By Randall Osborne

Editor

In biotechnology deals, size matters. And it's hardly satisfying for would-be investors and industry watchers trying to figure out who's favored by which major pharmaceutical players when a big-name company buys into a smaller firm with promising science, but refuses to disclose the amount, or let its new mate say anything publicly.

Yet the trend over the past couple of years is clear. Not only are parties to collaborations increasingly shy about letting out financial details of their arrangements, but reporters also have noted their growing habit of issuing a press release, complete with the name of a "contact" ¿ who then either hides, or does nothing more than read back to callers what's already known.

Size matters, especially when it comes to relations with investors ¿ and they're getting shorted.

"It's been mentioned numerous times by our business development committee as a problem," said Morrie Ruffin, vice president of business development for the Biotechnology Industry Organization.

"We've identified it as a priority, as a need," he told BioWorld Financial Watch.

Problem, priority, need. By whatever description, it's happening. BIO's informal count showed that, between 1998 and 2000, deals where the partners offered dollar figures fell from about 31 percent to 19 percent.

The research is simple, and hardly necessary.

Jack Anthony, vice president for global business development for FibroGen Inc., is taking part in the BIO talks and brought up the matter with the Bay Area Biotech Business Roundtable, a group of 50 senior business development people.

The industry, Anthony told BioWorld Financial Watch, "used to be a little more 'cowboy,' and there was more jubilation. Slowly, big pharma started pulling back. There would be a failure [of the drug at the center of a collaboration], and people would want to know, 'What was your exposure on that?'"

Having revealed the exposure when the deal was first made could lead to embarrassment.

"Big pharma started saying [of each other], 'They're not revealing anything. Why are we the idiots?'" Anthony said.

Recent deals made known without money terms are easy to find ¿ even in cases where big pharmaceutical companies, with their restrictive rules, are not involved. Still, the same principle applies.

Earlier this month, Alkermes Inc. and Bioject Medical Technologies Inc., both delivery companies, teamed up to advance the former's compounds. No terms. Pharmacopeia Inc. signed a research and development agreement with Israel-based Ester Neurosciences Ltd. (the former's second deal of the month). No terms.

Affymetrix Inc. entered a four-year research and development agreement, plus a volume discount supply contract, with Millennium Pharmaceuticals Inc., to come up with a new generation of Affymetrix's popular GeneChip technology. No terms.

The value of the Affymetrix-Millennium pact can't even be guessed with any degree of accuracy, since it's unlike the GeneChip firm's other deals with customers. Some would argue, anyhow, that its ultimate "value" won't become evident for a while ¿ but investors would still like to know who paid what to whom.

Other companies, too, are interested.

"When I announce a deal, frankly, I don't care if the financials are in it," Anthony said. "But when I'm putting together a deal, I need some [comparisons] as to how I should price my deal. I want to be able to say, 'Ah, here's another cardiac drug, kind of similar to my drug," with terms agreed upon by the partner who joined the development effort for the treatment.

Anthony has been around the biotechnology block. He spent 18 years in sales with Baxter Healthcare Corp., before joining Applied Immune Sciences Inc. (acquired by Rhone Poulenc Rorer in 1995) as vice president of business development, working next for Inhale Therapeutic Systems Inc. and then Cell Therapeutics Inc., before joining FibroGen three years ago.

"There are companies that absolutely lay the law down," Anthony said. "In a perfect world, they would like you to announce nothing. [Johnson & Johnson, for example] has very strict rules as to how to address the media, and you go along with those rules. You can't shove your partner around ¿ they simply won't tolerate that. They know you'll do the deal whether or not you can release any details. You have no leverage at all."

In September, FibroGen signed a three-year deal with Tokyo-based Sankyo Co. Ltd. to discover and develop treatments for fibrotic disorders. It was the U.S. company's second collaboration with a firm in Japan. No terms disclosed.

"They're hyper over there, although they enjoy the limelight a little more than big pharma in the U.S., because they have global imperatives," Anthony said. "On the other hand, biotech companies in the U.S. ¿ private and public ¿ want people to know. The little guys [here] will lift their kimonos over their heads sometimes, to tell you about it."

Arlene Morris, president and CEO of Clearview Projects Inc., which provides "transaction-oriented deal planning, preparation and execution," has been around awhile, too. She was senior vice president of business development at Corixa Corp., having previously worked for Coulter Pharmaceutical Inc. (acquired by Corixa late last year).

Morris was involved in the $1 billion merger, as well as a $200 million joint venture with GlaxoSmithKline plc focused on the radioimmunotherapy Bexxar.

"I was with big pharma for 17 years, and we didn't like people to disclose things, but if the SEC said they had to, we never stopped them," said Morris, who also has been on the roster at J&J and Scios Inc.

Morris, also taking part in the BIO discussions, said the whole thing is a "non-issue." SEC rules govern what public companies must disclose, and private firms "don't have an argument to make" to their secretive pharmaceutical partners.

Portions of the financial aspects of deals made by the public firms can be redacted from SEC reports ¿ a legalistic word for "left out" ¿ for reasons having to do with trade secrets and competitive advantage, but they eventually show up in the companies' filings, Morris said.

The lawyers decide, she added.

"[Partners] want to look at the redaction, and they say, 'Please don't give this out, or please don't give that out,' but at the end of the day, it's the judgment of counsel," she said.

Anthony agreed with that much, noting that "people start talking, months and months after the deal," even before the official documents are filed, although officials at the likes of FibroGen might miss the juicy news because "I didn't have my ear against the right wall."

He said the problem of arguing over which parts will be withheld and whether they should be remains a challenge for public firms (and their lawyers). Private companies, even more eager to blow their horns about getting a monolithic pharmaceutical company to pump out loads of cash for their drugs, remain in a fix.

Abgenix Inc., the XenoMouse antibody firm with more than 30 agreements, has gotten around the squabbles by establishing a policy of saying as little as possible, said Gayle Mills, vice president of business development.

"We have a general policy of releasing terms when they are material," she said. "Otherwise, there's not a lot in the way of financial detail. If you release a lot of details on one and not another, they can be unfairly compared against each other, and it may not always be in our control, whether the other party wants to release details."

Mills said the goal is "making sure our partners feel they've been handled in a consistent manner," adding that Abgenix is "in a little bit different situation, because we do so many technology licensing deals."

For others, Anthony said, the pressure is heavy to make known as much as possible.

"Media have set up the parameters," he said. "If we include financials, there's a better than even chance that we'll make the front page. So, to some degree, the media has set up this artificial hurdle."

Media hurdle or not, Anthony acknowledged, investors and other companies want to know what's going on ¿ and, as things stand, they're not always finding out. The BIO panel is still talking, and Anthony said the best strategy for biotechnology firms may be networking, trading ideas, trying to find the best ways to exist in a world of pharmaceutical money and pharmaceutical demands.

"Pricing is what you think about and worry about most," he said. "Did I leave money on the table, or do I look like a fool for asking too much?"

Industry members of his roundtable group have even mulled whether there might be "some way to have a neutral collection point of data [regarding completed deals], without revealing the source," Anthony said, adding that "many of them felt they couldn't go into a blind trust like that" because of promises made to partners.

A solution, other than making the best of a complicated game played by immutable rules set down by others, likely will prove elusive.

"I don't know of one," Anthony said.