Biotech's boom spells a spike in R&D down payments

The average upfront value in biotech deals hit a 9-year peak in 2014, according to Morrison & Foerster, part of a virtuous cycle in life sciences that has pushed asset valuations ever upward.

In its latest BioMeter Index, Morrison & Foerster notes that the average down payment swelled to $58.7 million per deal last year, a 73% jump over 2013's $33.9 million and the highest figure clocked since the firm started keeping track in 2006. Merck's ($MRK) head-turning $1 billion upfront for a handful of Bayer cardio assets inflated 2014's results a bit, but, even removing that outlier, the year's average tops anything Morrison & Foerster has ever tracked, the firm said.

The spike provides yet more evidence of the industry's current high tide. As ever, Big Pharma has wide gaps in its pipeline and needs biotech's help, but the enthusiastic reception for drug developers on Wall Street has provided both a near-term liquidity option for investors and a lever for boosting the valuations of startups and their assets. The result, as BioMeter illustrates, is a seller's market.

Last year's value surge was spread out across all areas of development. Preclinical transactions hit a 9-year high at $28 million on average, while Phase I deals leapt 13% to $45 million, and Phase II upfronts increased 77% to $83.5 million. Phase III asset values jumped from $46 million in 2013 to $101 million, and approved products more than quadrupled to $213 million, but only 6 such deals took place, Morrison & Foerster notes.

- read the report (PDF)