The full-year 2014 BioMeter confirms that 2014 was a banner year for biotechnology. The average BioMeter value for the entire year across all transactions reporting up-front payments and stage of development was $58.7 million, up dramatically from $33.9 million in 2013, and the highest we’ve observed for a full year since we started reviewing data going back to 2006. Increases were at all stages of development, with preclinical and discovery transactions showing a record BioMeter value of $28.1 million, compared to $21.8 million in 2013; the BioMeter for Phase 1 product averaging $44.8 million compared to approximately $40 million in 2013; the BioMeter value for Phase 2 product increasing to $83.5 million compared to $47.4 million in 2013; the BioMeter value for Phase 3 products increasing to $101.1 million from $46.2 million in 2013; and the BioMeter value for approved products increasing to $212.6 million, compared to $50.6 million in 2013. The total average and BioMeter for approved products are aided by the Merck/Bayer pharma-topharma blockbuster ($1 billion up-front payment for a family of soluble guanylate cyclase modulators), but even taking that deal out of the picture, the average BioMeter for all stages would be $48.7 million, still the highest annual BioMeter going back to 2006.

So what’s driving the increase? The data shows that buyers are paying more up front for products at all stages of development than in the past. This likely reflects two market forces. First, the IPO market and access to capital are allowing biotechnology companies to drive harder bargains. Companies are less willing to accept modest up-front payments in licensing transactions when they have a viable alternative to raise capital and continue development on their own, while retaining 100 percent of the rights and future economic potential of their products. For the biotechnology company, it becomes a question of dilution: the company can suffer a certain amount of equity dilution by selling stock, or it can have its economic rights to its assets diluted by licensing them to a pharmaceutical company (or large biotechnology company) for a share of the future economics. The availability of a viable capital-raising path has no doubt altered this calculus for many sellers in the market.