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2016: The year when deal-makers took stock?

Merger-mania and asset swaps slowed and joint ventures were back in fashion

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After a resurgent 2015, last year saw pharma's business development and licensing leaders pause for thought, with the pace of deal activity slowing in the face of US steps to curb tax inversions.

Similarly, with the obvious exchanges to maintain dominance in key therapeutic fields in place, asset swaps were another area where pharma took its foot off the accelerator.

In their place trends included a resurgence for joint ventures in digital health and telemedicine with, for example, Verily striking separate deals with both Sanofi and GlaxoSmithKline. This area of deal-making can be seen not only as an acknowledgement that pharmaceutical companies can't do everything on their own - and, indeed, that some things shouldn't be considered a core competency for them - but also that in certain areas risk-moderation is the way forward.

But some things stayed the same in 2016, including the therapeutic areas in which pharma was most interested. Oncology, immuno-oncology and central nervous system therapies once again topped the charts, but 2016 also saw the emergence of new areas, notably non-alcoholic steatohepatitis or NASH. (With NASH appearing to be a long-term consequence of obesity it is perhaps not surprising to see that deals in this area have stolen the headlines, with candidates becoming the must-have assets for development.)
 
Fewer NCEs coming through
Politics and pricing certainly had an impact, with the US backlash against aggressive pharma pricing following Mylan's EpiPen debacle, itself coming on the heels of the Turing Pharma disaster. Compounding this was the current political uncertainty following regime change in the US and Brexit, with the latter appearing to encourage caution in deal-making which may well continue into 2017.

2016 also saw a dearth of new chemical entities coming through, with the year marking a six-year low in the number of new drug approvals.
But, although the volume of deals undertaken by the top 25 companies declined by 15% overall last year, the fall is hardly surprising given the substantial increase (23%) in the number of deals in 2015 versus 2014.

The reason for the decline in the number of deals in 2016 is not known - Brexit and the election of Donald Trump are unlikely to have had any substantial effect because the decline in deal volumes was underway before the middle of the year. Perhaps there were fewer deals in 2016 because big pharma companies are now busy integrating the acquisitions, business area swaps and partnering deals they'd made in 2014 and 2015.

The top deal-makers
The 2016 top deal-maker in terms of total numbers of deals for the third year in succession was AstraZeneca. Since Pascal Soriot's appointment in 2012, the number of deals has increased significantly. This not only applies to inward licensing deals but also outward deals where the company has been the leading company in divesting non-core products. The in-partnering deals included the $1bn deal with Bicycle Therapeutics and the Alzheimer's collaboration with Lilly. Out-partnering deals included the $1.1bn licence to LEO for tralokinumab in skin diseases and the $1bn divestment to Pfizer of its late-stage small molecule anti-infective business.

The company with the most inward licence deals and most improved rank was Takeda. These deals were mainly early stage deals in the areas of gastroenterology, neurodegenerative diseases and an $830m ($40m upfront) deal with Mersana for rights outside North America to a phase 1 breast cancer treatment.

Joint ventures re-emerged as ways to blend digital technology with therapeutic products

As expected, the larger big pharma companies tend to be in the top rank in the number of in-licensing deals but smaller companies like Boehringer Ingelheim and Celgene punched well above their weight. Boehringer made a number of early stage deals, such as its $260m deal with Arena to discover GPCR modulators for psychiatric disorders. Meanwhile Celgene, with sales around 20% of those of Pfizer, did virtually the same number of inward licensing deals as the big pharma firm in 2016.

Trends: joint ventures
Having been largely absent from the deal landscape over the last few years, joint ventures re-emerged last year, but increasingly as ways to blend digital technology with therapeutic products.

There was the August announcement that Google's Verily company was investing in the development of bioelectronic medicines with GSK via the newly formed Galvani Bioelectronics. Almost immediately after that Sanofi confirmed a similar deal whereby it contributed $248m to the formation of a new joint venture company with Verily, named Onduo. 

Another digital deal was Boehringer Ingelheim's collaboration with Qualcomm to develop a small wireless disposable module for the Respimat inhaler that will track puffs from the inhaler to help healthcare providers to better manage patients with COPD. Clearly we should expect a lot more digital health deals in the next two years.

Co-development was another area in which major pharma firms were active, particularly Lilly, which enlarged its work with Boehringer Ingelheim to add in breast cancer programmes and closed a co-development agreement with AstraZeneca for a phase I antibody selective for amyloid-beta 42 in Alzheimer's disease.

NASH and biosimilars
One therapeutic indication that could be seen to be gaining much attention was NASH, which is the fastest growing cause of liver cancer and liver transplant in the US due to the rise in obesity and it impacts 3-5% of the US population and 2-4% globally.

With no approved therapeutics to treat NASH and a multibillion market potential, there is huge interest in the development of drug candidates for this disease and as such there has been significant deal activity during the year and companies active in the area included Allergan, Gilead and Novartis.

Meanwhile, the lure of biosimilars continued, with their potential to be more profitable than traditional generics. Indeed, if the experience in Norway is anything to go by, biosimilars can achieve significant market share with a significant reduction in prices compared to the prices of the originator's product. (According to the journal Biosimilar Development the price of EPO in Norway was sold at an 83% discount from the original price.)

Digital health is expected to be a major investment area for a wider variety of pharma companies

The rate of uptake of biosimilars in Norway is exceptional, but the upward trend in other countries is still expected to continue. This has provided an opportunity for companies specialising in development of biosimilars to win deals from big companies, such as the $160m agreement between Teva and Celltrion in the US and Canada for biosimilar versions of Rituxan (rituximab) and Herceptin (trastuzumab). 

The presence of big pharma speciality companies like Sanofi and large generic companies like Teva, with biosimilars competing with other big pharma companies with the original biological products, should make for some interesting market dynamics in the future.

Predicting the future
Coming off the back of a bumper deal-making year in 2014 and 2015, it was interesting to see if 2016 would match up to the previous years' deal values and volumes. On reviewing the data captured in its monthly Deal Watch reviews Medius said a significant downturn in deal activity was evident.

But what of 2017? The analysts expect digital health to be a major investment area for a wider variety of pharma companies, while the uncertainty created by Donald Trump and Brexit will contribute to a decline in the number of M&A deals over $5bn, and product divestments by big pharma will continue at a low level. But ultimately deals will continue in a diverse range of therapeutic entities as technological improvements appear to be bearing fruit in areas such as gene therapy and RNA-based therapeutics.

This article was based on Medius' Annual Review of its Deal Watch service. Monthly Deal Watch reviews by Medius can be found online at pmlive.com/intelligence and for more information on Medius please visit medius-associates.com

16th February 2017

From: Sales

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