The $3.4 billion partnering agreement announced in July between Bristol-Myers Squibb and AstraZeneca to share Amylin profits points to a troubling trend in partnering deals for new drugs, diagnostics, and tools in development, Burrill & Company reports. Once a reliable source of funding for development activities, biotech companies are facing increasing competition for partnering dollars at a time when there’s a shrinking pool of spending, states the report.
The $3.4 billion partnering agreement announced in July between Bristol-Myers Squibb and AstraZeneca to share Amylin profits points to a troubling trend in partnering deals for new drugs, diagnostics, and tools in development, Burrill & Company reports. Once a reliable source of funding for development activities, biotech companies are facing increasing competition for partnering dollars at a time when there’s a shrinking pool of spending.
This year, partnering deals for therapeutics, diagnostics, and tools companies during the first seven months totaled $18.9 billion, below the $22.7 billion for the same period a year ago. The decline continues a multi-year slide for partnering activity since at least 2009. Were partnering activity to continue at its current pace, it would total $32.3 billion this year, compared to $52.8 billion in 2009.
Partnering activity has become increasingly concentrated, with the top ten deals accounting for more than half of the $18.9 billion in transactions so far this year, with the top deal — between Bristol-Myers and AstraZeneca — not involving biotechs at all. In addition, a pickup in pharmaceutical partnerships with academic and non-profit institutions — more than a dozen were announced in July — is drawing funding and energy away from traditional partnerships with biotech companies.
“Growing competition with academics and non-profits, reorganized pipelines, and financial pressures on Big Pharma budgets are squeezing the partnering dollars going to biotechs,” says G. Steven Burrill, CEO of Burrill & Company, a diversified global financial services firm focused on the life sciences. “The difficult financing environment is leaving biotechs in a weak position at the negotiating table.”
Even though overall deal size is down, exclusive of royalties, upfront payments for deals in which values were disclosed have risen slightly to an average of $27.6 million, from $25.6 million in 2011. That, however, is still below the $29 million average seen in 2010.
Therapeutic Parntering Deals Through the First Seven Months 2011 vs. 2012
By Stage of Asset for deals with disclosed upfronts
Phase 3/ Pre-approval
2011 2012 2011 2012 2011 2012 2011 2012 2011 2012
Total Deals 18 12 6 6 7 5 12 7 10 10
Total Deal Values 6674 3119 1655 1533 1942 1632 3969 2397 1402 740
Average Deal Value 370.8 259.9 275.8 255.5 277.4 326.4 330.8 342.4 140.2 74.0
Total Upfront Values 206 266 113 102 191 189 800 318 269 379
Average Upfront Value 11.4 22.2 18.8 17.0 27.3 37.8 66.7 45.4 26.9 37.9
Two life sciences companies completed IPOs in July. Durata Therapeutics, which is developing drugs to treat infectious disease, raised $77.6 million. Hyperion Therapeutics, which is developing drugs for orphan diseases and hepatology, raised $50 million. Both companies priced their offerings below their target range and sold more shares than they had expected to sell in order to raise what they did. Nevertheless, life sciences companies that have gone public in 2012 are up 19.8 percent as a group, beating the broader market indices.
“The relatively strong performance of these new issues is a signal that companies that brave the IPO market are becoming aligned with investors on their value,” says Burrill. “It also reflects that these companies, as a whole, are making progress in their businesses.”
Biotech stocks in July outperformed the general market. The major indices managed to stay in positive territory despite recurring concerns about the European debt crisis and the weakness in the U.S. economy. For the month, the Burrill Biotech Select posted a 4.4 percent gain, compared to 1 percent for the Dow Jones Industrial Average and a .2 increase in the Nasdaq Composite Index.
