VANCOUVER, British Columbia - Following 30 days of straight rain, the clouds parted and the sun shone Monday morning on the Westin Bayshore Resort and Marina here, where more than 800 delegates gathered to discuss partnering opportunities.

Monday marked the first full day of the 4th annual BioPartnering North America Conference, which runs through today, and the organizers were more than thrilled with the weather.

"Good weather encourages good meetings," said Robert Kilpatrick, a partner with Santa Cruz, Calif.-based Technology Vision Group LLC, adding that good meetings lead to "good partnerships."

Following a brief welcome, the first panel of the day plunged into biotech deal-making, highlighting four areas: the impact of increasing mergers and acquisitions, the big pharma technology evaluation process, the impact of specialty pharma and strategic research collaborations.

M&A Activity On Upswing

James Watson, managing director and head of the merchant banking group at San Francisco-based Burrill & Co., said there is a fair amount of growth in M&A activity, particularly among companies valued at $100 million to $500 million.

It's an exit that more companies are choosing, considering the decline in value of initial public offerings. Companies looking to go public are valued at between $70 million and $154 million less than they were in late 2003, and big pharma companies are looking for new products and platforms - Iain Dukes, vice president of scientific and technology licensing at London-based GlaxoSmithKline plc, said at the meeting that his company is looking at acquisitions "more than we used to." All of that is making M&As an attractive option for both parties.

Every so often, Gayle Mills, senior vice president of business development at Fremont, Calif.-based Abgenix Inc., hears executives at young companies say that they want their company to be the "next Amgen," a company in the process of buying Abgenix for $2.2 billion.

"I really, really think that's highly improbable," Mills said, explaining that Amgen, of Thousand Oaks, Calif., built itself at a time when big pharma wasn't open to acquiring monoclonal antibodies and therapeutic proteins. That has since changed.

And it's difficult for biotech companies to conduct Phase III trials, launch a product, reach profitability and "keep The Street happy" all by themselves, she added.

Due Diligence In Finding Opportunities

Merck & Co. Inc., of Whitehouse Station, N.J., has a distinct method of finding the right opportunities. It has done significantly more licensing deals in the last five or six years, but when the company surveyed biotech companies, they found Merck had "a reputation, probably well-deserved, of being slow, arrogant and cheap," said James Schaeffer, executive director of worldwide licensing and external research at Merck.

Since then, Schaeffer said, the company has made great strides, and joked that "we're no longer slow and arrogant."

People laughed at that comment, but most know what he's talking about - partnering is similar to savvy shopping: You try to get the most value for the smallest dollar amount.

But there's one thing pharma companies should realize, Schaeffer said. Once a company like Merck is interested in a biotech company, it becomes imminently clear that there are other companies interested, as well, and at that point, strong relationships factor prominently.

That's not to downplay due diligence, which can last a few days or a few years. And if a pharma company finds itself hesitating, it might not be the right deal at that time, the panelists said.

"I think it's a little like being in love," Watson said. "If you're not sure, you're not in love. If you're not sure you have a champion, you don't."

Pharma Turning To Biotech, Specialty Firms

More pharmaceutical companies are looking for specialty pharma to help build value of shelved products for niche markets, such as eye diseases and dermatology, the panelists said. That probably will continue, and specialty pharma, an industry that has grown steadily in response to investor interest, is there with open arms.

Specialty pharma companies can turn "slow earning, unloved products" into high-value drugs, said William Harrison, global head of search and evaluation in Europe for Novartis AG, of Basel, Switzerland.

There is "more value" with partnerships for promising products that are "sitting on GSK's shelf," which is why that company considers strategic divestments in the field of dermatology, Dukes said. A product worth between $300 million and $500 million in sales may not be of interest to big pharma, but could be to specialty pharma.

It's not just M&A activity on the rise. "Overall, the number of alliances are up at a dramatic level," Watson said, noting that big pharma once held 74 percent of the total deal value, and 41 percent of partnerships involved a pharma firm, but that has since fallen to 48 percent and 27 percent, respectively.

"Big pharma has not quite had the monopoly in this area that they have had historically," he said.

Still, there are high-value deals, such as AstraZeneca plc's potential $1 billion agreement with AtheroGenics Inc., and Pfizer Inc.'s partnership with Incyte Corp. for $803 million. (See BioWorld Today, Nov. 22, 2005, and Dec. 23, 2005.)

GSK's approach to building its pipeline has changed. In 2000, the company created its seven Centers of Excellence for Drug Discovery to develop the most promising drugs that hit proof of concept, but GSK has found over the years that it's "not leveraging all of the value," Dukes said.

In response, it recently created its Centers of Excellence for External Drug Discovery (CEED) and is working to find partners for earlier-stage candidates, while still retaining buyback rights in lieu of a profit sharing or preferential royalty rate arrangement.

"The idea is to keep the discovery engine moving," Dukes said.

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