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With the market for initial public offerings dead and buried, an acquisition or major partnership by a pharmaceuticals company may be the only solution for today’s biotech companies — but even those transactions are longshots and they may carry risks that aren’t pleasant for the acquired company, say experts.
Biotechs burning cash and holding out hopes that large companies such as Pfizer Inc. or Merck & Co. may step in are facing a lot of “ifs.” Certainly, those companies have money to throw around — Pfizer in January bought rival Wyeth (and its biotechnology division) for $68 billion and plans to create the largest biopharmaceutical company in the world. Moreover, big pharma firms are facing special pressures, including expiring patents. However, they also know they can drive a hard bargain during acquisition negotiations with struggling startups — and they are only going to select the companies that are the best fit for their particular needs, say experts.
In fact, business advisers say biotechs may soon find that pharmaceutical companies want the company’s clinical plan, intellectual property and development team — and nothing else. “The fire sale is just really starting,” George Xixis, a life sciences attorney with Boston law firm Nutter McClennen & Fish LLP. “Historically, the biotech would just keep raising money and paring back the pipeline until they just folded the whole thing up. This environment is new.”
What’s more, there isn’t much a biotech can do about it, particularly if assets are far smaller than liabilities — as was the case with Waltham-based Dynogen Pharmaceuticals Inc., which filed for Chapter 7 bankruptcy protection last month. “There is no leverage left if you have an asset that requires significant additional investment to commercialize, as all drugs and most devices do, and you’re heading down the drain,” said Xixis.
Biotech startups in this “deteriorating” environment may be tempted to mortgage their intellectual property to a big pharma buyer. “If you call the CEO of a startup and ask him if he wants money, it’s like asking a drowning man if he wants a life preserver,” said Eugene Seymour, CEO of NanoViricides Inc., a biotech in West Haven, Conn.
That said, biotechs do have something big pharma wants. “Pharma cares about building its pipeline,” said Michelle Dipp, a vice president at GlaxoSmithKline PLC who was formerly at GSK’s latest local acquisition, Sirtris Pharmaceuticals Inc. in Cambridge. She is now head of GSK’s Centre of Excellence for External Drug Discovery in Cambridge, a unit that supports new drug discovery development outside of GSK.
But not all pharmaceutical companies will buy out biotechs as an entire company, as GSK did with Sirtris. They might just want the assets at a cheap price.
As for NanoViricides, Seymour said he’s not necessarily interested in a pharmaceutical buyout. NanoViricides has a broad platform of technologies and applications it can license. “We’ll just keep licensing,” he said. “Why sell the cow if you’re selling the milk?”
The last major merger in New England was GSK’s purchase of Sirtris for $720 million in cash last April. Most of the other mergers of the past year, such as Eli Lilly & Co.’s purchase of ImClone Systems Inc., were outside the region or between rather large companies. The volume of the big buyouts doesn’t appear to be accelerating, either, said Jens Eckstein, general partner of Boston-based TVM Capital Corp., but has held steady for the past several years.
“Everybody loves big pharma, because it’s the exit right now,” Eckstein said. “I think pharma is a good exit. There are no others.”
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