Pullan's Pieces #151
Pullan's Pieces #151
August 2019
BD News and Analysis for  Biotech and Pharma
Dear --FNAME--,

Summer is almost over! 

We just had a webinar on the CNS  landscape based on Pullan's Pieces infographic. Some of the slides were in the last issue of Pullan's Pieces and some in this one but more slides and commentary were in the webinar.   You can still sign up to listen to the recording or get the slides.    





1. Option deals - a look at numbers in 2019 YTD

2.  Infographic:  CNS deals 

3. Jessica:  US FDA designations - understanding the value

4.  Trevor: Cross-border deals continue but Market Consolidation may mean competition for resources 

Option Deals - a look at numbers in 2019YTD
Option agreements are used to secure rights to a future license or acquisition.  Often option deals are used with discovery collaborations, where the drugs yet to be discovered can be licensed (typically at the discretion of the licensing partner) when there is some data (generally preclinical efficacy).  Option deals often are associated with evaluations and Material Transfer Agreements.  And option deals can be used to promise a license after a yet to be completed clinical trial, leaving the drug with the originator until there is more data and the partner can decide to opt-in at a prespecified time. 

In 2019 YTD, only 6% of all the licensing deals in GlobalData are options to license a drug with predetermined terms, and 1% are options to negotiate for a license. 
Most of the option deals are at discovery or preclinical at the time of signing the option.  

At least in theory, one can argue that structure of the option to license should have an option fee that recognizes the value of tying up the asset plus subsequent terms that match the market value of a comparable asset at the stage when the license is executed.  But as in all kinds of deals, the actual terms are highly variable.  Often the option fee is not a lot more than needed to advance the asset to the point of license exercise and the license terms may be lower than the deal would be at a later time because the partner's valuation is influenced by its status at the time the option deal is initially signed rather than thinking about how competitive a bidding for positive outcome might be later.   
In addition to options to license or options to negotiate a license, there can be options to acquire an asset or company.  And within licensing deals, there can be options to co-develop or co-promote or add territories or more drugs, or to change a non-exclusive right to an exclusive right.  All of these types of options are less common than the options to a future license or the options to later negotiate for a future license.  

In all cases, optionality has value but what is paid is highly variable and depends on what can be negotiated! 
Infographic:  CNS marketplace
Jessica:     US FDA Regulatory designations - Understanding the Value - part I
We are all aware that the FDA has unique designations for which some products may qualify. But what is the value of these designations, how does one go about getting a designation and how can they translate into monetary value? As the summer unavoidably slides right into the bustle of fall, and with it, the potential for term sheets crossing some of our desks - let’s take a look at these designations and how they add value to developing medicines.

FDA designations
In 1983 the Orphan Drug Act was passed (and was modernized in 2017) and in 1988 the FDA issued regulations (bottom of p2) in 12 CRF Part 312 (Subpart E) for expediting the availability of promising therapies to patients with serious conditions. With these programs, the FDA recognizes that there need to special considerations and/or unique incentives for development of medicines for particular diseases and/or populations. These programs have been updated, and new designations introduced since then, but I thought it interesting to note that the concept is fairly new (many of us even remember the 1980’s!). The newest program, the Regenerative Medicine for Advanced Therapies designation, was created with the 21st Century Cures Act in late 2016. The first products were approved in spring of 2017.

In Part II we will specifically dive into the orphan drug designation. Here, in Part I, we will look at the other expedited programs. Here, see the designations offered by the FDA:
There are some valuable attributes of these programs ranging from increased dialog with the FDA to abbreviated response times from the agency. These can also be combined for added value which can (but not necessarily) translate to “faster to market” timelines for the products being developed. For some therapies in development, there are multiple designations for a single product for a particular indication (eg Abeona’s EB101 for Epidermolysis Bullosa has RMAT and Fast Track). There is also the potential that the same product could have replicate designations for different indications (eg Athersys’ Multistem has Fast Track for both Ischemic Stroke and Acute Respiratory Distress Syndrome).

