Large company M&A continues to dominate headlines with estimates for the year surpassing USD 200 billion in total value. That is above records set in 2014, a year that with saw a flurry of pharma franchise swapping and further consolidation in the specialty pharma space.
Having set this context in a presentation during the opening plenary session at BIO-Europe®, David Thomas, Senior Director of Industry Research at the Biotechnology Industry Organization (BIO), offered a fresh perspective on industry dealmaking over the past year with a focus on smaller drug developers, which he defined as companies with less than USD 1 billion in annual sales.
“What we don’t often see in the headlines is an assessment of the small company dealmaking environment,” he said, asking the audience of business development executives what importance they place on this class of smaller companies.
An analysis of the BioMedTracker Clinical Trial database shows there are currently 5,070 clinical programs in Phase I, Phase II, or Phase III, being developed by companies worldwide. “Seventy percent of these clinical programs today originated from small companies, which is quite an impressive number,” said Thomas.
“Perhaps more interesting, 42% of these programs are now partnered,” he said, noting that translates into more than 1,400 partnered clinical programs, fast approaching the total in-house programs currently inside the 68 large companies, which he pegged at just north of 1,500 programs.
“This illustrates how far the large and small company interdependence has come,” he said.
Thomas then put the partnering activity in dollar terms, showing a decade worth of annual aggregate upfront payments coming into small companies that out-license R&D-stage assets.
“With two more months to go in 2015, we are already at USD 5.4 billion and may well set a new record by breaking last’s year’s USD 5.8 billion,” he said.
To put that in perspective, the total venture capital in the United States for biopharma was just under USD 5 billion last year.
Even when these deals are calculated in “BioBuck” terms, which include potential milestone payments, dealmaking for 2015 will reach a record high, with USD 43 billion so far in 2015.
According to Thomas, the large increases seen in 2014 and again in 2015 are due to a surge in the number of big deals in excess of USD 100 million upfront. “Most of these big deals with small companies are in oncology. In fact, seven of the top 10 deals this year were in oncology,” he said.
Another trend he highlighted is that licensing has shifted to an earlier stage of clinical development. Upfronts for pre-clinical programs rose to an all-time high of almost USD 2 billion, and drilling down to Phase I programs reveals a seven-year high for such deals.
Turning to acquisitions of small R&D-stage companies, he said 2015 will set an all-time record year with USD 23 billion paid out to date. Two big deals that propelled the totals into double digit billions were Alexion’s acquisition of Synageva for USD 8.6 billion, followed by Celgene’s Receptos purchase for USD 7.3 billion. The resulting totals will top the previous high water mark set in 2011, when Gilead acquired Pharmasset for USD 11 billion.
Beyond the increase seen in the average amount paid for R&D-stage companies, Thomas said two trends stand out in 2015.
First is that among the top 10 deals, only one was in oncology, a stark contrast with the situation in licensing. There are more deals for rare disease companies, exemplified by the Synegeva acquisition, and a mix of deals in inflammation, neurology and ophthalmology.
A second trend is that we also are seeing an overall rise in Phase III acquisitions, again a contrast with licensing deals where there is actually a decrease in Phase III out-licensing.
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