Mergers and acquisitions in the biotech industry have come at a slower than expected rate during the economic downturn.
That has happened despite predictions that Big Pharma companies would be actively buying to restock their product pipelines in a buyer’s market.
“We’ve definitely had a modest amount of merger and acquisition activity,” said Joe Panetta, president and chief executive officer of Biocom, a San Diego biotech trade association. “Companies can’t raise money and have downsized. We’re not seeing predatory activity by Big Pharma in biotech.”
Since Jan. 1, there have been a handful of biotech deals in San Diego, including:
• Paris-based Sanofi-aventis announced its acquisition of privately held San Diego-based TargeGen Inc., with a reported upfront payment of $75 million. Total buyout price could reach $560 million, depending on milestone payments made for the development of its lead product treating blood disorders.
• San Diego-based Accelrys Inc., in a tax-free stock exchange, merged with Santa Clara-based Symyx Technologies Inc. Each Symyx share was exchanged for 0.7802 of the value of Accelrys’ common stock at the time of the deal, in a transaction valued at around $200 million. Both companies produce software that aids companies with their scientific processes. Accelrys, for example, helps pharmaceutical companies analyze chemical compounds and biological foundations needed in drug discoveries.
• San Diego-based Fate Therapeutics Inc. acquired Ottawa, Canada-based Verio Therapeutics. Both companies specialize in therapeutic applications of stem cell research. Terms of the deal were not disclosed.
• San Diego-based Quidel Corp., a publicly traded company making diagnostic tests for infectious diseases, bought Athens, Ohio-based Diagnostic Hybrids for a reported $130 million in cash.
• San Diego-based biotech contract manufacturer Althea Technologies Inc. acquired intellectual property from Altus Pharmaceuticals Inc., a Waltham, Mass., biotech company. Last year, Altus filed for protection under Chapter 7 of the U.S. Bankruptcy Code. Financial details were not disclosed.
• San Diego-based CareFusion Corp., an infusion device maker, bought Medegen Inc., an Ontario-based manufacturer of intravenous systems, for a reported $225 million in cash.
Surprisingly Little Action
The general low buyout activity by Big Pharma companies is surprising, says Panetta, since there has been a lot of “noise” from the big biotechs that their product pipelines were empty.
Meanwhile, some of the titans of Big Pharma have consolidated. New York City-based Pfizer Inc. bought Wyeth last October, for example.
Beyond that, issues in the health care industry are undermining the pursuit of mergers and acquisitions by biotechs, says Panetta. Some causes he sees include questions on whether generic drug producers will be allowed to quickly copy branded medications as well as emerging implications of intellectual property protections.
Still, he sees some rays of financial light for biotechs. While they have struggled to raise money, venture capitalists in the space have been picking up their investment activity during the past year. The biggest areas of investments these days are with biotechs chasing the obesity treatment market.
But there are also hurdles facing the industry, such as the Food and Drug Administration’s approach to approving new products.
“They’ve (FDA) always looked at product approval in terms of risk vs. therapeutic benefit,” said Panetta. “Lately there’s a sense there’s more focus on risks, and that makes it difficult to get products approved.”
That, he says, is a backlash to “bad news stories” on medications with past FDA approval.
Opportunities for Enrichment
Still, tough industry climate or not, biotech companies big and small are making moves to enrich their market niches.
Scott Wolchko, chief financial officer of the privately held Fate Therapeutics in San Diego, says the acquisition of Verio meshes adult stem cell research efforts of the two companies: Fate’s work in bone regeneration and Verio’s in skeletal muscle regeneration.
“We’re very focused on building a very powerful discovery platform as well as advanced therapeutics,” said Wolchko. “We have a very strong investor base committed to building both platforms and products.”
Biotechs, says Wolchko, can better position themselves in their markets if they focus on both research and products and not just one or the other.
Fate employs 40. No employee count for Verio has been disclosed.
Michael Piraino, senior vice president and chief operating officer of Accelrys, says the newly merged company now employs 700. Its merger partner, Symyx, publicly traded before the merger, is now a wholly owned subsidiary of Accelrys.
For its fiscal 2010 ended March 31, Accelrys posted net income of $1.19 million on revenue of $82.9 million. For fiscal 2009 its net income was $94,000 on revenue of $80.98 million.
“There were only two public companies in this space,” said Piraino. “This merger created the industry leader in scientific business intelligence. It was very strategic. The combination makes us three or four times larger than the next largest competitor, which would be privately held.”
Raised to Higher Stratum
Being the biggest allows the company to approach global customers such as Pfizer, Merck & Co. Inc., Exxon Mobile Corp. or DuPont in a more strategic way than a smaller company, adds Piraino.
He, too, has noticed a slowdown in merger and acquisition activity among biotechs since late 2001 and 2008.
“Buyers are more cautious, and sellers don’t want to sell at fire sale prices,” said Piraino. Beyond that, he adds, “buyers have had trouble getting financing.”
But because of an improving economy, he predicts there will be more biotech companies buying and merging, as well as initial public offerings, through the end of this year.
“Things are improving,” said Piraino. “The financial environment isn’t great, but it’s getting better.”