Pharm Exec's 2014 Dealmakers Outlook

Jul 10, 2014

Start Early, Stay Late

Experts from big Pharma and biotech dissect the road ahead for M&As, licensing, and partnerships.

Roundtable Participants

Igor Bilinsky, SVP, Corporate Development, Vical Pharmaceuticals

Mike Broxson, Head Global Licensing, Takeda Pharmaceuticals

Christophe Degois, VP, Business Development, Geron Corporation

Doug Fisher, Partner, InterWest Partners

Josh Grass, SVP, Business and Corporate Development, BioMarin

Curt Herberts, Senior Director, Corporate Development & Strategy, Sangamo Biosciences

Ravi Kiron, Entrepreneur in Residence, SRI International

Jason Levin, Chief Business Officer, Sorbent Therapeutics

Gail Maderis, President, BayBio

Kimberly Manhard, Co-Founder and SVP, Ardea Biosciences

Neel Patel, Director, Campbell Alliance

Jim Schaeffer, Executive Director, Business Development, Merck & Co.

Dr. Jay Tung, Chief Research Officer, Myelin Repair Foundation

Samuel Wu, Managing Director, MedImmune Ventures

After fading to dreary summer stock for the past few years, dealmaking is today back to center stage, but with the major roles reversed—small biotech, yesterday's understudy, now gets top billing, while big Pharma has to work harder for its close-up. As the pacing around the urge to merge picks up, Pharm Exec brought partner Campbell Alliance and a select group of West Coast dealmakers to a Sonoma raceway for a test performance on what lies ahead for asset licensing and M&A activity in 2014. The following is excerpts from a full morning of discussion—and despite all the high-octane rhetoric around deals, the key differentiator of success hasn't much changed. It's still that hard—and honestly wrought–evidence of value to payers and patients.

— William Looney, Editor-in-Chief

PE : Campbell Alliance has conducted its Survey of Dealmaker Intentions for six years, one of the most volatile periods in memory. Three of Pharm Exec's top 20 sales leaders—Wyeth, Schering-Plough and Genentech—have disappeared, along with major realignments in the generics and mid-size biotech sectors. What has been distinctive about the past 12 months and how is this weighing on the current business calculations of pharma companies and the host of new partners emerging in this space?

Neel Patel, Campbell Alliance: Our annual survey, which was conducted early in the first quarter this year, is focused on director-level and above executives engaged in key corporate functions, including executive management and business development. There is a slight bias in the survey toward those who are engaged in out-licensing activities, mainly reflecting the fact that right now there are more companies selling assets than buying. Our geographic scope is primarily the US along with a strong sample from Europe. Companies are a mix of public and private, and range in sales from the billion dollar plus big Pharma players to some micro-cap biotechs with revenue below $5 million. In essence, our data is broadly representative of the dealmaking field, which bolsters our ability to accurately gauge forward-looking sentiment.

Out-licensors and in-licensors expect more deals at the early preclinical stage and carrying forward to Phase II clinical trials.
As far as expectations for activity over the next 12 months are concerned, there is a solid if nuanced convergence around expectations for an increase in the overall volume of deals. Significantly, both out-licensors and in-licensors expect more deals at the early preclinical stage and carrying forward to Phase II clinical trials. At Phase III, there are tempered expectations for deals versus early stage assets. For fully marketed assets, both groups are largely aligned, this time in anticipation that the number of deals will decline. The expectations on marketed assets represent a reversal in sentiment from our last survey, when respondents were expecting an increase in deals. Driving this is the growing confidence among biotech firms in being able to commercialize independently—conditions are more conducive to making that final sprint to the finish line, without any push from big Pharma.

Therapeutic drivers

Christophe Degois, Geron: Might it also be due to the perception that there are fewer good deals at the later Phase III stage?

Patel: That has been the prevailing view in our Survey for the past two years. But there is a healthy contrarian view among some buyers that a few real gems are still out there waiting to be discovered. What is determinative is value. Most buyers believe that if an asset can provide real evidence of value, it deserves a premium price. It is emblematic of the "de-risking" sentiment that is driving valuations today in the life sciences.

PE: Which therapeutic areas are attracting the most interest among dealmakers this year?

Patel: There is relatively little change—oncology assets are by far the top draw; this has been the case since we began the Survey. Both buyers and sellers are committed to signing deals in oncology, which is to be expected, as this is where the science is trending, too. We haven't cut the numbers in detail, but one thing I expect to see is a rise over the years in both out-licensing and in-licensing deals that cover earlier stage, pre-commercial assets. Competitive interest in oncology means that mid- to late-stage deals are harder to find; you have to move earlier to find an asset worth licensing.

What is interesting this year is the therapeutic category we call "Other." Interest is scaling up in this category, which includes mainly orphan drug assets for a growing list of rare diseases. "Other" also includes ophthalmology drugs, which is a favorite for the high pricing flexibility these give to investors. Overall, virtually every company we surveyed—from the biotech start-up to the big Pharma top 10—now includes orphan drugs as part of its business development and licensing strategy. Another intriguing finding is the continuing interest in cardiovascular and metabolic diseases, despite the intense competition and high costs of the large-scale outcomes trials now being required by registration authorities and payers.

Samuel Wu, MedImmune Ventures: Is the willingness to move earlier to license or acquire oncology assets due to the greater confidence that investors have in the underlying science?

Patel: Yes. Significant progress has been made over the past 10 years in understanding the biology behind tumor formation and metastasis. Diagnostic instruments have advanced considerably. As a result, treatments being developed are more targeted, resulting in a practical progression of survival rates for many individual cancers. Cancer itself is seen increasingly as a collection of rare diseases, which is advantageous to drug developers because it helps concentrate resources.

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