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Oncology Dominates Biotech Deals in 2012, but Changes Loom

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By Catherine Shaffer
Staff Writer

SAN FRANCISO – One-third of all biotechnology deals in 2012 were for oncology assets, according to Deloitte Recap LLC, a higher percentage than any other therapeutic area.

Cancer is a very appealing indication for biotech product development because of shorter development timelines, faster approvals and premium pricing. However, the bar is rising for clinical performance, and there are signs the honeymoon is over for the $100,000-per-year cancer therapy. A panel of experts at Deloitte's Allicense conference discussed current trends in the rapidly shifting oncology space.

Deloitte released an in-depth analysis of that space Monday at the conference, looking at oncology dealmaking and development metrics.

In 2012, the average deal size for oncology licenses and joint ventures was $541.1 million (12 deals) compared to $266.8 million for all other therapeutic areas (38 deals). Both oncology and autoimmune/inflammatory deal sizes jumped in 2012, vs. previous years and all other therapeutic areas. From 2008-2012, median up-front payments for oncology assets rose predictably by stage: lead/preclinical $6 million (25 deals), Phase I $13 million (17 deals), Phase II $31.5 million (23 deals) and Phase III $41.5 million (21), while Discovery stage assets, typically platform technology deals, disclosed a median upfront of $9.3 million (14 deals).”

“The biggest step up in median up-front payments was seen at the Phase II stage, with a 142 percent jump,” said Lisa Natanson, a senior analyst for Deloitte. She also pointed out that Phase II has the “highest attrition rate of any phase in clinical development.”

M&A activity, however, trended downward in oncology along with overall M&A activity in the field. In 2012, there were 15 cancer mergers, compared to 182 overall, with disclosed deal values of $8 million and $73 million, respectively.

Although the outlook for cancer at the moment is "rosy," according to Natanson, there are signs of change to come that could be very disruptive to prospects for cancer therapeutics in the future.

"The opportunity for return on investment in cancer in part is driven by the high prices you can get for a cancer drug," Natanson said.

"The price points, frankly, at some point are going to be unsustainable," said Sunil Patel, senior vice president and chief business officer of Oncomed Pharmaceuticals Inc.

A new publication in Blood, prepublished online April 25, raised the same question. Authored by more than 100 experts in chronic myeloid leukemia (CML) around the world, the report hammered the high price of cancer drugs, focusing particularly on approved tyrosine kinase inhibitors.

"We believe unsustainable drug prices in CML and cancer may be causing harm to patients," the experts wrote. They pointed out that if drug prices reflect value, then those prices should be "proportional to the benefit to patients in objective measures, such as survival prolongation, degree of tumor shrinkage or improved quality of life."

Cancer drug pricing seems to follow a fairly basic formula, however, with new drugs being priced about 10 percent to 20 percent higher than the most recent similar drug on the market.

That pricing regime puts the drugs in the range of $100,000 per year, adding up to exorbitant numbers when the price of therapy per year survived is calculated – $800,000 for Erbitux (cetuximab, Eli Lilly and Co.), for example. And while the attitude in the U.S. is that the health care system can't put a value on the life of a patient, in other countries, that value is deemed at about $50,000 to $100,000.

The UK's National Institute for Health and Clinical Excellence valued a year lived at about $50,000.

Unfortunately, in the U.S., much of the burden of those high drug costs falls on the patients, at an average of about 20 percent of the total cost.

Although much of the discussion is happening outside the U.S., it's not unreasonable to assume that pushback on cancer drug pricing will gain momentum within the U.S. as well.

"How soon will it trickle down to the U.S., and in what form, I don't know," Natanson told BioWorld Today.

Another area where the landscape is shifting is in expectations for survival benefit. No longer is a marginal benefit in progression-free survival acceptable. Instead, regulators are looking for substantial benefits in overall survival – in the range of six months.

"These considerations and pressures are seeping into dealmaking," Natanson said. "They're looking for a higher level of benefit. The endpoint is not response rate; it's overall survival, with supportive information such as biomarker activity."