Trends in oncology dealmaking

Oncology continued to dominate the dealmaking landscape for therapeutics in 2017, as it did in 2016 (BioPharma Dealmakers B3–B5, June 2017). Of the top 21 companies most active in dealmaking in 2017, there were only 5—Astellas, Boehringer Ingelheim, Gilead, Novartis and Sanofi—for which oncology was not the area with the highest number of deals (Fig. 1). A key driver here is presumably the current dominance and expected growth in the oncology market. In 2017, EvaluatePharma forecasted that oncology will remain the highest grossing therapy area until 2022, expanding at a compound annual growth rate of more than 12% to reach a value of almost $220 billion.

A review of oncology dealmaking from 2013 to 2017 (Box 1) shows a steep rise in activity during the first three years of this period (Fig. 2). One important contributor to this increase could be the approval of the first two PD1–PDL1 checkpoint inhibitors—Merck & Co.’s Keytruda (pembrolizumab) and Bristol-Myers Squibb’s Opdivo (nivolumab)—in the second half of 2014, which accelerated a wave of dealmaking, not only around other checkpoint inhibitors, but also for molecules and technologies that could offer synergistic benefits when used in combination with these drugs.

In 2017, the volume of oncology dealmaking was slightly decreased compared with the levels in 2015 (–6%) and 2016 (–4%). Possible factors that may have contributed include companies awaiting the impact of tax changes in the US and the potential plateau in the number of PD1 or PDL1 combination therapy options. Nevertheless, the total value of these deals has been maintained (Fig. 2). The July 2017 deal between AstraZeneca and Merck & Co., valued at $8.5 billion inclusive of contingent payments, is a key contributor to this total. This deal—focused on the clinical evaluation of AstraZeneca’s PARP inhibitor Lynparza (olaparib) and MEK1/2 kinase inhibitor selumetinib, used in combination with the companies’ PD1-specific and PDL1-specific antibodies—demonstrates how a multibillion-dollar deal can skew the overall value of dealmaking in any given year. Without this deal, the overall total deal value for 2017 is approximately $20 billion, substantially below the $31 billion average of the previous three years but still much higher than the $15 billion for the deals signed in 2013.

The AstraZeneca–Merck & Co. deal is the largest recorded within the past five years, but there are an additional 34 deals in this time period with a total value in excess of $1 billion (Table 1). Of these 35 deals, 32 are focused on immuno-oncology, and many involve emerging platforms, such as chimeric antigen receptor (CAR) T cell therapies. In contrast, the drivers behind the 14 largest oncology merger and acquisition (M&A) transactions within the same time period are more diverse (Table 2). Aside from the immuno-oncology deals made by Bristol-Myers Squibb, Gilead and Astellas, there are three large deals focused on next-generation hormone-based cancer therapies (Pfizer–Medivation, Johnson & Johnson–Aragon and Genentech–Seragon) and four deals focused on small-molecule tyrosine kinase inhibitors (AbbVie–Pharmacyclics, Takeda–ARIAD, Amgen–Onyx and Roche–Ignyta). Additionally, approximately one-third of these large deals are strategic portfolio acquisitions aimed at near-term revenue generation, such as AbbVie’s $20 billion purchase of Pharmacyclics to diversify from its Humira franchise, which faces pressure from biosimilars.The resulting datasets were filtered to exclude non-therapeutic-focused deals using the “technologies” categorization. Deals in which the primary focus was any of the following were excluded: assays, bioinformatics, biomarkers, diagnostic methods, drug formulation, drug screening, generics, genomics technologies, imaging, instruments, lab reagents, manufacturing, medical and other devices, radiolabeling, service agreements and software. All “pending” deals and “terminated” acquisition deals were also excluded. The final datasets were as follows: mergers and acquisitions (94 deals), and licensing and joint ventures (1,385 deals).

Multibillion-dollar M&A transactions are dominated by large pharmaceutical companies. However, smaller companies are just as active in terms of the volume of M&A activity. Juno Therapeutics was the most active acquirer from 2013 to 2017, acquiring four companies (ZetaRx, X-Body, AbVitro and Redox) for less than $400 million in total. This supported its development into a fully integrated cancer immunotherapy company, making it an attractive acquisition target itself.

In terms of the distribution of licensing deals by phase of development of the lead asset at the time of deal-signing, 58% of deals were signed at the discovery stage. Nonetheless, they still had a significant total value (Fig. 3), with a median total value for discovery deals of $200 million over the five-year period analyzed (of which the median upfront payment was $17 million).

The ranking of the top oncology dealmakers by deal volume reveals not only that large pharmaceutical companies dominate the licensee list, but also that a handful of these major players figure prominently in the sell-side category (Fig. 4). The most notable example is AstraZeneca, ranked just below the major oncology research institutions, indicative of the company’s publicly stated strategy to sell or share rights to its molecules to generate income to invest back into R&D and meet the company’s return-to-growth target. Merck & Co., Johnson & Johnson, Bristol-Myers Squibb, Eli Lilly and Amgen have also executed a number of out-licensing deals around early-stage assets that these companies have presumably currently deprioritized for internal investment. Such deals may include return options that will allow companies to regain rights to the asset at a later phase.

With respect to the geographical location of the deals, US-based companies are involved in more than half (56%). A substantial proportion of the overall activity is within particular regions, again dominated by the US, with approximately 40% of dealmaking activities occurring between US-based organizations. Internal dealmaking activities within Europe are a distant second, constituting 13% of the total activity, followed by transatlantic partnerships in either direction (10% for those with US-based licensees and ~9% for those with Europe-based licensees). Activity between the west and east constituted only a small fraction of the deals.

In conclusion, oncology remained the most competitive area for dealmaking in 2017, with immuno-oncology therapeutics continuing to be the principal driver. The licensing landscape is dominated by early-stage discovery deals, which usually have very large upside valuations. It is difficult to predict the future, owing to global financial uncertainty and the possibility that the flurry of dealmaking that followed the first checkpoint-inhibitor approvals has plateaued. However, we anticipate another strong year for dealmaking in 2018, on the back of the US tax reforms and as clinical evidence emerges to support next-generation technologies such as CAR T cell therapies, antibody–drug conjugates and bispecific antibodies. Indeed, one of the largest deals of 2018 so far is Celgene’s $9 billion acquisition of the CAR T cell company Juno Therapeutics. Additional factors that could help sustain a high level of activity include the apparent willingness of some large pharmaceutical companies to out-license pipeline assets in order to generate additional revenue and fully explore their potential, and the opportunity for more cross-regional partnering.