pect­ed in­crease in deal flow and a po­ten­tial in­crease in cap­i­tal thanks to repa­tri­a­tion and fa­vor­able tax law changes, which may sug­gest that an off­set of risk is com­ing back in­to play.

In ad­di­tion, for 2018 we are see­ing a greater par­i­ty in the dis­count rate be­tween buy­er and sell­er (both 17 per­cent) com­pared to the 4 per­cent spread we saw in 2017. This shrink­ing gap in dis­count rates may be the re­sult of the bull mar­ket in pri­vate fi­nanc­ings. It could sug­gest an in­crease in part­ner­ships as op­posed to out­right ac­qui­si­tions as sell­ers as­sign high­er val­u­a­tions to their as­sets com­pared to 2017, and buy­ers will look to struc­ture deals where the sell­er par­tic­i­pates in some of the risk. It may al­so sug­gest that not enough val­ue is be­ing cre­at­ed for buy­ers through the trans­ac­tion from a straight rev­enue per­spec­tive and they will have to be more re­liant on syn­er­gies with ex­ist­ing ca­pa­bil­i­ties. With dis­count rates at par­i­ty, in-li­censers and out-li­censers will need to have sim­i­lar com­mer­cial ex­pec­ta­tions for an as­set in or­der to align on over­all val­ue as there may be less flex­i­bil­i­ty around ne­go­ti­a­tion. Giv­en our hy­poth­e­sis last year that a wider spread leads to in­creased ac­tiv­i­ty in the fol­low­ing year (which ear­ly ex­pec­ta­tions for 2018 are show­ing to be the case), this year’s par­i­ty may al­so be an in­di­ca­tor of a slow­down in ac­tiv­i­ty in 2019.

Deals Get­ting Hard­er to Close

An­oth­er fac­tor sig­nal­ing that buy­ers are be­com­ing a bit more se­lec­tive about the as­sets they are pur­su­ing and a bit more risk averse is the over­all deal con­ver­sion rate for 2017 which, at 1.9 per­cent, was much low­er than in pre­vi­ous years (Fig. 6). This could par­tial­ly be due to the in­creased num­ber of screened prod­ucts per com­pa­ny (60/com­pa­ny in 2017 vs. 50/com­pa­ny in 2016), as well as few­er deals pro­gress­ing to term sheet. Ad­di­tion­al­ly, there are like­ly more com­pa­nies in the mix for trans­ac­tions due to the fa­vor­able fi­nanc­ing en­vi­ron­ment. Pro­gres­sion to CDA rates dur­ing 2017 were sim­i­lar to what we saw in 2016 but the pro­gres­sion to term sheets and com­plet­ed trans­ac­tions dropped sig­nif­i­cant­ly (from 38 per­cent to 26 per­cent and 37 per­cent to 25 per­cent, re­spec­tive­ly). So, while there is ap­par­ent­ly a lot of talk­ing go­ing on, is­sues re­lat­ed to strate­gic align­ment, risk and/or due dili­gence are mak­ing deals hard­er to close. With deals fail­ing at a lat­er stage of the process, even af­ter pro­gres­sion to term sheet, it should be a re­minder for sell­ers not to take their eye off the ball but to be vig­i­lant and re­spon­sive to their part­ner’s re­quests and need­ed un­til the trans­ac­tion is com­plet­ed, even in this very ro­bust deal­mak­ing en­vi­ron­ment.

Fig­ure 6


For more on the Deal­mak­ers’ In­ten­tions 2018 Study, watch for the sec­ond ar­ti­cle in this se­ries, which will re­port on ex­pec­ta­tions for as­set sup­ply and de­mand by ther­a­peu­tic area and stage of de­vel­op­ment, along with per­spec­tives from lead­ing deal­mak­ers on the study’s find­ings and what they mean for bio­phar­ma­ceu­ti­cal deal­mak­ing go­ing for­ward. Fol­low my LinkedIn page and check back on End­points to find ad­di­tion­al in­sights on fac­tors im­pact­ing bio­phar­ma­ceu­ti­cal deal­mak­ing.

