Editor

NEW YORK - The nitty-gritty of strategy, partnering and navigating the FDA were among topics covered during the fourth annual BIO CEO & Investor Conference last week, where about 1,500 registrants crowded the meeting rooms of the Waldorf-Astoria Hotel to hear some of the industry's leaders talk about what worked for them, and what didn't.

Some topics were hotter than others. Given the late 2000 boom of major merger and acquisition activity, a panel session that included much talk of such matters piqued the interest of attendees.

Eric Roberts, co-head of global health care for Lehman Brothers Inc. in New York, said the landscape in recent years has changed. M&A investment totaled "about $2 billion a year, for 10 years straight," he said.

"A lot of supposed experts kept talking about the fact that biotech had to consolidate to a much smaller list than the 2,000 U.S. companies, or whatever the number is, and 470 public companies, and do something like the computer industry did, and other growth industries have in the past: Consolidate into a number of less than 100 or maybe less than 50 very strong, large players."

It didn't happen, Roberts said. Instead, "people are talking about building shareholder value and doing what's right for shareholders." Also, he said, "there really weren't synergies through combinations before. Why purchase a company and cut senior management? We don't want to cut senior management. We want to keep those guys around."

Anyway, "there wasn't any significant value through combination," he said. "[But] in 1999, as the sector started getting a lot of products to market, the M&A volume went up over 500 percent. We'd like to say we predicted this, but all we did was answer the phone. One week in June 1999, we had four calls from CEOs of biotech companies saying they wanted to sell their company."

Kevin Starr, chief operating officer at Millennium Pharmaceuticals Inc., which is taking over COR Therapeutics Inc. in a whopping $2 billion deal, said, "When we think about mergers, we think about building a company from both ends. In the early days, we always believed the internal gene discovery [and development] engine was going to mature itself. I think we're seeing that, with our first genomic products entering the clinic. What we're looking for [now] is keys to scale, keys to critical mass, and keys to capability that we didn't already have or couldn't organically grow fast enough."

Vaughn Kailian, vice chairman of Cambridge, Mass.-based Millennium, formerly COR's president and CEO, said the deal was just what COR which started out with cardiovascular research and then sought to broaden its scope needed.

"We could not risk the access on the outside in terms of partnering with people, because people thought, 'Well, you can't commercialize an oncology program. You've never done that.'"

Millennium initiated contact, wanting a "chat," Kailian said.

"Our initial reaction was, 'You know, it's a genomics company, I don't see the fit.' I'm sure [Millennium's reaction was], 'It's a one-product company, I don't see the fit.' But the minute we sat and talked, the first thing each one of us said was, 'But, you don't really understand.'"

From that point, he said, "it became clear we were both biology companies focused on pathways, and there was a tremendous complementarity on the research side and eventually downstream commercially." COR saw access to oncology expertise it didn't have, and "I'm sure they saw in us the ability to drive these products through to the marketplace," Kailian said. "As a result, the deal went down very quickly."

David Mott, CEO of MedImmune Inc., which entered a $1.5 billion merger with Aviron Inc. that was completed in mid-January, said that deal also had strongly favorable mutual factors.

MedImmune, Mott said, saw the chance to "potentially insert a very significant blockbuster potential product right into the middle of that window, between the launch of Synagis [for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus in high-risk pediatric patients] in 1998 and the potential launch of the next generation of products in the 2004-05 time frame."

That opportunity, he said, "really to us seemed like a tremendous way to accelerate MedImmune's growth along the existing strategic plan. It has always been a plan driven by bringing products to the market, maintaining commercial rights to those products, particularly in North America, as much as possible, and then focusing on driving revenue and earnings growth in the long haul."

Boyd Clarke, the former CEO of Aviron, joked that he was "still trying to recover from the fact that it was Jan. 15 that we closed, and this is the first time I knew I was a 'tactic.'"

Aviron brought to the table FluMist, a live attenuated influenza virus vaccine delivered nasally as a mist, awaiting approval by the FDA.

"I've heard [Mott] do his presentation where he talks about the fit between our companies being uncanny," Clarke said. "In the end, I think that was mainly the driver toward this, and I would talk about the rhythms of the companies in terms of their product flows."

The back-scratching rules of partnership arrangements are similar, company officials said.

Donald Drakeman, president and CEO of Medarex Inc., a transgenic mouse company, characterized his firm as the "No. 1 partnering company," with about four dozen such deals. Even here, though, deals were not done solely for the sake of making deals.

"It costs us 50 bucks to ship them a mouse; they do the drug development and they pay us milestones and royalties," Drakeman said. "That seems to be a very good return on very low cost. But this is the drug business, and there is no value like creating a pharmaceutical blockbuster. It's risky and expensive, [and] most things don't work."

David Robinson, chairman, president and CEO of Ligand Pharmaceuticals Inc., said the company has spent about $360 million on research, half of it funded by partners. The firm has 11 alliances, with 10 drugs in human development "that are billion-dollar drugs," three of which are in Phase III trials, Robinson said.

When he joined the company, it had 40 scientists and 300 "lab rats," Robinson said.

"We got together the 40 bright scientists, we locked myself and one other business person in a room for three days, and did an intensive review of the technology and its applications, its possibilities, what kind of resources we thought we would need to develop it," he said. "We did exclude the 300 lab rats. They didn't get a vote. After three days of deliberation, we made some very important decisions about what we wanted to be when we grew up."

Ligand, he said, wanted to be "real company," and that meant you've "got to have products, and you've got to have lots of products if you're an early stage [research and development] company. Simply, the risk factor and the winnowing out of the R&D pipeline means you've got to have a broad-based attack very early on to get lots of drugs into the development pipeline. That really meant, very clearly, we weren't going to do it all on our own."