Biotech: Deal-Hungry, Just Like Big Pharma
In the wave of big biotech acquisitions in the last few weeks, some trademarks of past deals are conspicuously absent. Gone are speeches about revolutionary science and promises of lush medical rewards on the distant horizon. The highlights now are purely practical: Millennium Pharmaceuticals Inc. (MLNM ) is buying COR Therapeutics Inc. (CORR ) to get a sales force and an established anti-clotting drug. MedImmune Inc. (MEDI ) is swallowing Aviron (AVIR ) to get hold of a nasal spray flu vaccine. Cephalon Inc. (CEPH ) is buying its French partner, Group Lafon, partly to acquire a European sales staff.
These biotechs are acting like deal-hungry pharmaceutical companies, and that shouldn't be any surprise. For years, they've wowed investors with stories that were more about impressive laboratory developments than predictable earnings. But with Wall Street now looking for concrete evidence of growth, the biotechs are racing to expand product portfolios beyond one or two hits and build out infrastructure to manage everything from drug discovery to sales forces that can compete with the likes of Pfizer Inc. (PFE ) Given those objectives, the recent flurry of dealmaking is probably just the beginning. In short, says Dr. Stanley T. Crooke, chairman and CEO of Isis Pharmaceuticals (ISIP ): "Biotech is growing up."
There's no shortage of potential targets for future deals. Analysts are watching Palo Alto (Calif.)-based CV Therapeutics Inc. (CVTX ), which is developing a promising drug to treat angina that could hit the market as early as 2003. Another biotech, Transkaryotic Therapies (TKTX ) in Cambridge, Mass., is awaiting approval of a drug called Replagal aimed at a rare metabolic disorder called Fabry disease. And two closely watched biotech players, Foster City (Calif.)-based Gilead Sciences Inc. (GILD ) and Trimeris Inc. (TRMS ) out of Durham, N.C., have breakthrough HIV drugs just hitting the market or in late-stage development. The Trimeris compound, under co-development with Hoffmann-La Roche, could top $400 million in annual revenues, says Lehman Brothers Inc.
Any of these companies could make attractive partners--or tasty prey. And biotechs aren't the only ones on the prowl. Big Pharma also is looking for new products, which is why Bristol-Myers Squibb Co. (BMY ) struck a $1 billion deal this year to co-develop ImClone Systems Inc.'s (IMCL ) cancer therapy. But right now, biotechs seem even more eager for deals. Without them, says J. William Tanner, an analyst at SG Cowen Securities Corp., companies such as Amgen (AMGN ), Biogen (BGEN ), and Genentech (DNA ) may be hard-pressed to post the high growth rates investors expect--especially as they must generate that growth off a much larger revenue base than in their early years.
SWEETER OFFERS. If the biotechs are looking to buy or license potential blockbusters, though, the deals won't come cheap. This sector raised a record-breaking $31 billion in capital in 2000 and another $9.4 billion in the first three quarters of 2001. That means even small companies can hold out for sweeter offers. As a seller now, "you can craft deals that are much more favorable," says Dr. Louis G. Lange, chairman and CEO of CV Therapeutics.
Millennium, of Cambridge, Mass., illustrates the dynamics at work. Initially a provider of genomics technology and data to big drug companies, it has become a drug-discovery and development operation. The COR deal brings Millennium a share of the $230 million in annual sales of Integrilin, an anti-clotting therapy that's co-marketed with Schering-Plough Corp (SGP ). Joseph P. Dougherty, senior biotech analyst at Lehman, says cash flow from Integrilin will help Millennium fund development of its own drug candidates--a hedge if raising money on the capital markets becomes difficult.
Moreover, COR brings a sales force with experience in cardiovascular drugs. "We were missing scale and commercial capabilities...to handle what's coming out of [the company's labs]," says Kevin P. Starr, Millennium's chief operating officer. That's a common plight for many biotechs--and a reason dealmaking will only intensify.
By Amy Barrett in Philadelphia, with Catherine Arnst in New York and John Carey in Washington