Opinion: Industry shakeouts won’t cause partnering slowdown
Big Pharma is to biotech what Big Government is to Wall Street.
Well, perhaps not so much, as one relationship is a mutually beneficial investment, while the other is a pocket-draining donation; one benefactor is using its own money, while the other is already the world’s biggest debtor … I’ll stop there, but the point is, the biopartnering trend is providing a best-in-class, bilateral bailout that is constructed to keep biotech’s clinical trials humming along today, and to avert the red ink bath that is awaiting Big Pharma tomorrow.
By Michael Harris
Senior Managing Editor, BioWorld
Biopartnering isn’t unequivocally recession-proof, but it is an armored strategy that can keep the drug development markets functioning and solvent through the current economic morass at least through the end of the decade and, given biopartnering’s thus-far charmed history, indefinitely. As long as biotech’s innovation can be incrementally transformed into tangible products or can even reliably advance dormant candidates through longstanding clinical roadblocks, biopartnering may wind up regarded as The Thing That Saved the Drug Development Market.
Exit strategies today have been replaced by survival tactics, as biotechnology businesses are more desperate for operating cash and the pharma industry is most concerned over the looming prospect of an end to its century-long era of prosperity and growth.
Enter partnering, the dynamic that epitomizes the perfect solution to sustain both markets. The trend that offered a timely lifeline to Big Pharma going into 2008 is in a position to mine good from a bad situation and, once again, be the trend that is in the right place at the right time.
Capital markets are suffering, making it more difficult to obtain cash-driven traditional funding, investment and exit solutions.
The future of drug development will increasingly be biologically driven and paid for with pharma dollars, thus facilitating the survival of the overall biotech market through the current global turmoil.
Less investment return cash is being immediately routed back to shareholders, as was done in previous cycles, but stockholders aren’t complaining. In fact, many of them, such as GlaxoSmithKline shareholders most recently, are insisting that their companies increase the percentage of funds allocated for biotech investment in order to remain relevant in the up-and-coming biopharmaceutical market.
Not all of the smaller biotechs will survive intact, but even more of the struggling baby pharmas will wash out as the current economically induced corrective era plays out and redefines the near-term therapeutics R&D and financing market landscape. Many fledgling biotech drugmakers at least have novel technologies that could draw investor or pharma interest on the strength of their potential, but the non-big pharmas that have been chasing their R&D tails in the clinic for decades with no outlook for imminent success will increasingly be closing their doors through decade’s end.
Biotechnology’s innovation may not outlast the unofficial recession ad infinitum, but it is offering a partial-to-full reprieve from the meltdown for many cash-strapped biotechs and clinically challenged pharmas, even as other primary markets, including retail, housing, automobile, construction, banking and credit, fall prey to the financial calamity.
International Biopartnering: A Buyer’s and Seller’s Market
Fireworks in the U.S. financial markets may be the bad medicine that could finally lift the international overseas drug development market out of its doldrums and provide the U.S. biotechnology industry with additional sources of operating cash to facilitate R&D programs.
The European and Asian pharmaceutical companies can use their stronger currency to compete with U.S. big pharma for biotech transactions; however, the record amounts of cash the American pharma is putting into the deals will keep the overseas pharma from low-balling the biotech companies. This was most recently evidenced in Genentech Inc.’s rejection of Roche’s buyout offer for the remainder of Genentech’s stock.
The yen, pound and euro go further against the dollar now in such transactions, but not so far that the biotechs become beggars. U.S. pharma is as desperate as its foreign counterparts to recharge its pipelines, and it is more than willing to spend the money to accomplish that task.
The emerging trend is not initially doing much for, particularly, the UK biotech market, stalled by its own inability to advance its R&D to the next stages and unable to induce cautious venture capitalists to invest in its risk-heavy programs amid the strong pound environment that requires more faith than usual from U.S. investors. Instead, during the current economic flux, the opposite effect is in place to benefit the European big pharma that can buy into the U.S. biotech market at not-quite clearance prices, but at certainly better rates than would be in place during bullish times in the U.S. economy.
Twelve of the top 17 most-valued mergers and acquisitions in 2007 and through to September 2008 involved non-U.S. companies, with eight of those deals involving European pharma on the buying end, while Japan and Canada accounted for one acquisition each. Seven of those European acquisitions targeted American biotech, reflecting a potential lifeline trend for the pipeline-deficient overseas big pharma industry, but concurrently indicating a bargaining advantage for the U.S. targets.
In 2007, drug development industry observers watched as the international pharma and biotech markets struggled to find solutions to their respective pipeline and funding woes, but the flailing dollar and the buoyancy of the U.S. biotechnology market have combined to create an investment opportunity that could turn around the fortunes of both abroad drugmaker markets, depending on the duration and intensity of the currently worsening financial crisis.
It is not a conventional buyer’s market, inasmuch as there are many pharmaceutical suitors on hand to compete for the accessible biotech businesses and technologies. The turmoil on Wall Street in the second half of 2008 is likely to erode some of the U.S. biotechnology market’s bargaining power, but the counterbalancing factor will be that biotech’s innovation is so unique and difficult to replicate or substitute that it diminishes at least some of any upper hand advantage that pharma would normally realize. Every denizen of big pharma has publicized its need to rely on biotech infusion to ensure its future.
Shire plc, the London-based large-cap pharma, has stated its need to deal, as it has little internal R&D capabilities left after recent restructuring moves. More than 95 percent of the company’s products come from partnering (M&A, in-licensing) deals.
GlaxoSmithKline plc, another London-based pharma, has repeatedly stated its mission to become “more biotech-like” and has aggressively pursued biotechnology acquisitions and partnerships in a concerted endeavor to appease and reassure its stockholders. This corporate mind-set on biopartnering is indicative of the general pharma attitude and intentions to accelerate dealmaking activity, thus portending an extension of the trend as the defining dynamic in the USA and the emerging international model.
Is there any market that has exploited and survived better on volatile dynamics than biotechnology? OK … besides Big Oil? In almost any other industry, this type of situation would already be a power struggle, with each of the two markets vying to capitalize on dynamics that favor their own advantage at the bargaining table. However, this is biotechnology, the market that has always extended its relevance, value and survival in unforeseen, untraditional ways, especially during unstable periods and under the specter of predictions of doom for the market. Biopartnering is the latest unscripted trend that has emerged, and it is fulfilling the role of surrogate existence/exit strategy while IPOs and VCs abstain from indulging in the biotech market for now.
The foreign investment in American biotechnology trend is likely to increase in frequency and build in the value of deals, as the U.S. biotechs that are available for M&A transactions represent the candidates with the best opportunity from either drug development industry to produce the next round of marketed drugs.
Special Commentary for Paternering News
By Michael Harris
Senior Managing Editor, BioWorld
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