Biotech dealmaking pace slows, but PhII remains popular

For years now, the common wisdom in biotech has been that Phase II is the sweet spot for dealmaking. And for once, the common wisdom may be right.

Looking over the 416 licensing deals EvaluatePharma tracked for the first 6 months of the year, total upfronts and deal values for Phase II programs were well ahead of Phase III--as well as the pace set for mid-stage pacts in the first half of 2012. Total deal values for Phase II projects hit $3.2 billion--compared to $966 million for Phase III. But the lion's share of the $12.59 billion in commitments--$4.77 billion--went to research projects. That reflects a 120% increase year-over-year, though the upfront money on the table for 107 projects dropped from $170 million to a lean $124 million during the same periods.

Over the years, most start-up CEOs launch their companies with an eye to doing deals on lead projects around the mid-stage phase. By that time they should have some solid proof-of-concept data to show prospective partners. But there's also been a trend toward licensing more early-stage work to help fund development activities. And both of those trends were evident in EvaluatePharma's numbers.

At the other end of the spectrum, approved products also saw big increases in upfronts and deal values, though the total number of deals dwindled. It's important to note that when evaluating deal trends, one or two big pacts can tilt the playing field. And Celgene's ($CELG) $954 million research deal with Forma Therapeutics along with Gilead's ($GILD) $836 million collaboration with MacroGenics went a long way to demonstrating how that works. EvaluatePharma decided to leave out Elan's ($ELN) big Tysabri deal with Biogen Idec ($BIIB) so the analysts could get a better view of the underlying trends in the data.

Unless dealmaking picks up considerably in the second half, though, EP Vantage analysts say that the pace of the last three 6-month period suggests that there's little likelihood that the industry is headed for any records--particularly when you look back to the torrid pace of 2009 and 2010, as the patent cliff loomed. The deal total of 416 for H1 2013 is down 4% year-over-year and is 13% lower than the second half of 2012.

Also, with stock prices soaring ever higher, some biotechs may be getting lofty notions of what these products are worth in today's market.

"Deal-making across the first half the year suggests that licensing activity this year could struggle to come up even to the slow 2012," concludes EP Vantage, the editorial arm of EvaluatePharma. "The annual totals in the table below show that, if activity in the second half of this year remains at the same level, total deal values in 2013 should pick up slightly on last year, although up-front payments and the volume of deals have some way to catch up. One reading of this data could be that the biotech bubble has caused perceived asset values to become so bloated that buyers are being deterred."

- here's the analysis from EP Vantage

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