Au­thors: Neel Pa­tel is Man­ag­ing Di­rec­tor, Com­mer­cial Strat­e­gy and Plan­ning for Sy­neos Health Con­sult­ing, and Sachin Pur­war is Di­rec­tor, Com­mer­cial Strat­e­gy and Plan­ning for Sy­neos Health Con­sult­ing. Sy­neos Health Con­sult­ing is an in­dus­try-lead­ing con­sult­ing firm spe­cial­iz­ing in the bio­phar­ma­ceu­ti­cal in­dus­try and part of Sy­neos Health, the on­ly ful­ly in­te­grat­ed bio­phar­ma­ceu­ti­cal so­lu­tions or­ga­ni­za­tion. We pro­vide ser­vices across a com­pre­hen­sive range of key ar­eas, in­clud­ing com­mer­cial strat­e­gy and plan­ning, med­ical af­fairs, risk and pro­gram man­age­ment and pric­ing and mar­ket ac­cess. Rec­og­nized by Forbes mag­a­zine as one of Amer­i­ca’s Best Man­age­ment Con­sult­ing Firms for three years run­ning, our in­dus­try fo­cus and depth of func­tion­al ex­per­tise, com­bined with strong sci­en­tif­ic and mar­ket knowl­edge, unique­ly po­si­tion us to tack­le high­ly com­plex busi­ness and mar­ket chal­lenges to de­vel­op ac­tion­able strate­gies for our clients. For more in­for­ma­tion, please vis­it sy­neoshealth.com/so­lu­tions/con­sult­ing.

Nick Leschly via Getty

UP­DAT­ED: Blue­bird shares sink as an­a­lysts puz­zle out $1.8M stick­er shock and an un­ex­pect­ed de­lay

Blue­bird bio $BLUE has un­veiled its price for the new­ly ap­proved gene ther­a­py Zyn­te­glo (Lenti­Glo­bin), which came as a big sur­prise. And it wasn’t the on­ly un­ex­pect­ed twist in to­day’s sto­ry.

With some an­a­lysts bet­ting on a $900,000 price for the β-tha­lassemia treat­ment in Eu­rope, where reg­u­la­tors pro­vid­ed a con­di­tion­al ear­ly OK, blue­bird CEO Nick Leschly said Fri­day morn­ing that the pa­tients who are suc­cess­ful­ly treat­ed with their drug over 5 years will be charged twice that — $1.8 mil­lion — on the con­ti­nent. That makes this drug the sec­ond most ex­pen­sive ther­a­py on the plan­et, just be­hind No­var­tis’ new­ly ap­proved Zol­gens­ma at $2.1 mil­lion, with an­a­lysts still wait­ing to see what kind of pre­mi­um can be had in the US.

Ted Love. HAVERFORD COLLEGE

Glob­al Blood Ther­a­peu­tics poised to sub­mit ap­pli­ca­tion for ac­cel­er­at­ed ap­proval, with new piv­otal da­ta on its sick­le cell dis­ease drug

Global Blood Therapeutics is set to submit an application for accelerated approval in the second-half of this year, after unveiling fresh data from a late-stage trial that showed just over half the patients given the highest dose of its experimental sickle cell disease drug experienced a statistically significant improvement in oxygen-wielding hemoglobin, meeting the study's main goal.

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Gene ther­a­pies seize the top of the list of the most ex­pen­sive drugs on the plan­et — and that trend has just be­gun

Anyone looking for a few simple reasons why the gene therapy field has caught fire with the pharma giants need only look at the new list of the 10 most expensive therapies from GoodRx.

Two recently approved gene therapies sit atop this list, with Novartis’ Zolgensma crowned the king of the priciest drugs at $2.1 million. Right below is Luxturna, the $850,000 pioneer from Spark, which Roche is pushing hard to acquire as it adds a gene therapy group to the global mix.

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Bain’s biotech team has cre­at­ed a $1B-plus fund — with an eye to more Big Phar­ma spin­outs

One of the biggest investors to burst onto the biotech scene in recent years has re-upped with more than a billion dollars flowing into its second fund. And this next wave of bets will likely include more of the Big Pharma spinouts that highlighted their first 3 years in action.

Adam Koppel and Jeff Schwartz got the new life sciences fund at Bain Capital into gear in the spring of 2016, as they were putting together a $720 million fund with $600 million flowing in from external investors and the rest drawn from the Bain side of the equation. This time the external investors chipped in $900 million, with Bain coming in for roughly $180 million more.

They’re not done with Fund I, with plans to add a couple more deals to the 15 they’ve already posted. And once again, they’re estimating another 15 to 20 investments over a 3- to 5-year time horizon for Fund II.

