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January 01, 2010 (Vol. 30, No. 1)

Renewed Vigor Could Be Hallmark of 2010

Year of the Tiger Predicted to Bring Fresh Energy and Stamina to Biotech Sector

  • Harbingers

    Last year was an active year for biotech mergers and acquisitions. The data is not yet available to make a close comparison, but data available through the third quarter and into early December shows vigorous merger and acquisition activity. Combined with what appears to be some opening in the IPO window, investor outlook is positive, though still cautious.

    Development of biotechnological therapeutics has, historically, remained the domain of independent biotechnology companies. Roche’s $48 billion acquisition earlier this year of the remaining stake that it did not previously own in Genentech, following shortly on the heels of major industry combinations between JNJ and Wyeth ($68 billion) and Merck and Schering-Plough ($48 billion), foreshadowed a spate of mergers and acquisitions activity targeted primarily at increasing the therapeutic pipelines of larger biotech and pharmaceutical companies and secondarily on related services and diagnostics.

    There were a fair number of private-equity and venture-backed mergers and acquisitions in 2009.

    • In December 2009, Onyx Pharmaceuticals, which develops and manufactures virus technology based anticancer therapeutics, acquired Proteolix, founded in 2003, for $276 million in cash and up to $575 million of earn-out consideration. Proteolix develops products that employ proteasome to target protein degradation in cells for the treatment of cancer and immunological conditions.
    • In October 2009 Biomet, which manufactures-orthopedic reconstructive-surgical implants, medical-supports and ultrasonic-medical equipment, acquired Cartilix, a developer of cartilage-repair technology founded in 2004.
    • In August, Bayer CropScience purchased eight-year-old agriculture and industrial products developer Athenix for $365 million in cash. An additional $35 million can be earned according to post-acquisition performance.
    • Sanofi-aventis agreed to pay up to $500 million for BiPar Sciences, which develops tumor-selective anticancer therapies. The actual amount of consideration paid will depend on the profitability of the acquired entity.
    • In April, Pharmaceutical Product Development, a research and development services provider founded in 1985, acquired Magen BioSciences for $14.5 million. Started in 2006, Magen develops pharmaceutical products to improve the health and appearance of human skin.
    • In March, Enzo Biochem acquired Assay Designs for $12.2 million in cash. Founded in 1992, Assay holds the patents of Stressgen Bioreagents and develops and manufactures immunoassay kits. The patents complement the more than 230 patents owned by Enzo, which specializes in gene identification and immunological regulation technologies for diagnostic and therapeutic applications.
    • In March, Seahorse Bioscience, which manufactures infrared-based-imaging systems for small-animal studies, acquired BioProcessors, which develops biomanufacturing workflow-methods and technologies.
    • In February, Millipore paid $22.6 million for Guava Technologies, which manufactures cellular analysis systems.

    Learning economic lessons from the recent past and looking at the aging population, capital constraints, and the challenge of continuous innovation going into the future, much has been said recently about big pharma’s need to revamp development strategies. In-house development and development by acquisition each involve risk and reward. Pharmaceutical companies now pursue development on both fronts by encouraging entrepreneurial practices within their companies and through careful acquisition.

    In addition to gearing up for the growth of the older and wealthier segments of the population, patents on staple money-making drugs are expiring. Large drug manufacturers, uncomfortably exposed to competition from nimble and aggressive generic drug and branded generic manufacturers, are innovating aggressively on an internal level, through increased collaboration and by continuing to acquire promising companies. How well they do impacts private equity and venture capital investors, who need opportunities to grow and exit companies so they can reinvest in new development.

  • IPO Window Opens a Crack

    Talecris Biotherapeutics and Omeros came to the public markets from two very different places. Talecris develops and produces critical care treatments for people with life-threatening disorders, including immune globulin deficiency, Alpha1-antitrypsin deficiency, and hemophilia. Talecris’ revenues exceeded $1.4 billion in 2008. Talecris was formed in 2005 and raised more than $550 million of pre-IPO private funding and sold shares for $950 million in its public offering.

    Omeros, founded in 1994, develops therapies for inflammation and CNS disorders. It has four ongoing clinical development programs, including a product in Phase III trials for use during arthroscopic surgery to improve postoperative joint function and reduce postoperative pain.

    Prior to its public offering in October, Omeros announced results of a Phase I/Phase II trial of an ophthalmologic product candidate. Omeros raised $68 million in its public offering. Previously, Omeros raised approximately $73 million from venture capital investors.

    In addition to the Talecris and Omeros offerings, at least 24 private equity and venture-backed companies in other industries sold stock for the first time to the public in 2009, including Cumberland Pharmaceuticals and Addus Healthcare. This compares to a total of 12 private equity and venture-backed IPOs in all of 2008.

    There are several additional biotech companies in the process of IPO registration. Pent-up demand for opportunities to employ capital in the public markets is likely to push and keep the window open through the first quarter. With the Dow now over 10,000, as long as the general economic conditions continue to improve, the public markets may well prove irresistible to this demand.

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