The year 2006 can be defined by the surge in acquisitions by large pharma of biotech companies. Key deals include the acquisition of CAT by AstraZeneca, Glycofi and Sirna Therapeutics by Merck, ICOS by Lilly, Tanox by Genentech and PowderMed by Pfizer. So why is this happening and what will it mean for the future of biotech?
When I look at the current acquisitions of biotechs by larger pharmas I see a significant dynamic occurring right in front of us. It appears that we have entered a phase in which larger companies are buying up strategically important biotechs that enable them to secure either their therapeutic or technological interests. The apparently high valuations achieved for licensing deals mean that acquisitions are more attractive as the benefits of low-cost licensing disappear. This emergence of the secure acquisition of intellectual property rights enables a more robust strategic position to appear. And it isn't just the pharmaceutical companies that are driving these acquisitions: the poor IPO market and malaise of biotech stocks mean that these companies are relatively easy takeover targets. Furthermore, shareholders can achieve quick exits at premium prices.
"When I look at the current acquisitions of biotechs by larger pharmas I see a significant dynamic ... . It appears that we have entered a phase in which larger companies are buying up strategically important biotechs that enable them to secure either their therapeutic or technological interests. ... So where does this leave the biotech model as a way of generating innovative drugs?"
So where does this leave the biotech model as a way of generating innovative drugs? Clearly there is both bad news and good news. The bad news is that innovative firms with products in clinical development are likely to disappear and be absorbed into larger companies, thus removing the opportunity for their technologies to be licensed. The good news is that investors in biotech can see multiples in their investments that will mean that there should be a renewed interest in biotech funds. This will, hopefully, not only fuel the growth of existing biotechs but also the emergence of new ones. What is more, some individual entrepreneurs who have exited are likely to attempt to invest again, thereby fuelling additional biotech resurgence.
Another important consideration is to what extent biotechs that have been purchased will be allowed to operate independently. In this regard, the Roche-Genentech model is exemplary, and provides lessons on how to preserve entrepreneurship and productivity.
The biotech model will change, particularly with respect to financing and ultimate share ownership. However I believe that the biotech legacy is strong enough to ensure that small dynamic entrepreneurial environments are recognised as best for innovation, and that these will survive regardless of who owns them.
Fintan Walton Chief Executive Officer PharmaVentures Ltd