Options: Is the Bio/Pharma Industry Becoming More Risk Averse?
In deal-making, options have long been considered a useful vehicle to carry uncertainty through to a point of resolution, or at least to a position of more understandable risk. Many very early stage players prefer the use of options to allow partners an opportunity to uncover value rather than undersell or worse allow good potential to gather dust for lack of resource. Would-be licensees see options as a lower risk / lower cost way of securing assets, seeing the risk reward balance falling in favour of watchful waiting. The pharmaceutical pipeline is a risky environment. Failure rates remain high despite all the advances in drug design and ever growing safety data. The industry’s R&D productivity would appear to be worsening and the cost to bring a drug to market growing ever larger . We might therefore expect to see the use of options increasing in clinical stage deals as big-Pharma licensees look to reduce their financial exposure to failure and send a signal to their stakeholders and to market analysts that they are offsetting this pipeline cost and failure rate with astute and more prudent risk taking. We searched the PharmaDeals database in an attempt to uncover evidence of a trend in this direction. Using the inclusion of the word ‘option’ in the deal announcement as a surrogate for option clauses within the agreement, we determined the annual incidence of option usage in licensing, collaborative R&D, and clinical co-development deals, where the licensee fell into the category of ‘mid-sized’ or ‘global’ pharmaceutical company.
The use of options might be far greater than we can detect with this approach, many announcements concerning standard licensing deals could be the consequence of an earlier unreported option, but if we assume this effect to be constant over time we should detect any underlying trend. The data show little evidence of an increase in the use of options in mid-sized and global pharmaceutical company deal activity. If anything, the appearance of the word ‘option’ has declined somewhat in recent years. The picture is echoed though somewhat more noisily, when our search was narrowed down to clinical phase deal-making, here we considered all deals where at least one deal subject drug fell into the range of IND to registration (see figure 1). A similar overall result was seen with the pre IND deals albeit following a differing progression. The use of options, at least when evidenced by their reported incidence, does not support the premise that mid-size and global pharmaceutical licensees are becoming risk averse in an increasingly costly and risky environment. The need to maintain positive momentum in an industry continually challenged by patent cliffs and diminishing fields of lucrative and potentially game changing unmet clinical need may in fact be increasing risk taking by necessity.
Nigel Borshell BSc, is a Director at PharmaVentures Limited. (firstname.lastname@example.org)
Fintan Walton PhD, is CEO and Founder of PharmaVentures Limited.