Most biotech analysts have been concentrating heavily on the weakened flow of venture dollars into the industry. But if you look at the licensing side of the business, you'll also find some solid reasons for concern.
Right up to the wire for the first half of the year, Deloitte Recap had counted $8.8 billion in deals, with announced biobuck milestones at $6.4 billion. That's way down from $13.6 billion in total deal sizes for the same period in 2011, when there were $8.3 billion in disclosed milestones. In 2010 for the first half, Deloitte Recap counted $14.3 billion in total deal dollars.
Then, at the 11th hour in late June, a couple of deals hit. In particular, AstraZeneca's $3.5 billion pact with Bristol-Myers Squibb over the diabetes drugs BMS is picking up in its $7 billion buyout of Amylin pushed the total for the first six months of the year to $12.5 billion. But even with the last-minute pop, the final figure for the first half of this year fell behind the same period for 2011.
Looking past AstraZeneca's big pact, the numbers shrink fast. Get down to the last of the top 20 deals this year and you'll find a modest $130 million deal total. For each of the two years prior to that, the figure for the last in the top-20 pack was over $300 million.
"Most of the hit came last year," says Deloitte senior biotech analyst Chris Dokomajilar, as deals shifted from outlicensing into M&A as Big Pharma companies got hot on bolt-on transactions. And that's continued this year with a slate of completed or attempted acquisition deals. With other demands for their money, the spigot on biotech licensing pacts is getting twisted back.
"I think deals are getting smaller," adds Dokomajilar, "but most of that hit came out of milestone events."
On the buy side, pharma companies are much more aware of how much they're committing to deals these days. And biotechs are willing to give up more on the back end in order to get more upfront. That push and shove has kept upfront sums relatively stable, while downstream you can see the promised flow of potential deal dollars dwindling.
With IPOs largely excluded from most biotechs' game plans, "the sell side has gone back to doing deals to get undiluted capital," says the analyst. "They want more upfront at the cost of milestone totals. The sell side is more realistic. They're not doing over-inflated deals."
On the buy side, "the big push from pharma is more controlled, with smaller expenditures. They have to justify what they are spending on R&D." And as a result we're seeing fewer broad platform deals in favor of single-product pacts, where pharma can focus with razor sharpness on success or failure.
Don't look for any shift in the deal trend anytime soon, adds the analyst, who sums up the numbers in this buyer's market as a solid reflection of the "back-to-reality" school of pacts. "What we need to see is the old school venture capital coming in."
But the trend also doesn't look good on the VC end of things. -- John Carroll, Editor-in-Chief. Follow me on Twitter and LinkedIn.