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Mid Pharma Licensing and M&A Trends, 2011–16 Hot TopicReport Extract

Ref Code: DMKC0169636Author: Chris Morrison

Hot Topic : Mid Pharma Licensing and M&A Trends, 2011–16 12

Trends in Alliance and M&A Volume and Value

ALLIANCE VOLUME AND VALUE TRENDS

Alliance volume peaked in 2014 Mid Pharma companies signed 302 alliances during the nearly six-year period from 1 January 2011 through to 30 September 2016.This includes in-licensing deals, out-licensing deals, options-to-license, options-to-acquire, and joint ventures. The total up-front valueof these alliances exceeds $10bn. The total number of alliances peaked in 2014, with 63 deals inked by Mid Pharma companies in thatyear. The mean number of alliances signed each year (including full-year adjusted 2016 figures) was 53. Overall, the number ofalliances in 2011, 2012, 2013, and 2015 hovered close to the mean, suggesting that over the past six years Mid Pharma licensingvolume held relatively steady. The drop off in 2016 is pronounced, however: Mid Pharma companies signed only 30 deals through to30 September 2016, to make a full-year adjusted total of just over 40 alliances, 13 short of the annual mean.

Figure 1: Mid Pharma alliance volume by deal type, Q1 2011–Q3 2016

Source: Medtrack; Strategic Transactions

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Although these high percentages are to be expected given that the top four acquisitions (accounting for 60% of all deal value) lackedany earn-outs, it is worth considering those earn-out deals on their own. Of the 33 private biotechs acquired by Mid Pharmacompanies, 21 acquisitions (nearly 64%) were structured buyouts with up-front payments and future milestones. Of those 21structured deals, 13 of the buyouts disclosed both the up-front payment and potential deal value. Only 38.2% of the total cumulative$6.4bn value of these 13 Mid Pharma/private biotech buyouts with terms disclosed was paid when the deal closed. This means thatnearly 62% of the value of these deals is in milestone payments related to developmental, regulatory, or commercial events. Public acquisition targets received a greater share of the deal value up front, a phenomenon that reflects these companies’ relativematurity compared with privately held biotechs. Among Mid Pharma’s 17 acquisitions of publicly traded companies (or assets sold bypublicly traded companies, like the Genentech facility), five deals featured disclosed earn-outs (or, in the parlance of public-companyearn-outs, contingent value rights). Nearly $8.2bn, or almost 78% of a total possible deal value of $10.5bn, was paid up front. Becauseof the low number of these structured deals with disclosed terms, it is not worthwhile to examine a change in up-front paymentpercentage over time. On average, publicly traded deal targets were, in this instance, further along in development than their privatelyheld counterparts. This suggests what might be otherwise intuitive: later-stage assets, with less development risk inherent in thebuyout, receive a greater percentage of total deal value up front.

Figure 15: Mid Pharma M&A up-front payments as percentage of total potential value, Q1 2011–Q3 2016

Source: Medtrack; Strategic Transactions

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Therapeutic Area Breakdown Trends

ALLIANCE THERAPEUTIC AREA TRENDS

Oncology leads the alliance field Oncology was the most active therapeutic area for Mid Pharma alliances overall, and for in-licensing deals (including options).Unsurprisingly, it also captured the most up-front value of any therapeutic category for combined in- and out-licensing deals, at nearly$4.9bn.

Overall, eight of the nine Mid Pharma companies signed at least one oncology-focused in- or out-licensing alliance (the exceptionbeing central nervous system [CNS]-focused Lundbeck). Reflecting strategic exits from the oncology field, UCB’s and Biogen’soncology deals were all out-licensing deals. Biogen licensed rights to its preclinical Bruton’s tyrosine kinase inhibitor to SunesisPharmaceuticals in January 2014. Interestingly, that molecule (SNS062) originated with a Sunesis-Biogen discovery alliance in 2003.UCB licensed intellectual property around cyclic dinucleotide molecules that activate the stimulator of interferon genes (or STING)pathway to Aduro Biotech in September 2014. In July 2016, UCB also licensed to Syndax Pharmaceuticals an Investigational New Drugapplication-ready anti-colony-stimulating factor-1R monoclonal antibody for $5m up front.

A full two-thirds of the Mid Pharma cohort were in-licensing oncology therapies during Q1 2011–Q3 2016. Celgene led the way with26 oncology in-licensing deals (and signed such deals in each of the six years covered by this report). Merck KGaA was second, inking21 oncology in-licensing deals (a total that includes four biomarker pacts).

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In-licensing value finds the preclinical through to Phase II “sweet spot” About three quarters of the more than $8.8bn total up-front value of Mid Pharma’s in-licensing deals over the Q1 2011–Q3 2016period is attached to deals around preclinical, Phase I, or Phase II assets. This is not surprising, as discovery deals tend to be focusedon the longer term, without specific compounds on which to hang larger up-front payments.

Celgene’s $1bn up-front deal with chimeric antigen receptor T-cell pioneer Juno Therapeutics helped boost the total Phase I up-frontvalue, as did Celgene’s $450m up-front deal to secure AstraZeneca’s anti-programmed death-ligand 1 (PD-L1) immunotherapydurvalumab. Together, these deals comprised about 75% of the roughly $2bn in up-front payments attached to Phase I in-licensingdeals. Phase II value was likewise dominated by a small handful of rich alliances, including Gilead’s $725m Galapagos deal andCelgene’s $710m deal with the Italian biotech Nogra Pharma.

The value around preclinical stage deals was spread more evenly, with at least 11 deals boasting up-front payments of $50m or more.The prolific early-stage deal maker Celgene featured in nearly half of these deals, signing five preclinical in-licensing or option-allianceswith up-front payments of at least $50m. Among the most prominent are immuno-oncology-focused option-alliances with JounceTherapeutics ($261m up-front payment) and Agios Pharmaceuticals ($200m up-front payment), as well as an in-licensing agreementwith Epizyme ($90m up-front payment).

Figure 23: Mid Pharma alliance volume by clinical stage, Q1 2011–Q3 2016

Source: Medtrack; Strategic Transactions

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