Oncology dominates biopharma in business development and licensing

Anne Dhulesia, partner, Sean Dyson, partner, and Guy Stephens, manager, L.E.K. Consulting, discuss how oncology is the single largest therapeutic area for pharmaceutical sales worldwide.

Oncology therapies accounted for almost 18% of prescription drug sales in 2023, a substantial increase from 13% in 2018.

This growth, exceeding 10% p.a. over the past five years, has been driven largely by new drug launches and expanding treatment accessibility. The unmet patient needs and commercial potential in the field continue to attract biopharmaceutical organisations. Almost 45% of oncology revenues are now being generated by companies outside the top 10 leaders, with small and mid-sized biopharmaceutical companies typically focusing in specific tumour types or treatment modalities.  

Oncology accounts for almost 40% of all assets in clinical development; indeed, oncology thrives on innovation given the substantial unmet needs across tumour types. Leading oncology companies are dependent on external innovation to supplement their internal research & development or as the main source of pipeline assets.   

In L.E.K.’s Executive Insight focused on biopharma Mergers & Acquisitions (M&A) deals, oncology emerged as the most significant sector of M&A dealmaking. It accounted for almost 50 percent of global deal volume, dominating biopharma business development and licensing (BD&L). With emerging biopharma organisations leading almost 60% of oncology trials, vs. 33% ten years ago, growing oncology pipelines provide a rich set of BD&L targets. Due to the reduced market values, many companies require BD&L proceeds to extend their cash runways to be able to invest in ground-breaking innovation.  

A shift towards late-stage dealmaking  

2020 witnessed the peak of oncology BD&L transactions, which was also the year with the largest number of biotech funding rounds, deals and initial public offerings (IPOs). Even though the number of BD&L transactions have since reduced, the volume of larger transactions, especially those with late-stage and launched assets, has held up well.  

The trend to shift towards higher-value, later-stage deals highlights the desire for biopharma companies to secure nearer-term revenues with more assurance. This shows the need to compensate for headwinds to inline portfolios, including impending patent cliffs and the Inflation Reduction Act in the United States.  

Competition for attractive oncology assets is intense across all development stages, but particularly for late-stage opportunities. The proportion of oncology deals executed by small/mid-cap buyers reached a peak of >80% in 2021. Big pharma has increased its share of deal volume in recent years, with these buyers accounting for c.35% of all transactions since 2021. Compared to their smaller peers, large-cap pharmas have a greater affinity for transacting already-launched assets, typically via M&A, with their deep cash reserves allowing them to pay the premium for de-risked assets.  

Deal premiums are currently higher than they were a decade ago across all therapeutic areas. This is most apparent in oncology, with four whole-company acquisitions bringing in premiums of over 200% in the last five years. Due to their financial capabilities, large-cap companies choose M&A transactions twice as often as small/mid-cap buyers, who choose licensing deals in 45% of transactions. Licensing deals permit smaller buyers to transact at a regional level aligned with their existing footprint, deals for which large-cap pharmas typically have less interest.  

The surge of ADCs and multispecifics  

BD&L has become an increasingly important strategy for both large and small/mid-cap pharmas to access innovation, particularly in novel modalities where biotech companies have been at the forefront of discovery efforts. Antibody-drug conjugates (ADCs) and multispecific antibodies represented only 10% of early-stage transactions in 2019; in 2023, this figure reached 35%. For these modalities, BD&L is often a better approach than developing internal capabilities due to the requirement for validated technology platforms and highly specialised expertise. In contrast, cell therapies have seen a decline in deal share, having accounted for almost 25% all deals in 2021. This shift highlights the growing awareness of the challenges in development, access, and commercialisation of these therapies.  

China: A growing source of innovation  

China has become an important source of innovation in oncology over the past five years. As a result, 30% of all oncology licensing deals in the period originated from Chinese headquartered companies. China has attracted both large and small/mid-cap licensees as domestic R&D increasingly focuses on novel mechanisms and modalities. As global biopharma accumulates experience of Chinese-led innovation, large biopharma companies have shown increased interest, culminating in a more than tenfold increase in total deal value since 2019.

Conclusion  

The oncology landscape is becoming more competitive, with fewer but more expensive deals earning greater premiums. The sources of innovation are constantly changing and are coming from new geographies and modalities. It is important to have well-structured scouting and screening processes in order to have successful execution in this rapidly changing environment. Those interested in oncology must always monitor the current and future landscape of the sector and be prepared to swiftly evaluate an asset and present an attractive offer.