BURRILL INDICES 12/30/2011 6/29/2012 7/31/2012 Month Change Year Change
Burrill Select 432.49 539.55 563.53 4.40% 30.30%
Burrill Large Cap 529.22 657.96 680.02 3.40% 28.50%
Burrill Mid-Cap 295.33 358.25 349.21 -2.50% 18.20%
Burrill Small Cap 82.75 101.56 101.27 -0.30% 22.40%
Burrill Diagnostics 175.42 196.13 184.28 -6.00% 5.10%
Burrill Personalized Medicine 100.62 111.37 111.45 0.10% 10.80%
Burrill Biogreentech 149.36 155.42 155.86 0.30% 4.40%
NASDAQ 2605.15 2935.05 2939.52 0.20% 12.80%
DJIA 12217.56 12880.09 13008.68 1.00% 6.50%
S&P 500 1257.6 1362.16 1379.32 1.30% 9.70%
Amex Biotech 1091.42 1469.21 1487.01 1.20% 36.20%
Amex Pharmaceutical 332.94 348.08 360.17 3.50% 8.20%
After three-months of wrangling, GlaxoSmithKline reached an agreement to acquire Human Genome Sciences for $3.6 billion, the largest M&A transaction for the month. GSK raised its all-cash offer to $14.25 from the $13 it offered in April to close the deal. The acquisition gives GSK full control of Benlysta, its jointly-owned drug for the treatment of lupus and expands the drug giant’s portfolio to include experimental drugs for the treatment of diabetes and heart disease. The final price represents a 99 percent premium over Human Genome Sciences closing price on April 17, the day before GSK’s bid for the company became public. Overall, M&A activity in 2012 continues to lag the pace of dealmaking a year ago with global activity down 38.1 percent year-to-date.
On the venture capital front, financings in July fell to $983 million, down from $1.3 billion in June. Overall, venture funding for the life sciences (including therapeutics, diagnostics, tools and technology, industrial and agricultural biotechnology, medical devices, digital health, and health IT), continues to outpace the levels seen in 2011, and is up 24 percent year-to-date.
Life Sciences Scorecard in USD M
YTD July 31, 2012 YTD July 31, 2011 Change
Global Venture Capital 7,242 5,809 24.7%
U.S. VC 5,438 4,355 24.9%
IPOs (21 in 2012 v. 35 in 2011) 1,498 3,241 -53.8%
U.S. IPOs (11 in 2012 v. 13 in 2011) 758 1,111 -31.8%
Global PIPEs 3,696 2,400 54.0%
U.S. PIPEs 947 1,052 -10.0%
Global Follow-ons 4,202 7,673 -45.2%
U.S. Follow-ons 3,703 4,051 -8.6%
Global Other Equity 955 482 98.3%
U.S. Other Equity 929 198 370.4%
Global Debt Offerings 14,037 29,004 -51.6%
U.S. Debt 9,734 15,484 -37.1%
Global Other Debt 12,481 9,119 36.9%
U.S. Other Debt 11,056 3,511 214.9%
Total Global Public Financings 36,869 51,919 -29.0%
Total U.S. Public Financings 27,127 25,406 6.8%
Global Partnering 19,585 22,825 -14.2%
U.S. Partner/Licenser 12,130 14,478 -16.2%
Global M&A 78,191 126,311 -38.1%
M&A, U.S. Target 57,296 67,752 -15.4%
*Includes therapeutics, diagnostics,tools and technology, medical devices and technology, digital health, healthcare IT, industrial and agricultural biotechnology
July brought a crop of new drug approvals from the U.S. Food and Drug Administration. This included Onyx Pharmaceuticals’ accelerated approval of its multiple myeloma drug Kyprolis based on mid-stage clinical trial data, Vivus’ diet drug Qysimia, Amarin’s cholesterol-reducing drug Vascepa, and Forest Lab’s Tudorza Pressair inhaler to treat chronic obstructive pulmonary disease. Overall, the pace of new drug approvals year-to-date is lagging slightly behind the pace of 2011 with a total of 19 new drugs and biologics approved so far in 2012 compared to 21 during the same period a year ago.
In the wake of the U.S. Supreme Court’s decision that upheld most of the Patient Protection and Affordable Care Act, the House made repeated efforts to dismantle the legislation. The House also voted to keep funding for the National Institutes of Health flat for 2013 at $30.6 billion. Though the flat budget is a concern for advocates of biomedical research, there are growing worries about automatic across-the-board budget cuts put into place last year if Congressional representatives fail to agree on reductions to the federal deficit.
About Burrill & Company
Founded in 1994, Burrill & Company is a diversified global financial services firm focused on the life sciences industry. With $1.5 billion in assets under management, the firm’s businesses include venture capital/private equity, merchant banking, and media. By leveraging the scientific and business networks of its team, Burrill & Company has established unrivaled access and visibility in the life sciences industry. This unique combination of resources and capabilities enables the company to provide life sciences companies with capital, transactional support, management expertise, insight, market intelligence, and analysis through its investments, conferences, and publications. Headquartered in San Francisco, the company oversees a global network of offices throughout the United States, Latin America, Europe, and Asia. For more information visit: www.burrillandco.com.