Analysts See More Drug Licensing Deals
Monday December 11, 12:30 pm ET
By Damian Troise, AP Business Writer
Analysts See More Drug Licensing Deals Amid Pipeline Holes
NEW YORK (AP) -- Last week's licensing deal between Roche Holding AG and Halozyme Therapeutics Inc. potentially worth as much as $581 million over the next 10 years marked another highlight for the biotechnology sector, as analysts predict licensing costs will get steeper.
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Licensing deals between pharmaceutical and biotechnology companies is the norm for the industry, giving development stage companies the money to continue developing products, while larger companies get a chance to bolster their product pipelines.
But with more large companies facing pipeline holes, biotech companies are seeing more money being thrown their way for innovative products, and the deals could lead to future acquisitions.
"That's going to continue to heat up and pick up," said Jason Napadano, senior biotechnology analyst at Zach's Investment Research. "The reason it's happening is that you have these large pharmaceutical companies with an unprecedented number of products going off patent."
That could amount to billions of dollars in losses for some of the major pharmaceutical companies.
The deal last week between Halozyme and Roche calls for the use of Halozyme's drug delivery technology in products being developed by Roche.
Some of the more standard licensing agreements entail the smaller biotechnology company developing the drug with payments from its larger partner, then splitting, in some form, the profits when it hits the market.
Bank of America analyst Eric Ende said in a November report that smaller biotech companies have been seeing higher deal prices as they seek to gain more control over their products. And big pharma has been willing to pay to fill lagging pipelines. The higher licensing prices are partially leading to more expensive buyout deals.
In October, Merck & Co. said it would buy small biotechnology outfit Sirna Therapeutics Inc. for $1.1 billion. Abbott Laboratories is in the process of buying Kos Pharmaceuticals for $3.7 billion.
"Big pharma could start knocking on the door of biotech with market caps of $5 billion," said Morningstar analyst Karen Andersen.
"If you're a pharmaceutical company and you want these products and need these products, biotech can continue to demand these types of big prices," Zack's Napadano said.
By most estimates, the market for licensing deals and pricier acquisitions will continue into 2007. News last week that Pfizer Inc. ended a late-stage program on its experimental heart drug highlighted the company's pipeline problems, with many analysts predicting it will acquire another company, possibly within the next year.
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I was stunned and amazed, my childhood memories
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