Big pharma’s growing M&A appetite threatens to give two of the nation’s largest biotech clusters heartburn over the next few months, as they await the future of homegrown “anchor” companies recently acquired by some of the world’s largest drug developers.
Maryland saw Human Genome Sciences (HGS) bite the dust Aug. 3 after GlaxoSmithKline completed its $3 billion acquisition. Across the country in San Diego, two bioanchors are no more: Amylin Pharmaceuticals got snapped up by Bristol-Myers Squibb (BMS) in a complex $7 billion deal completed Aug. 8. And on Aug. 1, diagnostics developer Hologic completed its $3.8 billion acquisition of another San Diego mainstay, nucleic acid test maker Gen-Probe.
The right anchor can draw top talent across a biocluster and stimulate more investment in companies there. Roche’s $3.4 billion acquisition of Ventana Medical Systems in 2008 helped Arizona develop a diagnostics development niche. On Aug. 16, the developer of a rapid pathogen diagnostics development technology, Accelr8, announced plans to move from Denver to Tucson, AZ. The company plans to fill 65 positions over three years, and between 200 and 300 employees long-term.
As some anchors succumb to pharma M&A or their own problems, regions must nurture numerous companies capable of growing into anchors.
“For the regions that are fostering emerging companies, particularly in biotech, it’s really shots on goal,” Mitch Horowitz, vp and managing director of Battelle’s Technology Partnership Practice, told GEN. “You’ve got to have a system that generates enough activity because it’s so hard to predict what’s going to work and what’s not going to work simply by having high-quality science.”
San Diego has been rocked by anchor acquisitions and other challenges. In addition to Amylin and Gen-Probe, Ardea Biosciences, whose experimental gout drug lesinurad is in Phase III development, found a buyer. It is AstraZeneca, which completed a $1.26 billion purchase of Ardea in June. Another San Diego anchor, gene sequencer maker Illumina, survived a $6.2 billion hostile takeover attempt by Roche in April.
If San Diego seems more affected by such deals and deal attempts, it’s because the region enjoys a concentration of mature companies with drugs or equipment on the market and strong management teams.
“We just have to live with the fact that that’s the way it is. We have to take advantage of the opportunities that it creates,” Joseph Panetta, president and CEO of the San Diego region’s biotech industry group BIOCOM, told GEN. “Folks in those companies take the capital they’ve made from having stayed there through the acquisition and go out and do a lot of great things, whether it’s in the venture capital arena or starting new companies, or going to existing companies in positions where those companies can take advantage of the experience that they’ve had.”
He said the effect of the latest anchor acquisitions on the region’s biotech workforce is hard to predict, though the region added jobs in recent years despite M&A. Between 2009 and 2011, biotech jobs in San Diego County grew 11% to 41,937, according to a BIOCOM report. By 2013, BIOCOM expects that number to grow 6%, to 44,707. Yet the growth rate last year was just 3.9%, which makes the forecast ambitious at best.
While some staffers of acquired companies will be quickly snapped up by larger biobusinesses, others will have to launch their own companies, scrambling to both develop new technologies and raise funds from investors, Panetta noted.
Also uncertain about biotech job growth following anchor acquisitions is Maryland, where GSK is crafting a plan to cut the $200 million in costs promised by 2015 when the deal was announced July 16.
“We're optimistic that there will be opportunities one way or the other, over whatever is, let's say, preserved of Human Genome within GSK, and the potential for spinoff for that which might not,” Judy Britz, Ph.D., executive director of the Maryland Biotechnology Center.
With GSK talking cuts, the outcome for HGS is unlikely to replicate what occurred in the five years since another Maryland anchor, MedImmune, was acquired by AstraZeneca for $15.6 billion. AZ’s need to compete in biologic drug development compelled the pharma giant to grow MedImmune by transforming it into its biologics unit, with operations in and outside the state.
Those Maryland operations have been expanded in part through the Frederick (MD) Manufacturing Center, which officially opened last year. The center includes 337,000 square feet of administrative, production, warehouse, laboratory, and utility space, as well as capability to add 100,000 square feet of production space.
One reason for some optimism over HGS’ future in Maryland: It and GSK have partnered on drug projects stretching back two decades, including two late-stage drugs—albiglutide and darapladib, designed to treat cardiovascular disease. GSK would be foolish to throw away that relationship.
Also, Dr. Britz noted, Maryland has several programs for budding biopharma businesses: The state will spend $8 million this fiscal year in tax credits toward angel investment for spinoffs or startups. InvestMaryland raised $84 million for life-sci and other tech businesses through an insurance tax credit auction. Almost a quarter (24.75%) will go to emerging companies through the Maryland Venture Fund.
Biopharma jobs accounted for a roughly 47% plurality (33,602) of Maryland’s 71,618 life sciences jobs in 2010, according to a state study released last year. But a June study by Battelle and the Biotechnology Industry Organization recorded a slightly lower number (33,257) that dipped 1.2% between 2007 and 2010.
Whatever the number, enough talent exists to sustain a new anchor should HGS shrink, and likewise in San Diego should Amylin or Ardea or another anchor cut staff and operations. Workforce is the second most important among 14 factors CEOs said they considered in location decisions, next to climate of innovation, according to the California Healthcare Institute’s 2012 California Biomedical Industry Report. Both factors are in ample supply in San Diego and Maryland. What remains unknown is whether a new generation of business anchors will emerge to take advantage of them.