Biotechnology M&A To Increase?

Posted on Sunday, June 04, 2006 - 0 comments -

It should be no surprise that major pharmaceutical companies are struggling to grow as competition, both generic and branded, increases and internal R&D fails to produce new products. But even major biotechnology companies, like Genentech and Amgen, may soon face some of the same challenges their pharmaceutical counterparts are currently dealing with.

To fill a their product pipelines, companies have resorted to licensing compounds from smaller, more innovative drug discovery firms. But the market for licensed compounds is becoming more and more competitive as the demand for pipeline products increases. Licensing deals are occurring earlier in a product's development life. Drugs in Phase II development are increasingly being licensed, while products in Phase III development are becoming more difficult to find to license. With repatriated cash, major pharmaceutical/biotechnology companies have turned to M&A as a way to get both new products and drug discovery technology.

Major pharmaceutical/biotechnology companies have gone on an acquisition spree, buying up both private and public companies. Amgen started last year with its acquisition of Abgenix for $2.2B, a 54% premium. AstraZeneca recently bought Cambridge Antibody Technologies for $1.3B, a 67% premium. Pfizer purchased privately held Rinat for an estimated several hundred million dollars. Rinat was funded by MPM Capital, Prospect Venture Partners, SV Life Partners, Technology Partners, and Essex Woodlands Health Ventures. Merck recently purchased privately held Abmaxis for $80M and GlycoFi for $400M. The GlycoFi deal is estimated to be one of the largest deals for a privately held biotechnology company. GlycoFi was funded by Polaris Venture Partners, SV Life Sciences, Boston Millenia Partners, Fletcher Spaght Ventures, Peninsula Equity Partners, Village Ventures, and Borealis Ventures. Polaris originally seeded GlycoFi with $400K, and eventually invested $10M over the next 5 years. Polaris’ share of GlycoFi is now estimated to be worth over $100M post acquisition.

Analysts have speculated that Medarex may be the next acquisition. Medarex has transgenic mouse technology similar to that of Abgenix and a number of pipeline products. Potential buyers could be Pfizer, which currently partners with Medarex for a late-stage antibody to treat melanoma and owns approximately a 5% stake. Bristol-Myers Squibb, which currently partners melanoma treatment MDX-010, may be another potential acquirer. Even if Medarex does not get acquired, partnering antibodies should be a lot easier now with competition getting bought up.

Major biotechnology/pharmaceutical companies have shown that they are willing to pay a premium for companies with potential products and platform technologies. Also common these previously mentioned deals was that the acquired firms generally had drug partnerships with their buyers prior to acquisition. If the hurdles for IPOs remain high, biotechnology companies in search of capital will see M&A as a way to access public financing, while acquirers see M&A as a way to fill drying pipelines. Given the current market conditions, trends in M&A will likely continue.

There has been 0 Responses to 'Biotechnology M&A To Increase?' so far