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Encouraging Trends in M&A Deals, Partnering, Financing

By Catherine Shaffer
Staff Writer

VANCOUVER, British Columbia – With delegates from biotech and pharma companies attending the BioPartnering North America conference keenly focused on dealmaking opportunities for 2012 and beyond, Deloitte Recap LLC provided perspective on the first day of the 10th annual meeting by breaking down that activity for the previous year.

Deloitte's 2011 Life Sciences Deal Analysis Year-in-Review presentation was a snapshot of its comprehensive report. It showed some encouraging trends, including a couple of surprises.

Deloitte's analysis showed positive trends in financings, partnerships and mergers and acquisitions, with initial public offerings (IPOs) remaining flat.

"Overall in 2011," said Eric Walczykowski, a general manager at Deloitte Recap, "financing went up. That's great for the industry. But venture capitalists would tell you that financings went down."

Walczykowski clarified the paradox by explaining that corporations, foundations and government grants had "picked up the slack" left by venture capitalists remaining on the sidelines.

Within and outside the U.S., therapeutics accounted for 50 percent of life sciences financing deal volume, with the dollar amounts increased compared to prior years. The number of deals was higher, also, at 300 deals in 2011, compared to 250 in 2010.

A majority of the funding was for clinical-stage assets, with only 24 percent supporting preclinical development.

By disease area, oncology received the largest share of financing dollars. Central nervous system indications and pain had high deal volumes, while anti-inflammatory and autoimmune diseases racked up large dollar amounts.

Topping the list was Tesaro Inc.'s $101 million Series B to advance its neurokinin-1 receptor antagonist, rolapitant, for chemotherapy-induced nausea and vomiting, and a small-molecule inhibitor of anaplastic lymphoma kinase. (See BioWorld Today, June 22, 2011.)

Radius Health Inc. was another big winner in the financing game in 2011. It raised $91 million in three tranches beginning in May for ongoing Phase III studies of its candidate BA058 for osteoporosis.

Five investment firms were major players in the top 10 financings of the year. Pappas Ventures got a piece of three of those deals. Fidelity, Flagship Ventures, Orbimed Advisors LLC and TPG Biotech participated in two of the top 10 deals each.

Walczykowski described IPO activity as "pretty much flat," with 11 companies raising about $625 million. Clovis Oncology Inc. topped the list, pricing within its target range of $13 to $15 to hit its $130 million goal. (See BioWorld Today, Nov. 30, 2011.)

Deloitte tracked 1 ,888 partnering deals in 2011, with 686 being product platform deals. Out of 129 deals in which companies disclosed figures, a total of $33.6 billion changed hands, with deal sizes ranging from $400,000 to $2.4 billion.

Cancer deals were most numerous, with 159 deals closing in 2011 , for total dollars of $9.9 billion. Autoimmune and inflammatory disease indications attracted $5.5 billion, and neuroscience indications rang up $4.7 billion in deal dollars.

Some of the biggest pharma deals included a monster deal between Boheringer Ingelheim GmbH and Eli Lilly and Co., covering two Boehringer Ingelheim candidates, linagliptin and BI10773, and two Lilly insulin analogues, LY2605541 and LY2963016, with an option to co-develop and co-commercialize an anti-TGF-beta monoclonal antibody by Lilly. There also was a deal between Otsuka Pharmaceutical Co. Ltd. and H. Lundbeck A/S valued at $1.8 billion. That deal was a long-term agreement to develop and commercialize up to five psychiatric and neuroscience products worldwide.

"We believe that partnerships will continue at a fast pace in 2012," Walczykowski said. "These partnerships are absolutely crucial to pick up the slack where equity markets have left off."

According to Deloitte, 2011 was a record year for M&A deals. About $115 billion dollars changed hands, with 39 percent going to therapeutic products. Eleven percent went for devices, another 11 percent for diagnostics and 4 percent for technology platforms.

