As everybody who's been awake for it knows, the industry enjoyed one of its best years ever in 2003, with plenty of deals made, cash raised and a burst of initial public offerings filed (as well as some priced). Analysts were tallying up the totals and composing their reports as the new year approached.
But the sector's "burgeoning productivity" and competition-boosting wealth could put something of a strain on the sector in 2004, according to a report by Henry Dummett, research analyst with London-based World Markets Research Centre.
"Big Biotech will come more to resemble its Big Pharma cousins in 2004, but not because of a conscious desire to duplicate methods specific to the Big Pharma model," Dummett wrote. "Rather, it will be a reflection of growing financial clout on the one hand and [research and development] problems on the other."
The latter problems, specifically, include dwindling pipelines among some of the major biotechnology players. Dummett pointed to Cambridge, Mass.-based Biogen Idec Inc., noting that "for all its strengths [the company] remains overwhelmingly reliant on its multiple-sclerosis therapy Avonex (interferon beta 1-a)," thanks partly to a "muted response by purchasers and reimbursers to the psoriasis drug Amevive (alefacept)."
Amgen Inc., of Thousand Oaks, Calif., "has by far the strongest existing portfolio in the biotech sector, with just five notable products. Most do not enjoy such (relative) riches," he wrote.
Among the troubled, Dummett predicted, will be MedImmune Inc., of Gaithersburg, Md.; Emeryville Calif.-based Chiron Corp.; and Gilead Sciences Inc., of Foster City, Calif.
The upshot, Dummett wrote, will be more mergers and acquisitions along the lines as those already seen, such as Biogen's merger with IDEC Pharmaceuticals Corp., of San Diego, valued at $13.7 billion when it was disclosed in June; Emeryville, Calif.-based Chiron Corp.'s $880 million purchase of Powderject Pharmaceuticals plc in the UK; and Cambridge, Mass.-based Genzyme Corp.'s acquisition of SangStat Medical Corp., of Fremont, Calif., for $600 million.
At the start of 2003, Gilead completed its acquisition of Triangle Pharmaceuticals Inc., of Durham, N.C., by merging Triangle with a wholly owned subsidiary of Gilead. But more is coming, according to Dummett's forecast.
What about the future of earlier-stage firms, especially the start-ups that long have been considered a mainstay of biotechnology - the main source of those all-important, pipeline-filling drug candidates?
Standish Fleming, co-founder of Forward Ventures in San Diego, said start-up activity seems flat, probably in part because of the urgency for later-stage products.
"The private markets are certainly evolving, but it's an evolutionary rather than a revolutionary process," Fleming told BioWorld Today. "Since the great platform' bubble of 1999-2000, the focus has been increasingly shifting toward products and toward clinical-stage companies."
Typically, private investors want at least Phase I, he said, and "if the public markets remain closed, you'll see the focus continue to go later and later. Investors will want to see Phase II or Phase III data before they will write a check."
On the other hand, if the public markets open "and relieve some of the pressure there, you'll see the interest level in private markets either stay where it is or shift a little earlier, where people are funding into the clinic."
Fleming guessed a "nice window" for public money raising lies ahead, noting that the industry now is "eating its seed corn," a situation that can hardly continue indefinitely.
Like Dummett, he predicted more merger and acquisition activity in the year ahead. Fleming had expected more already by the likes of Cambridge, Mass.-based Millennium Pharmaceuticals Inc., a larger-cap firm "which I thought was going to go on a consolidation binge," possibly buying up promising platforms from start-up firms.
"If anyone understands entrepreneurial technology, it's Millennium," he said. As things turned out, Millennium made some deals - such as this year's potential $500 million agreement with Ortho Biotech Products LP, of Raritan, N.J. - but those were "on a very focused, rifle-shot basis, and they focused on products, not on acquiring technology." And the Ortho marketing deal was focused on Millennium's own product, Velcade, the proteasome inhibitor approved by the FDA in May for multiple myeloma. (See BioWorld Today, July 2, 2003.)
At the end of last year, Millennium signed a deal with Princeton, N.J.-based Medarex Inc., a royalty-free, worldwide, nonexclusive cross-license agreement for patents relating to antibodies against prostate specific membrane antigen. (See BioWorld Today, Dec. 12, 2002.)
Forward Ventures has invested in 46 companies since it was founded in 1993, and has $440 million in capital under management. The most recent fund, Forward IV, closed in April 2001 and totaled $256 million. One of the firms in Forward's portfolio, Carlsbad, Calif.-based CancerVax Corp., priced its IPO this fall, raising $72 million. (See BioWorld Today, Oct. 1, 2003.)
The market, Fleming said, has forced would-be investors and buyers to demand more. Other pressures facing start-ups, he noted, include macroeconomic conditions and investor sentiment, which are factors no one can account for or accurately predict.
"Most of the companies that we take end up in the micro-cap sector and do not have revenues; they're development companies," he said. "The Street factors in a great deal of gut feel, and if it's not positive, it's very hard for [investors] to get excited about story' stocks."