J&J Tries to Buy Itself a Pipeline
So McCoy, like many pharmaceutical managers, poured her energies into acquisitions, partnerships, and novel research collaborations, hoping to gain faster access to promising new markets. In July, J&J devoured Cougar Biotechnology for close to $1 billion. In early September it spent $885 million for an 18% stake in Elan Pharmaceuticals (ELN). And J&J will pay $441 million for 18% of Crucell (CRXL), a Dutch biotech company that's developing vaccines—a new product line for the 123-year-old J&J. This last purchase was announced on Sept. 28, the same day rival Abbott Labs (ABT) bought the drug and vaccine unit of Belgium's Solvay (SVYSY) for $6.6 billion. Deals like these are unusual for J&J, but CEO William C. Weldon says McCoy has his full support. "We try to do our best with our internal research," he told BusinessWeek, "but we recognize we need to look at other opportunities."
McCoy's mandate isn't confined to mergers and acquisitions. She is responsible for all aspects of drug development, from spotting potential hit molecules to devising marketing tactics. Laying out a strategy is challenging now, with the recession dampening pharmaceutical sales and debates over health-care reform raising questions about how drug companies will be reimbursed. In the first half of 2009, sales of J&J's prescription drugs dropped 12% from the same period a year ago, to $11.3 billion. Revenues also fell in J&J's consumer and medical-device units as customers kept their wallets shut. And J&J has had some regulatory setbacks: The Food & Drug Administration has issued a slew of requests for more data on drugs the company has submitted for review.
Strange Bedfellows One of McCoy's most controversial moves is the deal with Irish drugmaker Elan. She and her team were interested in a promising treatment for Alzheimer's disease in Elan's pipeline, but Elan already had a research partnership with Wyeth (WYE), which is being acquired by Pfizer (PFE). The deal thus plunges the normally conservative J&J into an unusual three-way research alliance. In the past, Weldon says, rivalry might have scuttled the partnership plan, but not anymore. "The cost of bringing products to market and the risk associated with them is so much greater in today's environment," he explains. Success may depend on "the ability to partner."
J&J initially agreed to invest $1 billion in Elan, but on Sept. 14 it had to renegotiate the price and restructure the deal to avoid violating Elan's contract with another partner. Even at the lower valuation, however, it's a risky bet, especially considering that Elan's lead drug has had mixed results in clinical trials. Investors were concerned that "the implied value was on the high side," says Sara C. Michelmore, an analyst for Cowen & Co, which does not have an investment banking relationship with J&J. "But gosh, it's about portfolio management." J&J needs some high-risk, high-reward products in its pipeline, she says.
J&J also has been shopping for companies to acquire outright—and there are plenty of cash-strapped biotechs searching for lifeboats. Cougar was one. The $953 million J&J paid in cash was a huge premium for a startup that's years away from having a commercial drug. But McCoy was impressed with the company's method of treating prostate cancer by inhibiting enzymes involved in hormone production—an approach that might also work in breast cancer. J&J hopes to enhance Cougar's method with technology from another subsidiary, Veridex, that lets oncologists count tumor cells in the bloodstream to assess how well treatments are working. Using this in clinical trials, "we think we'll be able to predict which patients will benefit from the drugs," McCoy says.
Even as the company explores partnerships, McCoy keeps her eye on internal research. One goal is to make the organization more entrepreneurial. In the past, J&J separated research and development by function—basic research, clinical, regulatory, and so forth. Instead, McCoy has set up five units defined by therapeutic focus: neurology, infectious disease, immunology, oncology, and cardiovascular and metabolic disease. Each unit has its own scientists and specialists versed in dealing with the FDA. And each has researchers dedicated to developing tests that will help doctors identify the patients most likely to respond to a new drug.
McCoy, who came up through J&J's consumer and medical-device divisions, concedes she may have blind spots when it comes to prescription drugs, but she's undaunted by her new challenge. "I'm never going to have the depth of expertise" in drugs, she says. "But I'm comfortable making decisions in a time of ambiguity."
Business Exchange: Read, save, and add content on BW's new Web 2.0 topic networkDrugmakers Chase VaccinesJ&J, Abbott Laboratories, Merck, and others are once again buying or pairing up with vaccine makers. It's a major turnabout, as some of these players abandoned vaccines in the 1980s, notes a Sept. 28 article in The Wall Street Journal. "Big drug companies have reentered the business as prices have risen and researchers developed new technologies for improving production," the article says.For this and related stories, go to http://bx.businessweek.com/pharmaceutical-industry/reference/