The beleaguered biotechnology sector just received the sort of shot in the arm that it needs to bring it back to center stage on Wall Street. In less than one week, German powerhouse Bayer AG has committed more than $1.5 billion in biotech deals. On Sept. 17, it announced that it would pay $1.1 billion to acquire the in vitro diagnostics unit of Emeryville, Calif.-based Chiron Corp. (NASDAQ:CHIR). And on Sept. 23, it struck a genomics alliance with Cambridge, Mass.-based Millennium Pharmaceuticals Inc. worth $465 million, by far the largest drug-discovery deal in biotech history. In these two deals alone, Bayer has confirmed and validated the value of biotechnologies per se as well as the companies that develop those technologies. (For details, see articles in the Sept. 18, 1998, and Sept. 24, 1998, issues of BioWorld Today, as well as its special news bulletin on Sept. 23, 1998.)
These aren't the only surprises that Bayer has sprung lately, either. On the same day as the Chiron Diagnostics acquisition, Bayer, based in Leverkusen, also disclosed two more strategic changes: the diversified, multinational company plans to sell most of its Agfa film division next year in a public offering (which could be worth $4 billion); it also is buying a 50 percent stake in a seed-protection venture with Stamford, Conn.-based Crompton & Knowles Corp.
Bayer's suddenly lavish spending is a radical departure from its traditionally conservative managerial style. According to The Wall Street Journal, the flurry of activity reflects Bayer's efforts to catch up with its free-spending rivals. The diagnostics acquisition, for instance, will lift it from sixth place in terms of global sales of diagnostics (a $20 billion industry) to fourth. The sale of Agfa would bring in a hefty sum of cash (which could be used for more acquisitions or partnerships), as well as sharpen the focus of the company's future direction.
And as the stunning deal with Millennium Pharmaceuticals has so vividly confirmed, one of those directions is genomics-based drug research and development.
Bayer's Other Deals
Bayer's deal with Millennium Pharmaceuticals is far from its first foray into the biotech era of drug discovery. What sets it apart — aside from the eye-popping amount of money involved — is the fact that the two companies intend to generate hundreds of drug targets for practically every major disease category. Obviously, only a tiny fraction of those targets will actually make it into even the earliest stages of development — but the numbers underline the sheer power of large-scale genetics, genomics, automation, informatics and drug discovery technologies.
Indeed, the German giant — together with its U.S. subsidiary Bayer Corp., located in Pittsburgh, — have been busy building a series of biotech alliances. These encompass the pharmaceutical arena, but also include some forays into agricultural applications.
Just in 1997 and 1998 to date, Bayer AG has forged several other important new strategic alliances, including:
* Genome Therapeutics Corp. (NASDAQ:GENE), of Waltham, Mass., signed up Bayer as a subscriber to its PathoGenome microbial genomics database (which at the time contained sequence information on at least 12 pathogens) in May 1997.
* Genzyme Corp. (NASDAQ:GENZ) sealed a drug discovery agreement with Bayer in December 1997. The $35M deal allows Bayer to use Cambridge, Mass.-based Genzyme's library of more than 1 million small molecules to identify new drug candidates for undisclosed disease targets.
* Oxford Asymmetry International plc (LSE:OAI) secured a deal worth as much as $26M with Bayer in February 1998. Bayer will use the Abingdon, U.K., firm's combinatorial chemistry methods to develop lead discovery libraries of new chemical entities as product candidates in pharmaceuticals, animal health and crop protection.
* Exelixis Pharmaceuticals Inc., a privately held start-up located in South San Francisco, inked a genetics research alliance with Bayer in May 1998 to identify screening targets for new crop protection agents. The deal, which is worth as much as $30 million in precommercialization payments to Exelixis, involves the use of the firm's model system genetics, genomics and bioinformatics capabilities.
Interestingly, Exelixis' ties to Bayer go deeper than that. In December 1997, Exelixis co-founded a new German biotech company, Artemis Pharmaceuticals AG, of Cologne. The scientific founders — Christiane Nusslein-Volhard and Klaus Rajewsky — joined forces with George Scangos, president of Exelixis, and Peter Stadler, until then head of pharmaceutical biotechnology for Bayer AG. (See the Sept. 7, 1998, issue of BioWorld Financial Watch for more details.)
Moreover, Bayer's U.S. subsidiary has been busy in the partnering arena. Again, just in 1997 and 1998 to date, Bayer Corp. has forged the following alliances:
* In April 1997, Bayer became a founding member of Molecular Simulations Inc.'s combinatorial chemistry consortium. Since then, San Diego-based Molecular Simulations has been acquired by Pharmacopeia Inc., of Princeton, N.J. Pharmacopeia (NASDAQ:PCOP) is one of the earliest firms to stake its fortunes on the power of combinatorial chemistry in the drug discovery process.
* Genetics Institute Inc., a wholly owned subsidiary of American Home Products Corp. located in Cambridge, Mass., signed on Bayer as a subscriber to its DiscoverEase protein development platform (which contains a library of human secreted proteins and a related database) in August 1997.
* Myriad Genetics Inc. (NASDAQ:MYGN), of Salt Lake City, inked a potential $54 million accord with Bayer in November 1997. The companies will use Myriad's ProNet positional cloning technology (a database of human proteins and their biochemical pathways) to search for genes and then develop drugs for treating dementia.
* Incyte Pharmaceuticals Inc., of Palo Alto, Calif. (NASDAQ:INCY), signed up Bayer as a subscriber to its LifeTools bioinformatics software and LifeSeq PD (an annotated version of a public cDNA database) in April 1998. Bayer's global pharmaceutical division will use the software for data management and to support research.
* Genzyme Molecular Oncology (GMO; a division of Genzyme Corp. and located in Cambridge, Mass.) sealed a deal in August 1998 by which Bayer will use GMO's serial analysis of gene expression (SAGE) technology to identify genes for development of future drug candidates.
* Proteomics Inc., of San Diego (a subsidiary of the Vancouver, British Columbia-based firm NovaDx International Inc.; VSE:NVN), will get $3 million from Bayer under the terms of a September 1998 research collaboration to explore the potential of a series of osteoclast genes as drug targets for metabolic bone diseases.
Deals By The Numbers
In 1998, there has been an average of 50 new collaborations each quarter. If this trend holds until the end of the year, we may indeed see that the rate with which these alliances are formed has reached a steady state of about 200 per year. But if the deals yet to come in 1998 are even half as rich as the Bayer-Millennium combination (which would still be incredibly high compared to the average), the total precommercialization value of all deals in 1998 could soar well above the $3 billion mark.