Top 10 deal terminations in 2010

Back in 2008, an excited Pfizer shelled out $40 million upfront and agreed to make a $10 million equity investment in exchange for the worldwide rights to Celldex's CDX-110 (rindopepimut), a promising brain cancer vaccine. But by last September, that therapy no longer fit into Pfizer's new vision of its future, and the Big Pharma company washed its hands of its $440 million deal for the program.

News of the Pfizer pullout took a hefty chunk out of Celldex's stock value after investors got wind of the news. Partner pullouts typically indicate that a developer has plenty to be worried about. Since the reversal, though, the share price has rebounded.

With Big Pharma pipelines undergoing a massive overhaul in the wake of mega-mergers and a wholesale review of pipeline priorities, analysts at Deloitte Recap say that changed pipeline priorities have become the main reason for major deal disruptions since they began gathering data in 1977. And the program switch-ups played a key role in this year's top 10 deal terminations, featured in the chart below.

"Among deals valued greater than $350 million," notes Deloitte, "pipeline reprioritization beats lack of safety and efficacy as the reason for ending the pacts during the period, the data show in the third quarter 2010 Recap Roundup." And rather than the black eye that most investors ascribe to such a reversal, some of these program de-railings have provided some surprising bonuses for the biotechs involved.

Of course, says Deloitte Recap's Chris Dokomajilar, 'reprioritization'is often just a convenient excuse for a Big Pharma company that wantsout of a program that is headed straight for the rocks. But recent pipeline reorganizations have helped boost the number of authentic cases. And many go on to win a second chance at the deal table.

“Clean reversion is the biggest part of the deal,” says Dokomajilar. When a product is handed back without a lot of strings regarding residual payments and so on, then the biotech has a better shot at negotiating a new pact. And in fact, 26% of the jilted developers line up new partners.

Going forward, he adds, you can expect to see more pharma companies pulling the trigger on ill-fated drugs at an earlier stage. Over the past few years the bigger companies have been signing on to billion dollar-plus pacts. And they won't be hanging on long unless the programs continue to look promising. On the flip side, he added, successful programs are likely to spur more buyouts, as M&A deals begin to look more attractive than paying out a full set of milestones.

Here's Deloitte Recap's list of top reasons for not finishing a deal:

  • Pipeline reprioritization: 38%
  • Lack of safety/efficacy: 33%
  • Diligence: 7%
  • M&A activity: 7%
  • "Other:" 15%.

For the 1977-2010 period, 7 percent of the pacts disrupted by partners were terminated at the filing stage, 35 percent were annulled at Phase III, 29 percent at Phase II, 11 percent at Phase I, and 18 percent in the preclinical setting.

When Pfizer stepped in on CDX-110, the cancer vaccine was in mid-stage studies. And when it ended its participation two years later, it was just a few months shy of the median life span for deals that were ended after getting started in Phase II. Pre-clinical deals, the analysts add, typically end at a median three-year point--just like AV-299, an antibody program Merck inherited from Schering-Plough and returned to Aveo in the fall. Lead molecule partnerships which were undone lasted only slightly longer.

On washing its hands of AV-299 and the $490 million preclinical pact that Schering had signed off on (the fifth largest deal termination of 2010), Merck's pipeline priorities cost it a well developed commodity. And Aveo's shares spiked on the news.

Here are the top 10 deal terminations Deloitte Recap tracked in 2010. 

Alliance (Licensee/Licensor)

Signing Date

End Date

Length (Years)

Total Size ($M)

Equity ($M)

Stage at Signing

Subject

Novartis / Alnylam Pharmaceuticals

9/05

9/10

5.0

$700

$58.50

Discovery

RNAi Therapeutics Collaboration

Schering-Plough / Anacor Pharmaceuticals

2/07

2/10

3.0

$555

 

Phase II

AN2690 for onychomycosis fungal infection

Roche / InterMune

10/06

10/10

4.0

$530

 

Preclinical

ITMN-191 & Hepatitis C Protease Inhibitors

Merck / GTx

11/07

3/10

2.3

$507

$30

Phase II

Ostarine & selective androgen receptor modulators for sarcopenia

Schering-Plough / AVEO Pharmaceuticals

3/07

9/10

3.5

$490

$10

Preclinical

AV-299 Anti-HGF Antibody for cancer

Merck Serono / Lpath Therapeutics

10/08

4/10

1.5

$473

 

Phase I

ASONEP humanized monoclonal antibody for cancer

Pfizer / Celldex Therapeutics

4/08

9/10

2.4

$440

$10

Phase II

CDX-110 & EGFRvIII vaccines for glioblastoma multiforme

Cilag AG / Basilea Pharmaceutica

2/05

2/10

5.0

$300

 

Phase III

Ceftobiprole Worldwide

KOS Pharmaceuticals / SkyePharma

5/06

8/10

4.3

$165

 

Phase III

Flutiform for asthma in US

Merck / Intercell

10/06

5/10

3.6

$85.5

 

Preclinical

Prophylactic vaccine & antibodies for Group A Streptococcus

 

Top 10 deal terminations in 2010
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