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Big Biotechs Target Smaller Companies

by Paul Elias, AP Biotechnology Writer, 11 Dec 2001


SAN FRANCISCO -- Small biotechnology companies ripe for takeover are no longer the exclusive prey of big drug makers. Increasingly, these target companies are getting gobbled up by bigger biotech companies -- a trend expected to continue in 2002.

"We've entered into an increased era of lovemaking between biotechs," said Dr. Mark Monane, an analyst with New York investment firm Needham & Co. "Nobody wants to miss out on anything."

The deals aren't being done out of desperation brought on by dwindling cash reserves, the analysts said. Instead, there's a growing desire to compete with the large drug makers. Growing biotechs are also annoyed by big pharma's typical practice of demanding future royalties in exchange for immediate cash investments.

Even Amgen, the world's largest biotech company with a market capitalization of $68 billion, shares revenues with Johnson & Johnson from a popular anemia drug it created -- and then sold some rights to for a cash infusion.

One of the most aggressive of these acquisition-minded biotechnology companies is Millennium Pharmaceuticals Inc. of Cambridge, Mass., which announced its intent last week to pay $2 billion in stock for South San Francisco-based COR Therapeutics, Inc., the largest such biotechnology deal.

It was also Millennium's fourth acquisition in five years.

Millennium's chief executive and co-founder Mark Levin has aspired to turn the company into major pharmaceutical house since its 1993 inception, hoping someday to compete with the likes of drug titan Merck & Co., which has a $152.2 billion market capitalization.

The total market capitalization of the 339 publicly traded biotech companies is a combined $330.8 billion, down from $353 billion last year when there were 39 fewer companies, according to Ernst & Young.

Millennium's market capitalization of $6.5 billion still pales even in comparison to other biotech companies such as Genentech, Genzyme and Chiron.

Levin believes he can grow Millennium even bigger through the development of in-house drugs but acknowledges that existing product lines must also be acquired. Others in similar situations agree.

"There's a different reality about what it takes to develop a successful company," Levin said. "When we all started out, we were all going to be the next Merck. Very few biotechnology companies are truly successful today."

Indeed, it takes an average of $802 million to develop a new drug, according to the Tufts Center for the Study of Drug Development.

That means more multibillion dollar deals between biotechnology companies, analysts said. Already, three deals including Millennium's were announced last week.

On Dec. 3, Gaithersburg, Md.-based MedImmune Inc. announced a $1.3 billion stock acquisition of Aviron of Mountain View. Cephalon Inc., based in West Chester, Pa., announced a $450 million purchase of French pharmaceutical company Group Lafon the same day.

All three deals were made for similar reasons: The target companies were smaller biotechs, each with a sole product on or close to market. Until recently, these companies were typically courted almost exclusively by the drug companies, which often simply paid for commercial rights to a biotech's drugs rather than making an outright acquisition.

In September, for instance, Bristol-Myers Squibb Co. agreed to pay $1 billion for the rights to co-market a promising cancer drug developed by ImClone Systems while paying another $1 billion to acquire 20 percent of ImClone's publicly traded stock.

In August, Eli Lilly paid $200 million to share the commercial rights an anticancer drug Isis Pharmaceuticals has in development.

Now, analysts say, biotechnology companies want to keep all of the drug royalties for themselves. Hence, merger activity between biotechs has increased.

"We could have gone it alone," said COR chief executive Vaughn Kailian, noting that the company has $600 million in cash on hand. But the company's ability to grow quickly was hindered because it had just one product on the market. With its purchase of COR, Millennium gets the anti-clotting drug Integrelin, which is expected to have sales of about $225 million this year.

MedImmune, meanwhile, is betting that Aviron's nasal spray influenza vaccine FluMist will generate as much as $1 billion in annual sales if the Food and Drug Administration approves it next year.

Cephalon gets worldwide rights to Provigil tablets, which treat narcolepsy on sales of $80 million a year.

Analysts expect a slew of other large biotech deals in the next few months.

Possible targets include smaller companies with a single product such as Scios Inc., CV Therapeutics and Genta, Inc., analysts said.

The most likely buyers, they say, are genetic information companies such as Millennium, Celera Genomics and Myriad Genetics Inc. that aspire to become drug companies and are sitting on hundreds of millions of dollars in cash.


© 2001 The Associated Press
Reprinted for fair use only.

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