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News­mak­ers at #EHA19: Re­gen­eron, Ar­Qule track progress on re­sponse rates

Re­gen­eron’s close­ly-watched bis­pe­cif­ic con­tin­ues to ring up high re­sponse rates

Re­gen­eron’s high-pro­file bis­pe­cif­ic REGN1979 is back in the spot­light at the Eu­ro­pean Hema­tol­ogy As­so­ci­a­tion sci­en­tif­ic con­fab. And while the stel­lar num­bers we saw at ASH have erod­ed some­what as more blood can­cer pa­tients are eval­u­at­ed, the re­sponse rates for this CD3/CD20 drug re­main high.

A to­tal of 13 out of 14 fol­lic­u­lar lym­phomas re­spond­ed to the drug, a 93% ORR, down from 100% at the last read­out. In 10 out of 14, there was a com­plete re­sponse. In dif­fuse large B-cell lym­phoma the re­sponse rate was 57% among pa­tients treat­ed at the 80 mg to 160 mg dose range. They were all com­plete re­spons­es. And 2 of these Cars were for pa­tients who had failed CAR-T ther­a­py.

Neil Woodford, Woodford Investment Management via YouTube

Un­der siege, in­vest­ment man­ag­er Wood­ford faces an­oth­er in­vest­ment shock

Em­bat­tled UK fund man­ag­er Neil Wood­ford — who has con­tro­ver­sial­ly blocked in­vestors from pulling out from his flag­ship fund to stem the blood­let­ting, af­ter a slew of dis­ap­point­ed in­vestors fled fol­low­ing a se­ries of sour bets — is now pay­ing the price for his ac­tions via an in­vestor ex­o­dus on an­oth­er fund.

Har­g­reaves Lans­down, which has in the past sold and pro­mot­ed the Wood­ford funds via its re­tail in­vest­ment plat­form, has re­port­ed­ly with­drawn £45 mil­lion — its en­tire po­si­tion — from the in­vest­ment man­ag­er’s In­come Fo­cus Fund.

Search­ing for the next block­buster to fol­low Darza­lex, J&J finds a $150M an­ti-CD38 drug from part­ner Gen­mab

Now that J&J and Genmab have thrust Darzalex onto the regulatory orbit for first-line use in multiple myeloma, the partners are lining up a deal for a next-gen follow-on to the leading CD38 drug.


Janssen — J&J’s biotech unit — has its eyes on HexaBody-CD38, a preclinical compound generated on Genmab’s tech platform designed to make drugs more potent via hexamerization.


Genmab is footing the bill on studies in multiple myeloma and diffuse large B-cell lymphoma; once it completes clinical proof of concept, Janssen has the option to license the drug for a $150 million exercise fee. There’s also $125 million worth of milestones in play.

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Ab­b­Vie touts new da­ta for Hu­mi­ra suc­ces­sor; Gilead inks dis­cov­ery deal

→ Ab­b­Vie is tout­ing new pos­i­tive da­ta com­par­ing their ag­ing block­buster Hu­mi­ra with their hoped-for block­buster upadac­i­tinib. Over 48 weeks a larg­er pro­por­tion of pa­tients tak­ing the ex­per­i­men­tal drug ex­pe­ri­enced clin­i­cal re­mis­sion than in the con­trol arm with Hu­mi­ra. Their drug brought in $20 bil­lion last year, top­ping the scales in the num­ber 1 slot.

→ Gilead has turned to Van­cou­ver-based Ab­Cellera for its lat­est dis­cov­ery deal. Ab­Cellera will use its know-how in “sin­gle-cell screen­ing of nat­ur­al im­mune sources” to find an­ti­body can­di­dates for Gilead to pur­sue in the in­fec­tious dis­ease field. The deal in­cludes an up­front and mile­stones.

Turns out, Rudy Tanzi did­n't see much of a sto­ry about a hid­den link be­tween En­brel and Alzheimer's ei­ther

The Wash­ing­ton Post man­aged to whip up the quick­est in­dus­try con­sen­sus I’ve ever seen that one of its re­porters was pur­vey­ing overblown non­sense with a sto­ry that Pfiz­er was sit­ting on da­ta sug­gest­ing that En­brel could be an ef­fec­tive treat­ment for Alzheimer’s. 

In cov­er­ing that bit of an­ti-Big Phar­ma fan­ta­sy — there are lots of rea­sons to go af­ter phar­ma, but this piece was lu­di­crous — I not­ed com­ments in the sto­ry from some promi­nent peo­ple in the field crit­i­ciz­ing Pfiz­er for not pub­lish­ing the da­ta. I sin­gled out Rudy Tanzi at Har­vard and then ap­plied some added crit­i­cism for the things he’s done to hype — in my opin­ion — high­ly ques­tion­able as­sump­tions. You can see it in the link.