By Nancy Volkers
Special To BioWorld Financial Watch
Last quarter's collaborations between biotechnology companies and pharmaceutical firms show "no simple trends," according to Jay Silverman, a senior biotech analyst at BancBoston Robertson Stephens Inc., in New York. In general, analysts say the pharmaceutical industry is looking farther down the pipeline of prospective partners than in the past and looking for nearer-term profitability.
"Each deal is really different," Silverman said, and competition is fiercer for those products that are farther along in development. But, if the biotechnology company has strong trial data, the pharmaceutical has strong data and the pharmaceutical firm wants its compound, "they're going to pay up," he said.
Thomas Dietz, senior managing director at Pacific Growth Equities Inc., in San Francisco, said pharmaceutical companies are "looking for things very specifically," and "you'll get less if you develop less."
The $400 million agreement between Aviron Inc. and Wyeth-Ayerst Laboratories, a division of American Home Products, exemplifies this principle. The January deal for the marketing of Aviron's FluMist nasal flu vaccine gives Aviron $15 million for the initial license, $15 million upon FDA acceptance of the regulatory filing, and $20 million upon marketing approval.
"FluMist is an easy product to sell," said Silverman. "It's a valuable product that fits well with [Wyeth's] vaccines. It just needs the resources behind it."
Dietz said he believes that big pharmaceutical firms, although they look far into the pipeline, are not as willing to partner early as they have been in the past.
"They like to see something further along," such as FluMist, he said. "Of course, that depends on the program. In infectious diseases, you don't have to go as far down the pipeline as with something like cardiovascular [indications]."
Though more than 70 agreements were inked between Jan. 1 and March 31, "no really big deals" were in evidence, acknowledged John Alsenas, managing director at ING Baring Furman Selz LLC, in New York. "That's not necessarily a trend," he said. "These things happen episodically. Pharmas are still very interested in doing deals, but everyone's gotten it down to a pattern, a dance."
Tim Wilson, managing director of the London office of SG Cowen Securities Corp., in Boston, said the first quarter was "a bad quarter, indicative of a negative trend, certainly in the genomics area," and was spurred by ongoing consolidation in the pharmaceutical industry.
"[Consolidation] is a problem for biotech companies," Wilson said. "I can think of a number of companies that were on the cusp of a deal, and then [the pharmaceutical company] called it off because they were getting married to somebody."
The marriage of this quarter was Warner-Lambert Co.'s acquisition of Agouron Pharmaceuticals Inc. in January for $2.1 billion. This deal, said Caroline Copithorne, senior biotechnology analyst at Prudential Securities Inc. in New York, was "the headliner. That was definitely the biggest thing to happen in the last quarter, a flat-out acquisition with a company the size of Agouron," she said.
Alsensas said that, besides acquiring smaller companies, big pharmaceutical firms are researching more in-house, and looking to biotechnology only for unique products.
He pointed to the September 1998 collaboration between Bayer AG and Millennium Pharmaceuticals Inc., which has a potential value of $465 million, as possibly indicative of the future in collaborations.
"That deal showed how far pharma was willing to go to get access to early-stage technology they thought was unique," he said. The five-year deal gave Bayer access to 225 new drug targets. Bayer is choosing some for its exclusive use; the rest are retained by Millennium.
"Bayer is clearly desperate to fill its pipeline," said Alsenas. "They're willing to offer attractive terms on earlier stage products."
Silverman said pharmaceutical companies can only do so much on their own.
"As pharma's pipelines dry up, they're going to look increasingly toward biotech," he said. "A few years ago, Pfizer Inc. had about five deals; now it has about 30. Some pharmaceutical companies have 50 collaborations. The big companies, with $1 billion or $2 billion in research and development money, might spend 10 percent of that on deals with biotech."
Biotechnology firms with technology in genomics and drug delivery should have the best shots at making lucrative deals in a tightened market, some analysts say.
"Genomics is going to change the way drugs are discovered, particularly after the human genome is sequenced," Wilson noted. The cost of doing business with biotechnology companies in genomics will skyrocket, he said, and only the larger pharmaceutical companies will have enough money to stay in the game. They are likely to be the same ones calling off deals now due to consolidation, he added.
"So, in the short term, [consolidation] really hurts, but in the long term it's good news," Wilson said.
Genomics deals abounded in the first quarter. Genetics Institute Inc. signed licensing deals with Sankyo Company Ltd. and Rhone-Poulenc Rorer (RPR) Gencell. Millennium Predictive Medicine Inc., the subsidiary of Millennium Pharmaceuticals Inc., signed its first deal, with Becton Dickinson and Co., for pharmacogenomic and "diagnomic" tests for cancer patients. Affymetrix Inc. entered into three collaborations with RPR, Hoechst Marion Roussel, and the Parke-Davis division of Warner Lambert Co. providing an EasyAccess subscription to its GeneChip arrays. The technology provides a platform for genetic information management and analysis using miniature, high-density arrays of nucleotide probes. F. Hoffman-La Roche AG and American Home Products also have EasyAccess agreements, which are volume-discount packages designed for large research organizations.
Silverman said drug delivery has "just gotten bigger over the past five years. Expiring patents are driving competition." Novel drug-delivery mechanisms add new markets and increase pricing power, he added.
In the past quarter, PowderJect Pharmaceuticals plc struck a deal with the Ares-Serono Group that could be worth $100 million. PowderJect will develop five proteins, already on the market as injectables, for delivery via the company's dry-powder, needle-free injection system.
Pharmacia & Upjohn received worldwide rights from NeoPharm Pharmaceuticals Inc. to its liposomal formulations of the anticancer drugs paclitaxel and doxorubicin. The deal, potentially worth $77 million, also provides $100 million for clinical trials. The companies will split profits on U.S. sales. Endocyte Inc. and RPR inked a $40 million deal in January that involves Endocyte's vitamin-based vector technology for gene therapy.
Dietz believes discriminating pharmaceutical firms are choosing deals on a case-by-case basis, rather than whether they fit within a certain category.
"You always see slight trends, but I wouldn't read too much into that," he said. "A good story, a good product, a good business model that's what they're looking for."
Silverman names Abgenix Inc. as one of the up-and-coming companies, thanks to its XenoMouse technology, which allows for the manufacturing of fully human antibodies. In February, the company signed an agreement with Santen Pharmaceutical Co. for the development of a monoclonal antibody for dry-eye disease. Abgenix signed three more deals this quarter with other biotechnology companies, said Silverman.
The line between pharma and biotech is beginning to blur. In March, Amgen Inc. and Praecis Inc. reached an agreement that looked like a typical biotechnology/pharmaceutical deal, but wasn't. Amgen will contribute $100 million toward the development and commercialization of Praecis' abarelix, which is in Phase III trials for hormone-responsive prostate cancer.
Silverman pointed out that "big biotech companies are starting to behave like small pharmaceutical companies. Genentech Inc. and Amgen, combined, approach $3 billion in cash that will allow them to compete with big pharma for smaller biotech deals. The risks are still high because many biotechs are driven by one or two products, but the numbers are difficult to argue with." *