It is clear that attaining an expedited regulatory pathway can have value, but does that value translate to more value in licensing and/or partnering? Below, the number and median deal terms were investigated for clinical-stage assets to determine if an expedited program designation translated to higher deal terms. The searches were conducted for two different technologies, cellular immunotherapies as well as for antibody deals, in order to ensure that any trends observed were not technology specific.

Deals for cellular immunotherapies and antibodies with/without regulatory designations:  

Global Data Deals Database Searches (all products) – August 20-21, 2019; no RMAT deals data readily available; no deals with Priority Review products for either technology; no deals with Fast Track products for Cellular IO; “All” will include deals for products with regulatory designation
Extra value for Fast Track and Breakthrough
From the searches above, one could conclude that acquisition of the expedited regulatory pathways added significant financial value to licensing or partnership of drugs with Fast Track designation, perhaps specifically for antibodies. Since there are no cellular immunotherapies with Fast Track designation yet it is hard to say if there would be added value there. Additionally, products with Breakthrough designation also have a higher median than all deals for both cellular IO and for antibodies. Products with the Accelerated Approval designation did not seem to impact the median deal values for the two technologies assessed, which does not necessarily mean that it wouldn’t command higher deal values for other technologies. And an important caveat is that the distribution of stage of assets may not be an exact match in the different groups.  

One could argue that with without the designations those products would be less valuable, or less attractive programs to partner. Therefore, while these expedited regulatory designations may not directly translate to higher value for a particular product in development if a product is eligible, it is still ideal to seek the designation. It may even help an asset with more challenging development pathway command a value comparable to an asset with a more straightforward development path. Afterall, the overall goal for the FDA in the creation of these programs was to incentivize sponsors to develop products that would otherwise be less attractive.
Trevor: Cross-border deals getting done but market consolidation may mean more competition for resources
Cross-Border Deals
The saber-rattling and tariff-thrashing going on at the highest level of political office between the two largest economies continues. Markets want these two heavyweights to come to terms and get “a deal done”. We here at Pullan Consulting certainly don’t want to see our clients negatively impacted by inflamed and artificial tensions.

Deals are getting done. 
There have been 9 deals from China HQ companies licensing-out global rights in 2019 YTD and 9 deals from US HQ companies for China only territory.    Our client Viela Bio recently signed a cross border deal with Hansoh.  And it’s great to see old friends continuing to expand relationships that Pullan Consulting was privileged to help get off the ground several years ago.

Putting Market Consolidation in Context
Back in May of this year we took a peek at the Nasqaq Biotechnology Index when it sat just above 3,200 (10% below high of the 3,619 high level water mark for 2019. We’re still sitting here at that same sort of level.

But if we zoom out (chart below), some context, maybe, appears. Pattern recognition software might look at the current market (i.e from the peak in 2015 to present) as the beginning of a long period of consolidation. Going back to the Y2K high, the market retraced all of its gains and then consolidated between 600-1000 for the next 8 years.

We’re not stock traders here at Pullan Consulting, as we focus on helping clients build, finance and partner valuable drug candidates, but… if we are in a similar pattern (on a much larger scale), then the next several years may be a period in which the competition for resources becomes all the more fierce as public markets tighten up and demand more from those companies they finance.
www.Pullan Consulting.com

Pullan Consulting (www.PullanConsulting) provides advice and execution for biotech partnering and fund raising, with outreach to partners and investors, help with shaping of presentations, evaluations and market analysis, preliminary valuations and deal models, and negotiations from deal prep to term sheets to final agreements. 
We have extensive scientific and financial experience, with many deals signed. 

Send us an email or set up a call if you want to explore how Pullan Consulting might be of help!

Linda Pullan                     Linda@pullanconsulting.com 
Trevor Thompson             Trevor @pullanconsulting.com 
Jessica Carmen               Jessica@pullanconsulting.com 
9360 W. Flamingo Road, Suite 110-554 Las Vegas, NV 89147