As the pharmaceutical industry continues to evolve at a rapid pace, business development and licensing (BD&L) remain crucial drivers for innovation and growth. Ben Folwell, Director BD&L Lead, Evaluate, offers a data-led overview of the latest trends.

Strategic shifts have become a regular occurrence for Big Pharma when it comes to dealmaking strategy. Whether it’s unpredictable events like the COVID-19 pandemic, emergence of disruptive technologies, or the looming pressure of patent expiration, Big Pharmas have to demonstrate dynamism when approaching dealmaking. 

2024 was no exception. The year was not one for a mega-merger, unlike the previous year’s Pfizer/Seagen deal. Overall, Evaluate data shows that while M&A deal volumes increased during the first half of 2024, the size of the deals grew smaller. 

What does that tell us about the deals that are taking place? Average lower potential deal value suggests that the industry is focusing more on smaller acquisitions and partnering than large – often higher risk – megadeals.

Indeed, the latest dealmaking data suggests that in-licensing conducted by Big Pharma is moving to earlier-stage assets – those at the Phase I or pre-clinical stage as companies look to lock in early on new mechanisms or technologies. So far in 2024, 65% of deals where Big Pharma were in-licensing have been in these early stages, compared to just 23% in 2021, when the focus was more on later-stage, de-risked deals.

This trend reflects a proactive response to the challenges of maintaining robust drug development pipelines while minimising risk and capitalising on cutting-edge scientific advancements. The appeal is clear. Early-stage deals not only provide access to novel therapies and technologies but also offer a more cost-effective and agile approach to drug development in a highly competitive and dynamic marketplace. 

An example would be the partnership formed between Sarepta and Roche in 2019 to launch and commercialize SRP-9001 which led to the approval of the first-in-class gene therapy Elevidys for Duchenne muscular dystrophy by the FDA in 2023 

Industry Shifts

To understand the shift, or shift back, to early-stage assets in pharma dealmaking, one must first look at the history of pharma dealmaking and alliances. In-licensing deals by the top 20 pharma companies have historically focused on preclinical assets at rates of around 40-50%, with the remainder split across clinical phases. This preference reflects the desire of industry majors to set their strategic direction via their acquisitions and build robust pipelines from the bottom up.

However, just as it upended most parts of our lives, the pandemic also disrupted pharmaceutical dealmaking, with companies scrambling to acquire late-stage assets that had potential for success. With the potential for quicker approvals and market entry, as well as inflated demand, the appeal of certain assets justified diverting from the long-term strategies of many of the biggest pharma companies such as AbbVie’s addition of the Phase 3 RGX-314 to its pipeline.  

As the pandemic subsided, we’ve seen a move away from this de-risked late-stage deal strategy, with companies increasingly preferring early-stage in-licensing. The renewed focus on early-stage assets reflects a reversion to the norm for some companies, or an effort by others to replenish their pipelines and build resilience for the next half-decade. 

For example, in April this year, French biotech MedinCell SA announced a collaboration with AbbVie to co-develop and commercialise up to six products across several therapeutic areas and indications, using its long-acting injectable (LAI) technology platform. This deal provided MedinCell with $35m up front and up to $1.9bn in milestone payments and potential royalties. The relatively modest upfront fee provides AbbVie with limited risk but significant potential upside in the long term.

Deal Sizes on the Rise

However, with greater demand for early-stage assets comes greater competitiveness which drives up prices. As of this year, in-licensing deal sizes have recovered from the dip in 2022-2023 and are currently up 30% from 2015. This is reflective of the strong demand, and willingness to pay, for early-stage assets.

 In the fastest-growing therapy areas in-licensing provides a way for Big Pharma to play catch up or bolster their portfolios. In the hugely valuable obesity market, AstraZeneca entered a licensing deal with the Chinese biotech, Eccogene, in 2023 for an oral GLP-1 candidate in Phase I. While the asset isn’t expected to reach the market until at least 2029, it provides AstraZeneca with a valuable foothold in this huge market. 

The top 20 pharma companies have consistently paid premiums to secure early-stage assets, with a 32% growth in deal size between 2015 and 2024. This highlights the increasing value placed on early-stage assets.

Fortunately for the largest players, they remain at a distinct advantage when approaching the licensing or deal-making for a highly competitive asset, especially when compared to smaller companies. With interest rates only just starting to fall and the business environment still uncertain, fundraising remains a challenge for many companies. 

Competitiveness in this area also means some sellers are pushing for upfront or varied payment options, leveraging their market position. The terms of these negotiated deals are often more easily met by larger companies.

Of course, securing licensing deals in this competitive environment does not come without rewards. This interest in early-stage assets amongst Big Pharma reflects a strategic preference to manage the development cycle of certain drugs. This allows companies to structure clinical development programmes and use in-house expertise and scale of resources to get the most out of an asset. 

While success is far from certain – remember most early-stage drug candidates fail to reach the market – and the opportunity costs, particularly when investing in promising yet not widely adopted technology are high, strategic alignment and the collation of expertise can reap extensive rewards for pharmaceutical companies. Clearly, these lessons have not been lost on pharma executives in 2024.