West Coast Editor
NEW YORK After a year of what Carl Feldbaum, president of the Biotechnology Industry Organization, called “dramatic manifestations” of the industry’s strength in the form of mergers and acquisitions (especially late in 2000), BIO opened its fourth annual CEO & Investor Conference with a panel discussion featuring a handful of the principals in several of those deals.
The grand ballroom at the Waldorf-Astoria Hotel was packed.
Lined up on chairs at the front were representatives from Millennium Pharmaceuticals Inc. and COR Therapeutics Inc., who recently entered a headline-making $2 billion merger; MedImmune Inc. and Aviron Inc., in a $1.5 billion deal; and Vertex Pharmaceuticals Inc. and Aurora Biosciences Corp., in a $592 million stock-for-stock transaction through which Vertex takes over Aurora. (See BioWorld Today, Dec. 7, 2001; Dec. 4, 2001; and May 1, 2001.)
Eric Roberts, co-head of global health care for Lehman Brothers Inc. in New York, moderated the panel and spoke after Feldbaum’s welcoming remarks.
“The unfortunate news is that all the [merger and acquisitions] that have closed have resulted in some deterioration of the acquired stock price,” Roberts said, adding that the condition is only short term. More cheerful news is that mergers and acquisitions, which “came roaring back last year” and set a new record, are likely to “continue as we go forward increasing consolidation in the biotech industry, creating bigger, stronger companies and returns for shareholders,” Roberts said.
But the road to getting bigger and stronger has its own demands, said Vaughn Kailian, vice chairman of Cambridge, Mass.-based Millennium, formerly COR’s president and CEO.
“I’m sort of the poster boy for [the adage], Be careful what you wish for,’” Kailian said. COR started in 1988 with a focus on cardiovascular disease, and in 2001 became a profitable company with one product approved: Integrilin (eptifibatide), an anti-clotting agent, given the FDA’s nod in 1998.
That’s when the trouble, such as it was, started.
“You can get trapped by the market with an [earnings- per-share] delivery model that is not consistent with growing a robust pipeline,” Kailian said. “That’s exactly what happened to us. We had a robust pipeline not only in cardiovascular disease, but our next one in line was oncology” and COR had neither the expertise nor likely the future capital to advance it.
Kevin Starr, chief operating officer at Millennium, said not all of his firm’s efforts beyond internal drug discovery could be pursued entirely alone, either.
“We think that could take about a decade or so, to organically put those pieces in place and get the scales,” he said. “Or we could take the merger approach, and merge with some very high-quality companies that would add incremental and synergistic capabilities to unlock the value of that product candidate.”
Millennium went searching for good partners, and “COR came to the top of that list,” he said.
David Mott, Gaithersburg, Md.-based MedImmune’s CEO, disagreed with the notion of revenue and profits as a trap.
“We have embraced becoming a profitable, revenue-earning company with a vengeance, but it does change the way you approach acquisitions, for sure,” he said, adding that MedImmune’s “transactions don’t sound nearly as strategic and brilliant as some of these other ones. [Instead, they are] significant tactical steps along our existing strategic plan” to keep putting products on the market.
Boyd Clarke, the former CEO of Aviron, based in Mountain View, Calif., said he was “interested in exactly how the products [developed by each company] were going to fit together,” and how the cash flow would be kept coming.
MedImmune has Synagis (palivizumab), marketed for the prevention of serious lower respiratory tract disease caused by respiratory syncytial virus in pediatric patients at high risk of contracting it.
Clarke said Aviron, for its part, was “confident we could get FluMist [the company’s live attenuated influenza virus vaccine delivered nasally as a mist] over the line” to approval by the FDA.
“It was not a product without risk, but we were confident we could do that,” Clarke said.
The job hasn’t been done, but last month, Aviron said it submitted to the FDA a formal reply to the complete response letter the FDA sent Aviron on Aug. 31, relating to the biologics license application for FluMist. Aviron’s response provided additional information and clarification regarding clinical and manufacturing data, as requested by the FDA, the company said.
“I knew over the next three, four or five years, revenue growth could come,” Clarke said. “Once you do that, where is the next product that is going to generate the kind of growth [that is expected]?”
FluMist is partnered with Wyeth-Lederle Vaccines, a business unit of American Home Products Corp., of Madison, N.J., for U.S. marketing rights. Wyeth-Lederle committed up to $400 million to the partnership in a deal signed in January 1999, in which Aviron was to receive half the revenues. MedImmune is continuing that relationship.
Vertex began doing acquisitions in 2000, said Joshua Boger, chairman and CEO of the Cambridge, Mass.-based firm, after its potential $800 million deal with Novartis Pharma AG, of Basel, Switzerland. (See BioWorld Today, May 10, 2000.)
The deal was intended to discover eight small-molecule drugs, or kinase inhibitors, using chemogenomics. Novartis then would develop and market the drugs, paying royalties to Vertex.
“Prior to that deal, we had approached drug discovery essentially one target at a time, and had been quite successful at that,” Boger said. “We found the approach scientifically could be scaled to other gene families.”
Aurora, of San Diego, had “expertise and access to a number of targeted gene families that we had interest in, but maybe not the expertise in-house,” and also focused on “areas such as ability to rapidly format cellular readouts to give a high information content,” Boger said. Vertex wanted both.
Stuart Collinson, formerly chairman, CEO and president of Aurora and now board member of Vertex, noted the acquiring firm is “one of the few companies that has actually found, taken through the FDA, and put on the market a drug,” and said he hoped the pairing was designed to “create something we felt could become the next Pfizer, the next Merck.”
Feldbaum, in his remarks at the conference, seemed optimistic about such possibilities.
“When we started planning our first [CEO & Investor Conference] in 1998, biotechnology was in a slump that had begun the year before with a few high-profile product setbacks,” he said.
“We open [the 2002 event] in a much different environment,” Feldbaum said. “In three years, our industry has raised more than $60 billion. Right now, publicly funded U.S. biotech companies have enough capital to carry their research forward for at least three years, an accomplishment that was unthinkable just five years ago.”
The conference, with 1,500 registrants as of late last week, continues through Friday. Feldbaum said 175 companies are presenting, with 13 investor sessions, nine CEO roundtables, 14 investment bank sponsors and 10 other sponsors, including pharmaceutical companies and professional service firms.