First of three parts
The money raised by biotech companies in 1991's hot publicofferings market will give them more muscle to drive harderbargains with potential partners, but it won't slow the pace ofcorporate deals, according to top industry executives.
Initial and secondary offerings by biotech companies raisedabout $3.3 billion last year.
"I think things are going to evolve in a very different way, andlargely as a result of this year of incredible financing," saidAlan Timms, president of Glycomed Inc., which was amongseveral companies that completed both IPOs and secondaryofferings last year. The Alameda, Calif., company last Januaryentered into a collaboration with Genentech Inc. to developcarbohydrate-based therapeutics.
"The companies that raised money will be much tougherpartners for the major pharmaceutical companies in terms ofbargaining over rights," Timms said. "Companies that have gonethrough the IPO window will say, 'We don't need the validationof a partner.' But there may be strategically some very sensiblemoves to be made."
Better terms will come from having options, said Jay Kranzler,president and chief executive of Cytel Corp. The San Diegocompany in November signed a five-year agreement withSumitomo Pharmaceuticals Co. Ltd. to develop drugs based onCytel's LEC-CAM cell adhesion technology. It's easier tonegotiate when you have lots of alternative ways to raisemoney," Kranzler said.
He added that biotech companies have also become savviernegotiators. "The industry has learned what it takes to succeed:forward integration, keeping niche indications, maintainingrights for yourself. In the past, companies might have thoughtfirst of getting the validation and the money."
Companies are also rethinking their strategy in light of AmgenInc.'s success in developing and marketing its own products,according to both Kranzler and David Hale, GensiaPharmaceuticals Inc. president and CEO.
"A lot of people who in the past were willing to give upmarketing rights are looking more carefully at areas wherethey'll be able to build forward integration," Hale said. "Evenwhere they're willing to give up rights, they want to maintainco-promotion or co-marketing rights or manufacturing rights.Even earlier-stage companies like Cytel or Icos are doing it.Royalties are really not enough."
With more cash in the bank, companies can also be choosierabout their partners. "A lot of deals done in 1989 and 1990were simply for survival," said Hale.
In contrast, many 1991 deals had clear strategic rationales. Oneof the best examples is the deal between ImmuLogicPharmaceutical Corp. and Marion Merrell Dow Inc. to developImmuLogic's allergy therapeutics. MMD markets Seldane,which holds a 41.5 percent share of the world prescriptionantihistamine market.
"I felt very strongly about Lilly as a corporate partner," saidVaughn Kailian, president and CEO of Cor Therapeutics Inc. ofSouth San Francisco, Calif. Cor and Eli Lilly and Co. in Mayentered into a collaborative agreement to develop a class ofplatelet aggregation inhibitors.
"Lilly has the characteristics of a company we want to haverelations with. They have a lot of relationships, so they're usedto dealing with small companies; the science is top-notch; andthey have a Midwestern results-oriented ethic," said Kailian."We are a conservative company on the biotech scale, so wefind it comfortable to be with a pharmaceutical company withmany of these characteristics. Plus, Lilly wanted to make amajor commitment into the cardiovascular area."
"In our case, the option was to go with a strong regional playerin Japan," Kranzler said of Cytel's deal with Sumitomo. "Ourphilosophy of business development at our stage ofdevelopment is you only give away things you can't do byyourself." In the Sumitomo deal, that meant development andmarketing in the Far East.
Howard Greene, chairman of Amylin Corp., has touted hiscompany's recent deal with Glaxo Inc. to develop new diabetestherapies as a model for future biotech collaborations. Insteadof assigning royalties in exchange for equity or milestonepayments, the agreement calls for the companies to devoteessentially equal resources to research and to co-promoteresulting products.
"It makes more sense to raise cash from investors and retainimportant business rights," Greene told BioWorld.
TUESDAY: The pressure to make deals continues.
-- Karen Bernstein BioWorld Staff
(c) 1997 American Health Consultants. All rights reserved.