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PharmaDeals Business Commentary

Supply and Demand Will Shape the Future of Equity-Based Transactions (2005-06-01)

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The deals market-place, although not perfect, is like every other market-place influenced and shaped by supply and demand. Without doubt, the demand for quality late-stage, registered or launched products is incredibly high because pharmaceutical companies are dependent on developing a strong pipeline. Equally, few would doubt that the supply of such products is low, for with such intense demand reaching dizzy heights virtually all good opportunities have been snapped up.

Biotech companies attempting to raise capital know that the supply of capital increases with the number of late-stage products in their pipelines and, in parallel, investors like to back biotechs because they know that the demand from larger pharma companies for these products is high. Concomitantly, with these larger companies snapping up every late-stage opportunity the supply of such products has diminished and the price companies are prepared to pay for a licence has increased. These higher prices have prompted larger pharma companies to switch to company acquisition as an alternative to licensing.

So, with few opportunities at late stage available for licensing I predict that we will see an increased move by large pharmaceutical companies to acquire biotech companies who have late-stage and launched products in a similar fashion to the way that Johnson & Johnson has been acquiring companies such as Scios and ALZA. These acquisitions will be strategic, enabling the acquirers to defend their therapeutic interests, and they will result in the biotech sector being largely made up of early-stage companies.

"...with few opportunities at late stage available for licensing I predict that we will see an increased move by large pharmaceutical companies to acquire biotech companies who have late-stage and launched products..."

How will this influence behaviour in the deals market-place? With fewer opportunities at late stage, large pharma companies who need to defend their strategic interests further will be forced to consider in-licensing at an early stage. Does this mean that they will increasingly seek opportunities before the critical 'proof-of-concept' stage? Well, yes, but what we will be witnessing is an increase in the multifaceted collaborative deal that includes a portfolio of related early-stage opportunities, such as the Cambridge Antibody Technology (CAT)-AstraZeneca and Pfizer-Medarex deals of 2004. The net result is that companies with early-stage products and technologies will be doing an increasing number of lucrative deals, and investors who were shy of spending on these companies will start to jump in as a result of the changed circumstances and start, once again, to invest in early-stage companies.

Fintan Walton

Chief Executive Officer

PharmaVentures Ltd