Pharma deals on the rise

With companies in the pharmaceutical and healthcare industry shifting their focus to the consolidation of their businesses through mergers and acquisitions (M&As), deal values increased in the second quarter (Q2) of 2011, reaching $42.1bn compared with $27.6bn in Q1 2011, an increase of 52%.

Conversely, the number of deals fell to 264 in Q2 2011 from 281 in Q1 2011. On a year-on-year basis, deal values were high and the number of deals was low in Q2 2011 compared with 313 deals worth $33.1bn for the same period in 2010.

The highest number of M&As in Q2 2011 was reported in the central nervous system (CNS) and oncology therapeutics markets. The CNS sector recorded 28 deals worth $23.7bn and oncology therapeutics had 27 deals worth $21.8bn.

Major deals during Q2 2011 included Takeda Pharmaceutical's agreement to acquire Nycomed International for $13.7bn in a bid to enhance its development expertise and commercialisation capability in Europe and emerging markets. Teva Pharmaceutical agreed to acquire Cephalon for $6.8bn to expand and diversify its marketed products in CNS and mark its commercial presence in the oncology and pain-management fields.

"The pharmaceutical industry is responding creatively to the growing forces of uncertainty [financial and regulatory environmental conditions] that are present in the pharmaceutical therapeutics market," says GlobalData analyst Ravi Kishor Agrawal.

"To overcome this uncertainty, companies are coming up with innovative M&As, using expertise in one business segment and leveraging other companies' business segments, to expand access to several emerging markets. The increase in M&As in the CNS and oncology therapeutics markets shows these segments will continue to grow in the near future."

Decline in partnerships

Partnerships in the pharmaceutical and healthcare industry fell during Q2 2011, with 231 deals worth $1.7bn compared with 255 deals worth $5.7bn in the first quarter of the year. Out of the 231 deals reported in Q2, 139 were co-development deals, 43 were co-marketing deals, 31 were joint ventures and 18 were related to other categories.

The oncology therapeutics market was ahead of all other therapeutics markets in Q2 2011, with 42 partnerships worth $289.1m. The infectious disease therapeutics market followed, with 27 deals worth $47.5m during the same period.

Licensing agreements on the rise

Licensing agreements registered an increase of 24% in deal value in Q2 2011 at $6.8bn compared with $5.5bn in the previous three months. The number of deals fell to 122 in Q2 2011 from 148 in Q1 2011.

The segment recorded a decrease in the receipt of upfront payments and a rise in milestone payments, with $458.3m and $4.9bn in Q2 2011 compared with $632.3m and $4.7bn, respectively, in Q1 2011.

Market-wise, oncology therapeutics dominated the licensing agreements segment with 35 deals worth $2.1bn in Q2 2011, followed by the infectious disease therapeutics market with 18 licensing deals worth $1.2bn.

In licensing by phase, products in the marketed stage recorded 112 deals, accounting for 28% of the total deals from Q2 2010 to Q2 2011. In second place, products in phase III represented 26% of deals during the same period. Phase III products accounted for 29% of total deal value, whereas phase II products constituted 27%.

Key licensing deals for Q2 2011 included Vertex Pharmaceuticals' $810m worldwide licensing agreement with Alios BioPharma to in-license two potential hepatitis C drugs, ALS-2200 and ALS-2158. Hanwha Chemical entered a worldwide licensing agreement with Merck Sharp & Dohme Research, a subsidiary of Merck, to develop and commercialise HD203, a biosimilar form of Enbrel (etanercept), in a transaction worth $720m.

Venture capital investments up 12%

Venture capitalists continue to invest in the pharmaceutical and healthcare industry, because it is one of the most lucrative markets bringing a high return on investment. In Q2 2011, there were 140 deals worth $1.6bn compared with 138 deals worth $1.4bn in Q1 2011.

Deals in the growth/expansion stage made up 48% of the total deals in Q2 2011 and dominated the venture capital segment, followed by start-up stage financing with 60 deals, accounting for 43% of total deals. In deal values, start-up stage financing recorded $611.6m in Q2 2011, followed by growth/expansion-stage deals worth $610.9m.

The oncology therapeutics market remained one of the key therapeutics markets in terms of securing financing from venture capitalists in Q2 2011, recording 38 venture capital deals worth $507.3m.

Surge in North American deal values

With the increase in deals in the growth/expansion stage and high unmet needs, coupled with the strong potential of targeted therapy, the oncology and immunology therapeutics markets remain an area of interest for venture capitalists, as these areas possess the highest return on investments, according to Agrawal.

"To avoid late-stage development failure in this segment, companies are also focusing on strengthening their R&D activities and, in doing so, are attracting venture capitalists," he says.

In Q2 2011, North America recorded 38 deals worth $455.8m in oncology, followed by 29 deals worth $378.9m in immunology; however, with 28 deals worth $203.8m reported in Q2 2011 in the CNS therapeutics market, this market is also an attractive investment opportunity for venture capitalists.