Someone looking at INSM down the road?
Forbes article
Pharmaceuticals
Biology Rising
Kerry A. Dolan, 05.12.06, 10:00 AM ET
Burlingame, Calif. - It's clear that big drug companies are hungry to fill their pipelines. So hungry that they will pay top dollar to fill them. On May 9, pharmaceutical giant Merck announced it would spend $480 million to acquire two biotechnology companies, GlycoFi and Abmaxis. A month earlier, Pfizer paid an estimated several hundred million dollars for biotech firm Rinat Neuroscience. Also in April, powerhouse biotech firm Amgen closed a $2.2 billion deal to buy a smaller outfit, Abgenix.
Acquisitions by large drug companies are nothing new, but this recent wave is a bit different. The acquisition targets share two traits: steep selling prices and a focus on protein-based drugs, called biologics. For the past century, the biggest drug firms have relied on chemistry to develop pills as medicines. But since the birth of biotechnology 30 years ago, biologics has come into its own. Biologics now account for half the products currently in Phase II and Phase III clinical trials.
"You've got the two biggest pill companies [Pfizer and Merck] getting big time into biologics," says Michael Ross, partner at venture capital firm SV Life Sciences, who funded both Rinat and GlycoFi. "Nobody can afford to say 'Oh, we're a pill company'."
Terry McGuire, managing partner at Polaris Venture Partners and GlycoFi's founding investor, believes there will be a whole host of biologic drugs unveiled in the future, partly as a result of the advances in genomics used to develop these drugs. Biologics like Amgen's (nasdaq: AMGN - news - people ) Enbrel--a protein drug for immune diseases including rheumatoid arthritis and psoriasis--have become blockbusters. Enbrel revenues were nearly $2.6 billion last year.
Which may explain why Merck (nyse: MRK - news - people ) is shelling out $400 million for GlycoFi of Lebanon, N.H. Rather than develop its own drugs, GlycoFi has come up with a process that can make better drugs more efficiently by controlling the sugar structure around proteins in drugs. Last December, Merck announced an equity investment in GlycoFi as well as a broad research collaboration (See " Pharma's Little Helper"). The $400 million acquisition price for the six-year-old company is among the largest announced deals for a privately held biotech firm.
Pfizer's (nyse: PFE - news - people ) acquisition of Rinat Neuroscience of South San Francisco, announced last month, takes the world's largest pharma company a step further into the world of biologics as well.
Rinat, a spinoff of Genentech (nyse: DNA - news - people ), had been in a bidding war to partner with one of nine interested pharmaceutical firms for a promising but very early stage drug candidate to treat Alzheimer's. Pfizer made them an offer they couldn't refuse.
In the past, big pharma have been somewhat tentative about paying cash outright to acquire a company with drugs that hadn't even entered humans for testing. But now, most of the drugs from smaller biotechs that are in Phase II clinical trials have already been licensed or partnered with bigger drug developers. "The shelves are picked over," says SV Life Sciences' Ross.
"As long as supply does not exceed demand--and I don't think it will for a while--you're going to see earlier deals done."
