Early Stage Assets – Biotech’s hot commodity

Investors are betting big on early stage biopharma assets. But vetting these deals requires deep industry knowledge, expert guidance and a sophisticated framework for predicting success.

Although the beginning of 2022 has seen slower investment than previous years, competition for emerging biotech companies and the drugs they are developing has become increasingly fierce. As articulated in IQVIA’s whitepaper “A Big Deal: Strategic Rejuvenation for Post-Pandemic Realities”[1], persistent post-pandemic headwinds combined with declining in-house R&D productivity make it increasingly challenging for pharmaceutical companies to sustain their growth momentum. The external sourcing of innovation, via M&A and licensing, therefore becomes paramount to bolster pipelines and close growth gaps.

That has created more competition and a steady increase in prices for emerging biotech assets and/or firms that have promising drugs in development.

Early investors get the prize

Over the past 10 years, the number of absolute acquisitions of start-ups has increased by more than 160%, at a CAGR of 11%, and the number of life science deals has increased by 63%[2]. Trends in recent years have been similar with the number of deals increasing by 41% from 2019 to 2021, although the start of 2022 has seen slower growth. Many of these acquisitions (70%) are for early-stage assets that offer the promise of long-term value at a lower near-term cost[3].

However, vetting value is more complicated for early-stage products, and they come with a lot of uncertainties and risk. This process is made more difficult due to limited information about an asset and a plethora of uncertainties in the treatment category, marketplace, and research landscape. These assets still require years of development and millions of dollars invested with an uncertain promise of returns.

For investors interested in this space, establishing a framework for assessing the value of early-stage assets is extremely important, especially in high-unmet need therapy areas, where there is little historic data to rely on.

Corporations looking into investments can mitigate risks through comprehensive due diligence process that takes into account their own portfolio goals, and what treatment areas, mechanisms of action and clinical development strategies best align with these goals. Once these criteria are set, an analysis of the marketplace can help them uncover promising candidates that align with their business.

Because these assets are so new, the information may be hard to come by. IQVIA can help investors; involving our network of key opinion leaders using effective and customized interview facilitation materials, conducting comparative analysis through industry leading benchmarks, and working with experts who have first-hand experience evaluating the clinical environment will help corporate investors make investments that are more likely to pay off.

How to vet an early-stage asset

When making decisions about early-stage assets, investor should consider multiple factors that can impact long term value. These can include:

1.????Finding hidden opportunities. Companies behind early-stage assets are rarely actively looking for buyers, but they may still be interested. That means investors need to seek them out and establish their own benchmarks for comparing potential candidates. Before beginning this search, buyers should identify the types of assets they are interested in based on their own portfolio strategy, timelines, budget, risk tolerance, and long-term business plans. That will inform benchmarks related to R&D costs, time to market, and commercial potential. Establishing a systematic framework, then assessing each asset using the same process makes it easier to narrow the search and create a shortlist of assets to pursue.

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2.????Understanding demand. A novel treatment might promise significant value for patients with a specific disease, but if the patient population is small, or if there are other competitors developing similar treatments, or payers won’t cover high price tags, then the revenue value for that asset could be limited. Working with an industry partner who can analyze the market potential using global healthcare data can help investors more accurately assess the competitive landscape and market potential so they can make more informed investment decisions.

1. Scrutinizing costs. Trial budgets can vary considerably and will be impacted by the size of the patient population, inclusion/exclusion criteria, patient burden, and the number of patients that will be required to meet clinical research goals. Talking to the biopharma company’s science team about the clinical plan then comparing those plans to analysis of trials conducted for similar treatments can help investors get an accurate benchmark and a sense of time and costs.

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4.????Identifying competitors. An early-stage asset may hold great clinical promise, but if another drug comes to market first, or delivers a better treatment outcome, the value proposition for that asset can plummet. These competitors can include existing treatments that are being used off-label for the targeted condition, which may not be referenced in mainstream treatment data. Understanding what other developers are working on can help investors understand the risk associated with an early-stage asset, and how likely they are to development a competitive product.

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5.????Integrating wisely. Once the deal is completed, we from IQVIA see varied models on how to “integrate” the asset – the range is broad from a complete “stand-alone” to a fully integrated option. It appears that one of the rationales for integration, not the only one though, is whether the asset is close to commercialization. There are many examples for a stand-alone rationale especially for early assets; the reasoning encompasses culture, structure, process and talent aspects alike.

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Payment plans and risk mitigation

Once investors identify a potential asset to gain access to, they can further mitigate their risks by proposing structured financial deals, whereby they invest smaller upfront payments until an asset achieves key development milestones.

Such early-stage investment strategies can be formatted in a variety of ways. For example, GlaxoSmithKline’s Center of Excellence for External Drug Discovery[4], provides preliminary research funding and support to early-stage companies in exchange for the option to in-license programs following proof of concept; and venture funds?like Hatteras Venture Partners[5], invest in multiple early stage biotech companies to spread their risk, sometimes partnering with large pharma on these deals.

In other examples, large pharma companies are striking long term financial deals with small biotech firms. For example, Gilead invested $300 million Tizona Therapeutics[6] to support development of a first-in-class cancer drug. This deal may ultimately be worth $1.55 billion if the treatment pans out. In another example, Engitix entered into collaboration and licensing agreement with Takeda Pharmaceutical to develop therapies for IBD. Both companies will work in close collaboration to confirm and validate targets and in the preclinical development of therapeutics in IBD using Engitix’s extracellular matrix discovery platform[7].

Some buyers are also investing in related therapeutic products, including early-stage diagnostics and non-drug assets that can increase the value of the overall market. Investing in related infrastructure, software, devices and hybrid healthcare products can add overall value to the pharma product by increasing disease awareness and improving the patient experience.

All these models enable investors to support development of promising assets with less financial risk, and to spread their investments to maximize potential returns. It creates new opportunities for growth, while providing innovative developers with the capital they need to bring promising new drugs to market.

To learn more about IQVIA’s asset and portfolio strategy team capabilities, contact the author via email at [email protected] and [email protected] : for more information, including our benchmarks and tools, visit our website: www.iqvia.com

Frank Herrmann, Managing Principal, Asset and Portfolio Strategy – Global Consulting

Laura Bonini, Associate Principal, Asset and Portfolio Strategy – Global Consulting

Tabitha Burraway, Associate - Global Consulting

[1] A Big Deal: Strategic Rejuvenation for Post Pandemic Realities (a-big-deal-strategic-rejuvenation-for-post-pandemic-realities.pdf (iqvia.com))

[2] Source: IQVIA Pharmadeals; Deals types: M&A and Product deals; General Product Types: Therapeutic and Vaccine, Partnering and principal company types: Academic/Institute, Biotech, Financial, Government, Pharmaceutical, Other

[3] IQVIA Pharmadeals; Late-stage includes Launched, Registered/Approved, Registration pending, Preregistration; Mid-stage includes Phase 3, Phase 2/3, Phase 2; Early-stage includes Phase 1, IND, Pre-clinical, Discovery

[4] https://www.thepharmaletter.com/article/gsk-creates-center-of-excellence

[5] https://www.hatterasvp.com/

[6] https://endpts.com/gilead-lines-up-a-1-55b-biotech-buyout-deal-as-ceo-dan-oday-invests-in-his-latest-cancer-blockbuster-dream/

[7] https://engitix.com/engitix-signs-collaboration-and-licensing-agreement-with-takeda-to-develop-anti-fibrotic-therapies-in-advanced-liver-diseases/