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PharmaDeals Business Commentary

The Maturing of Biotech (2005-05-01)

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The emergence of biotech from the early days of Genentech in 1976 has without doubt been phenomenal. However, we should never forget that there was - and some would argue still is - an underlying cynical view of the potential of biotech. This view has always been a cloud sitting over the industry: on some days this is a mere patch of a white cloud on a beautiful spring day in Palo Alto; on other days it can be as dark and engulfing as the deepest depression moving across the British Isles. Nonetheless, without the emergence of biotech the pharmaceutical industry would be in a worse state than it is today. This is not just owing to the fact that venture capital and private equity were prepared to take on the risk of drug development. Rather, it was their backing of the development of recombinant proteins as therapeutics that was significant: a field that pharmaceutical companies could not see as promising at the time. The early players, such as Genentech and Amgen, have emerged as strong in the field. Importantly, the initial risks were largely centred around manufacturing and regulatory issues, and not round the therapeutic efficacy of the products - human growth hormone, erythropoietin (EPO) or insulin. Indeed, there was a time when biology-based therapeutics (or biotherapeutics) and thus biotech investments were considered lower risk then the 'normal' chemistry-based drug discovery route.

"With the continued rise of biotherapeutics as a significant growth area we are bound also to see the continued rise of collaborative, licensing and M&A deals between biotherapeutic-focused biotech companies and large pharmaceutical companies."

Today, the sales of biotherapeutic drugs are the fastest growing in our industry and, not surprisingly, large pharmaceutical companies are rapidly trying to reposition themselves within this area. Pfizer's recent deal with Medarex, which has a potential value of US$510 M, and AstraZeneca's deal with Cambridge Antibody Technology (CAT) underscore this trend. No wonder then that the industry has moved quickly as Roche rides high from its interest in and alliance with Genentech and the success of Rituxan® and Herceptin®.

This is not to say that biotherapeutics are without risk - witness the evolving saga of Elan's and Biogen Idec's Tysabri®. However, we have to recognise that there are two categories of these drugs: those based on or derived directly from natural biological interactions (such as human growth hormone) and those based on artifical interactions (such as novel antibody-based therapeutics). Both categories are proving successful but each has its own risks.

From the deal making perspective, as a consequence of the continued rise of biotherapeutics as a significant growth area, we are bound also to see the continued rise of collaborative, licensing and M&A deals between biotherapeutic-focused biotech companies and large pharmaceutical companies.

Fintan Walton

Chief Executive Officer

PharmaVentures Ltd