January 15, 2012 (Vol. 32, No. 2)

The start of a new year is usually accompanied by lively speculation about the hottest biotech acquisition candidates in the coming months, and I’m sure this year will be no exception. Confronted with looming patent expirations, the fading blockbuster model, dwindling pipelines, and uncertainty about healthcare reform, big pharma continues to be attracted to biotech acquisitions.

For biotechs, given the challenging IPO environment, capital is increasingly expensive to come by, making an acquisition an attractive exit strategy for investors.

While the M&A path may be attractive for some, I worry that it may ultimately serve to stifle innovation—at a time when we desperately need novel thinking and approaches that will allow us to realize the next era of medicine. While there no doubt are short-term gains to be had from an acquisition-driven landscape, we face serious long-term pitfalls if the biotech innovation engine is muffled by consolidations and mergers.

I believe it’s critical that more biotech companies strongly consider whether they should seek a quick exit, or pursue a longer-term strategy that will require seeking alternative sources of funding and more advantageous partnerships in order to maintain their independence and see their development programs through to fruition—on their own terms.

Adelene Q. Perkins

Raising Capital

At Infinity, we have long held to the mission of becoming a fully integrated biopharmaceutical company capable of bringing therapies from basic science through commercialization. To accomplish this goal, we needed to raise significant capital.

In 2008, we entered into a broad strategic alliance with Purdue Pharmaceutical Products and Mundipharma International, which has afforded us a strong financial foundation and the cash runway necessary to simultaneously advance several distinct investigational therapeutics through the clinical stage.

Through the structuring of this collaboration, we maintained control over the design and implementation of clinical studies, enabling us to conduct the kind of early-stage clinical trials we believe are needed in order to better predict success in late-stage development. We also maintained full U.S. commercial rights for our oncology and inflammation portfolio, which ultimately will allow us to build a sustainable model where commercial insights and a steady stream of revenue are fed back into the early discovery pipeline.

Most importantly, though, we have been able to preserve the cross-functional, cross-team collaboration that has been a hallmark of our company and, we believe, is a critical component in our ability to ultimately bring to market game-changing therapies in oncology and inflammation.

Granted, I realize that I speak from a privileged vantage point, having secured this highly enabling partnership. That said, we put a great deal of focus, energy, and strategic thinking into what kind of deal we needed to seek and structure in order to maintain our independence and mature into the company we have always envisioned being. Moreover, I think we are an example that there are viable, and very valuable, options available other than the acquisition route.

Over the years, the success and enduring significance of the biotech industry has been debated. Namely, has biotech delivered on its promise to bring about new methods of drug discovery and development, and deliver truly breakthrough treatments?

True Promise of Biotech Is Within Reach

While not all biotechs are successful, I believe the impact and success of the biotech industry is clear. Biotech has tackled some of the most difficult and enigmatic problems and diseases, and we have discovered and delivered highly effective therapies.

In 2009, five of the ten top-selling medicines originated in biotech labs, according to a PriceWaterhouse Coopers report. Furthermore, the industry is growing in profitability. According to Ernst & Young’s 2011 “Beyond Borders” report, the global biotech industry had a net profit of $4.7 billion in 2010, which represented a 30% increase from 2009.

Harnessing this positive momentum, we must find ways to fuel more growth and innovation in the biotech sector in order to drive a new era of medicine that will be defined by targeted therapies for diseases and patients—and at an accelerated pace.

The promise of personalized medicine is within our reach—but not yet firmly in our grasp. The tools and techniques for integrating molecular and genetic characterizations of patients and their diseases into drug development are becoming robust and cost-effective enough to enable their widespread use. While characterizing patients’ response to drugs will ultimately simplify drug development, it is increasing near-term complexity.

In order to make personalized medicine a reality, we need extremely well-integrated, multidisciplinary teams to determine how to make sense of massive amounts of molecular and genetic information and to develop strong scientific hypotheses to test in the clinic. In my opinion, the best way to accomplish this is in smaller, focused organizations where discovery, development, informatics, regulatory, and commercial teams interact on a daily basis.

When organizations are being merged, consolidated, and rationalized, and the functions that should be well-integrated are not even in the same physical location, it becomes much more difficult for that integrated thinking and collaboration to happen effectively.

For instance, at Infinity, there is a solid understanding that the different functions are wholly dependent on one another for success. This helps foster an environment where cross-functional teams must value each other’s perspectives and contributions. And, I can see first-hand the tremendous benefits that come from people sitting next to each other or easily sharing a cup of coffee and conversation in our Jazz Café, able to brainstorm and evolve their thinking on weighty topics over the course of each day.

So, How Can Firms Stay Independent?

Capital will likely remain difficult for many biotechs to access in the foreseeable future. Given this challenge, how can biotech companies continue to remain independent and drive innovation?

Unfortunately, there are no easy answers and no one-size-fits-all solution. But I believe that companies will not succeed in becoming sustainable, independent companies if they do not commit themselves to this goal.

Accessing capital has always been difficult and has always required creative thinking and solutions that are appropriate, given environmental factors. For example, Infinity went public in 2006 with the expectation that we would access public equity markets as a source of future capital. However, when we needed to access capital in late 2008, there could not have been a worse time to tap the public equity markets. This required that we change course and pursue a corporate partnership instead.

While capital is more difficult to find at some times than others, for as long as there are significant unmet medical needs, it will be available for those with the innovative ideas, technologies, people, track records, and visions to create better medicines.

So, as we ring in 2012, I hope that, as an industry, we can re-commit ourselves to developing sustainable biotechs as opposed to acquisition candidates. And, perhaps this year we can consider redirecting our speculation around M&A to focus on which companies are best positioned to survive and thrive as independent discovery and development forces that can tackle some of the most difficult healthcare challenges we face today.

Adelene Q. Perkins ([email protected]) is president and CEO of Infinity Pharmaceuticals. Web: www.infi.com.

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