The $115 billion total for the year blew away all years from 2000 to 2010, which averaged $49 billion per year.

And again cancer topped the list in terms of deal numbers, with 17 mergers centering on oncology products. Neurology deals numbered 11, and five deals were for infectious disease.

Out of the top 300 biotech acquisitions, Walczykowski said 54 percent were for companies that were private at the time of acquisition. "That's a trend we've been seeing, as big pharma goes earlier to fill its pipeline."

Pharma companies favored public companies in their acquisitions, with 81 of 152 pharma-acquired companies being public at the time of acquisition. The average valuation of those deals was $1.6 billion, with a median of $465 million.

In acquisitions by biotech companies, those numbers were reversed. Ninety-two of 153, or about 60 percent, of companies acquired by biotech were private at the time of acquisition. The average valuation of biotech acquisitions was $402 million, with a median deal value of $147 million.

The acquisition of device company Synthes Inc. by Johnson & Johnson for $21 .3 billion in April was ranked by Deloitte as the richest life sciences acquisition of 2011.

On the biopharma front, Gilead Sciences Inc.'s $11 billion buy of Pharmasset Inc. in November 2011 made the list, as well as Teva Pharmaceutical Industries Ltd.'s $6.8 billion competitive bid for Cephalon Inc. (See BioWorld Today, May 4, 2011, and Nov. 22, 2011.)

Pfizer: 'Not Invented Here' Mentality Outdated

Pfizer Inc.'s chief scientific officer, Uwe Schoenbeck, addressed a standing-room-only crowd earlier in the day to outline his company's partnering strategy as it has changed since the 2009 merger with Wyeth, described affectionately as "better, faster, Pfizer."

Schoenbeck began by talking about risk, and about the greater risk-related challenges and costs for the pharma industry, as compared to other industries. The pharma industry's spending on research as a proportion of sales is 17 percent, according to Schoenbeck, much higher than other industries. For comparison, he said the paper industry spends 0.7 percent on R&D and the metals industry 1.2 percent.

The computer industry is a relatively high spender, and it is perceived as having great success with innovation, but it only spends 10.5 percent of its sales revenues on research and development.

"As an industry, we have not done enough to communicate this," Schoenbeck said.

Safety and efficacy have always been key challenges for pharma in the area of innovation, but now, Schoenbeck said, "it's become important to differentiate from the gold standards, to be effective on top of the gold standards."

Additionally, the importance of safety has also increased over time. Because of that, Pfizer is looking for partnership opportunities that include that value of differentiation, as well as targeting of risk factors and approvable endpoints.

"As we needed to differentiate more and more, and as we advanced more and more, it's really disease modification we need to tackle nowadays," Schoenbeck said.

After the Pfizer/Wyeth merger, the new company was left with about 600 legacy products. Company leadership winnowed that portfolio to about 100 by identifying the most competitive products, which fit with the Pfizer strategy.

Prior to the merger, Pfizer's portfolio was heavily weighted toward small molecules. Afterward, the products Pfizer is developing are roughly half and half.

The company is focusing its development efforts in indication areas where it believes it can have the best competitive edge. Those include neuroscience, oncology, cardiovascular disease, inflammation and vaccines.

It is also investigating specialized areas such as orphan and rare diseases, pain and sensory disorders and biosimilars.

In its search for pipeline-filling programs, it has aligned its research units closer to hubs of academic research like the Boston area, southern California and Cambridge, UK. "We wanted to immerse our R&D efforts into what's going on in the outside world," Schoenbeck said.

Pfizer is particularly interested in next-generation therapeutics, including tissue-targeted new chemical entities, CovX antibodies, combinatorial biologics, long-lasting IgG and antibody-drug conjugates supporting the therapeutic areas it's focused on.

"The 'not invented here' mentality is no longer viable," Schoenbeck said. "The key challenge is to identify and harness external innovation with the right quality and strategic fit."