Pullan's Pieces #130                                     
Pullan's Pieces #130
September 2017
BD News and Analysis for  Biotech and Pharma
Dear --FNAME--,
Here is a link 

https://resources.sharevault.com/infographic-strategic-oncology-alliances-pc to a great collection of Q1 and Q2 2017 oncology deal data by ShareVault.  Do make sure you know the logos for deals are links to press releases on the download version - Ally did a great deal of work.  Wow! 

Hope to see you at Biopharm America and BioEurope!  

1.  Deal upfronts by Stage

2.   Microbiome drugs, deals and fund raising

3.  Biosimilars vs the patent warren of valuable drugs
4.  Concerns on China capital controls

Love to hear from you about what you like or don't.    



Deal upfronts by stage

Evaluate Pharma shared their analysis of upfront payments for deals by stage of the lead asset.  These show a big amount of variation over time, consistent with valuing earlier deals more than before. 

BUT, before we get too comfortable with this conclusion, but let's consider the possible problems. 

  • Averages are heavily influenced by the extremes, especially with relatively few deals per year at some stages.   
  • Error bars on these numbers would be big, reflecting a wide range of values contributing to the averages. 
  • The mix reflected in the averages may not be the same from year to year.  Maybe some years reflect more deals for smaller single territories (such as an increase in China only deals).  Maybe some of the deals include large number of assets, skewing the deal value up compared to single asset deals. 
  • Deals with disclosed terms are a minority of the deals done, meaning the averages have a bias up because deals are disclosed either because they are material to the company or provide bragging rights. 

So deal averages are useful (thanks EP!), but over-reliance is dangerous!  
I like to use deal medians across a few years, increasing the number of deals at each stage, and reducing the problems with means reflecting an extreme.  

With the entire period of 2010-2016, the median deal upfront for deals with disclosed upfront, by stage of the lead asset, are:  
Preclinical     $10M
Phase 1        $15M
Phase 2        $13.5M
Phase 3         $30.7M

This data (analyzed from data in GlobalData) still shows Phase 1 assets have higher median upfronts than do Phase 2 assets.  Why might that be?  

The variation within the upfronts for a given stage are still HUGE.  The smallest upfront at each stage is $10,000-100,000.  The biggest upfronts by stage are $300M to $1B.  So the trend may be just noise.  

Or it could be that Phase 1 deals, which have always been fewer in number than preclinical or Phase II deals, are driven by stellar efficacy signals in the Phase 1b.  So if you can get a deal done in Phase 1, it may mean you have exceptional data and can get big dollars.  
Infographic:  Microbiome Drugs, Deals and Fund Raising
Biosimilars vs the patent warren of valuable drugs
7 biosimilars have been approved by the US FDA since 2015 but only 3 are for sale.  

The biosimilar path laid out a "patent dance" where the parties try to agree which patents will be in the initial litigation between the originator and the party with the potential biosimilar.   

But a recent US Supreme Court decision enables the owner of the biosimilar to control over how—and when—patent disputes are addressed. A biosimilar applicant who wants to resolve the patent dispute early could share its FDA marketing application with the originator at the outset, to force the reference product sponsor to bring suit at the culmination of the patent dance or face the limitations on remedies.  A biosimilar applicant who wants to defer the patent issues could decide not to share its application, and perhaps challenge the patents in an inter partes review or post grant review proceeding at the Patent Office, where it could take advantage of the lower burden of proof for invalidity.  https://www.pharmapatentsblog.com/2017/06/13/supreme-court-decision-largely-favors-biosimilar-applicants/

But Amgen tried to use the patent office inter partes review against 2 patents for Humira and got told it had no chance of success.  So Abbvie filed suit alleging Amgen violated its patents.  The trial on the first 10 of the Humira patents is set for late 2019.  https://www.bloomberg.com/news/articles/2017-09-07/this-shield-of-patents-protects-the-world-s-best-selling-drug

It is fascinating to look a bit at the warren of patents that Abbvie has for this most valuable of drugs, with a forecast of $20B for 2020.   

This slide from a 2015 Abbvie corporate presentation shows the composition of matter expired in 2016.  But there are remaining patents out to 2034 for formulation, manufacturing and method of treatment.  The complexity of biologics manufacturing and the cell line influencing the glycosylation of the protein means manufacturing patents are more compelling than for generic small molecules.  

The method of treatment patents reflect the variation in dose for different indications.  It is probably true that any time there is huge value at stake, with many indications and many years of study, there will be lots of patents on method of treatment.  Good to think about when we think about the expiration of patent protection for competition.  

Trevor:  Update #1:  China currency controls and deals vs biotech deals
FT reports (https://www.ft.com/content/a4130914-1465-11e7-b0c1-37e417ee6c76) that outbound deals from China are down from their peak, influenced by China's controls on capital outflows from China.  
There are two ways for China capital to come to biotechs and healthcare companies outside China. 

1.  Deals (licensing and M&A)  to acquire products and rights
2.  Foreign direct investment (equity)

Talking with our friends in China pharma companies, we hear that for biotech, the fears over capital controls out of China are overblown when it comes to doing deals.  As noted in last month’s newsletter (Pullan’s Pieces #129), it appeared to us that biotech would fall under the category of “Encouraged Overseas Investments.”  Specifically, our industry sits squarely within China’s official desire to:

“Support domestic enterprises with adequate capabilities and qualifications to… increase investment in and cooperation with overseas new and high technological enterprises and advanced manufacturing enterprises, and, establish offshore research and development centers.”


Indeed, we have been privileged at Pullan Consulting this year to assist with cross-border negotiations where China was the licensee and the US company was the Licensor.  When questions arose on capital controls, we found ways to tie payments to certain funding triggers and ultimately, the concerns were resolved. 

Anecdotally, our friends tell us that:

  • health care assets serve to enhance the standard of living and will therefore be favored for the foreseeable future
  • While there are some delays (obtaining proper approvals; validating the activity), no substantial rejections are reported.  

It’s a good bet that the healthcare/biotech sector will grow as a percentage of China’s overall M&A “budget” as the emphasis on technology and related assets is not going away any time soon.
9360 W. Flamingo Road, Suite 110-554 Las Vegas, NV 89147