Deals to overshadow drugs as the defining industry trend
In an exclusive interview, BioWorld’s Executive Editor shares insights from the upcoming BioPartnering Report 2008 with Partnering News and predicts that 2009 will see a continued strong investment trend for biotechnologies.
“The current ‘it’ factor for biotechnology and pharmaceutical markets is not a product or technology, but the transaction trend,” wrote Michael Harris, author of the industry benchmark publication BioWorld BioPartnering Report, who went on in the 2007 report to observe that “The deal —not the drug— is the thing.”
Harris, who is now completing the 2008 edition of the BioPartnering Report, shared with Partnering News insights from that upcoming publication.
Partnering News : One year later, is deal-making continuing to dominate as an enabling phenomenon?
The new BioPartnering Report, published in September, may be even bolder in answering your question. Partnering is still on a roll, it has been in overdrive for the past two years as it maintains a 10-year run of aggressive activity.
BioWorld data show that the total number of annual biopartnering deals has doubled from 600 in 1997 to more than 1,200 in 2007, led by approximately 400 biotech-big pharma collaborations in 2007, followed closely by more than 300 biotech-academia/nonprofit deals and biotech-biotech partnerships, both with more than 300 each.
There has been no abatement in 2008. Deals continue to overshadow drugs as the defining industry trend. Partnering transactions continue at record-breaking rates and financial levels, while annual FDA approval rates remain flat.
The deal is still the thrill in drug development markets, as biotechnology innovation continues to be the temptation from which big pharma cannot afford to abstain.
PN : What trends are supporting the development of the partnering era?
Non-profits and state governments are increasingly giving financial support to biotechs. Technologies were underfunded when they primarily relied on big pharma and conventional VCs, but the slack has been taken up by the increased involvement of these alternative sources.
Specifically, non-profits focus on particular indications, such as Parkinson’s, multiple sclerosis and cystic fibrosis that may not interest the big pharma entities due to the limited patient bases. Meanwhile state governments are funding gene therapy research, particularly stem cell R&D, that does not appeal enough to entice pharma funding, inasmuch as it may not yield market results for 5-10 years or more.
A factor for the overall continued success of biotechnology is that its innovation has never failed it. The industry has been let down by its wallet, but has never been stymied by an inability to generate progressive research technologies. Now more than ever, the market is being supported by a benefactor with resources that can complement its revolutionary R&D agendas.
Another offshoot result of the partnering trend stands to be the return of the VC community to provide significant support to the biotech sector. Pharma is getting the bulk of late-stage candidates, and given the VCs’ equally documented aversion to front-end research, it is likely that they will seek to invest in the best of the remaining projects that are within three years of potential market launching, as big pharma shows no sign of slowing down in its biotech mission. That will require their participation sooner, rather than later, before big pharma would wrap up the late-stage market. Thus, a return of the traditional VC could begin as early as the beginning of 2009.
PN : Compared to other opportunities, did biotechnology prove to be “a comparatively safe bet” for investors in 2008? What is your prediction for the market in 2009?
Biotechnology, even though a volatile sector, was a comparatively safe bet for big pharma, as well as the standard investor.
The VC community is exuding cautiousness across all sectors, but has not abandoned biotechnology financing, as the biotech market trails only the technology sector over the past year in attracting the most VC money. Although VC financing of biotech has decreased 14 percent during the past year, it still vies for the number one spot in attracting VC dollars. It was one of only four markets that received $1 billion of VC money in the second quarter of 2008. The Internet sector led with $1.5 billion, followed by software with $1.3 billion, energy with $1.2 billion and biotech’s $1.1 billion, according to The National Venture Capital Association and PriceWaterhouseCoopers data.
Looking into 2009 and beyond, the gold mine will be represented by the eventual marketing of gene therapy technologies. They are receiving the big-time financial support that can lead to the commercialization of never-before-seen drugs that promise to do things on a cellular level that will truly revolutionize the therapeutics market. If one of these drugs gets to market, and it looks as if Introgen Therapeutics could cross that threshold in 2009 or earlier, there will be a scramble by all investors to pick other likely winners and throw money at the related drug-makers.
PN : In the report you said, “The partnering market is not only growing, but also maturing.” Did you note further evidence of this trend in 2008?
The deal continues to be the trend-setting dynamic in the world of drug development, as the number of biotech-pharma deals dipped slightly to 410, but still maintained a three-year run of eclipsing the 400 mark. Although the number of deals fell, big pharma actually increased its participation in partnering deals. Valuations more than negated that drop, as the total value of biotech deals could top $200 billion in 2008.
However, big pharma, as projected in last year’s BioWorld BioPartnering Report, finds itself foraying past the late-stage biotech pickings to seek innovation way back in territories it has adamantly ignored in the past. In this respect, the market is being forced to show maturity, as pharmas show more discernment in evaluating longer-term projects, while smaller biotechs, and even some barely-past-startup biotechs, get cash infusions and are forced to “grow up” and develop their technologies even sooner than they had anticipated.
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BioWorld Top 25 Biotechnology Drugs Report 2008
