August 1, 2013 (Vol. 33, No. 14)

J. Leslie Glick Ph.D. Independent Corporate Management Advisor

Recent Big Biotech M&As Have Not Been Limited to Big Pharma Doing the Buying

Writing in this same column for the December 1, 2012, issue of GEN, I proposed that the biotech industry might be succeeding in part because of “creative acquisition”—the opposite of Joseph Schumpeter’s “creative destruction.”

As I explained then: “While creative destruction certainly applies to the biotech industry, so does what one might call creative acquisition. In other words, successful firms do not necessarily lead to the failures of other firms but rather to their own acquisition by larger firms. Creative acquisition is a function of the ever-increasing growth potential of the biotech industry.”

I also provided evidence of the biotech industry’s remarkable track record through the end of 2011, in terms of revenues, income, and the number of companies involved, even though many of the largest biotech companies were being acquired by big pharma. That the biotech sector kept growing could be attributed to technological advances, which continued to create numerous novel commercial opportunities, thereby enabling both the maturation of existing biotech companies as well as the seemingly never-ending formation and development of startups.

Since my initial column on creative acquisition, more data have been collected, further supporting the notion that creative acquisition plays a key role in the evolution of the biotech industry.

According to Ernst & Young’s Biotechnology Industry Report 2013, all 316 U.S. public biotech companies reported total revenues of $64 billion and net income of $4.5 billion in 2012, representing increases of 8% and 36%, respectively, over the corresponding figures for all 315 U.S. public biotech companies in 2011.

A more detailed look of the biopharmaceutical segment was obtained by accessing 10-K filings with the SEC. In 2012, the 10 largest such companies reported total revenues of $44 billion and net income of $11 billion, up 15% and 19%, respectively, from the corresponding figures for 2011. Of particular interest is that only the four largest have resided among the top 10 since 2005. Six of the top 10 companies in 2005 were acquired by big pharma during the six years that followed. Yet, total revenues and net income of the top 10 in 2012 were 38% and 77% greater, respectively, than those of the top 10 in 2005.

Based on revenues, the 10 largest U.S. biopharmaceutical companies in 2012 were, in descending order: Amgen, Gilead Sciences, Biogen Idec, Celgene, Vertex Pharmaceuticals, Regeneron Pharmaceuticals, Alexion Pharmaceuticals, Cubist Pharmaceuticals, United Therapeutics, and Biomarin Pharmaceutical. Eight of these companies were among the 10 largest in 2011.

Amylin Pharmaceuticals, ninth largest in 2011, was acquired by Bristol-Myers Squibb in 2012. ViroPharma, which was the 10th largest in 2011, dropped down to number 12. Regeneron, which was 12th in 2011, rose to sixth place in 2012, its revenues tripling from $446 million to almost $1.4 billion during the year. Biomarin moved up from 13th place to 10th.

J. Leslie Glick, Ph.D.

Company Growth

What has now become apparent is that creative acquisition of biotech companies is not simply limited to acquisition of biotech companies by big pharma. Creative acquisition is playing an increasingly important role in the growth of midsize and large biotech companies, in that these companies are acquiring smaller biotech companies with complementary technologies, products, and markets.

From 2008 to 2012, the top 10 biopharmaceutical companies for 2012 acquired a total of 28 public and privately held companies. Moreover, the rate of acquisition accelerated from two companies acquired in 2008 to four in 2009, six in 2010, and eight in each of the following two years.

In general, the acquired companies reported relatively little revenue compared to their new owners. In most cases the acquired companies had a pipeline and/or a technology platform that was of strategic importance to their purchasers.


For example, in 2012, Amgen acquired Micromet because of its oncology pipeline and proprietary antibody platform. The Amgen offer, amounting to $1.16 billion, was priced at $11 per share, resulting in a premium exceeding 30% of what the shares had been trading at immediately prior to announcement of the offer.

Also in 2012, Amgen acquired DeCode Genetics, an Iceland-based firm with a unique genetic database, which had amassed over $300 million in debt before filing for bankruptcy in 2009. In 2010, Polaris Venture Partners and ARCH Venture Partners rescued DeCode from bankruptcy by acquiring its assets for a reported $14 million, and the following year DeCode entered into a strategic alliance with Pfizer. Amgen purchased DeCode for $415 million in 2012, based on its analysis that the firm’s database would increase its success rate of identifying new drugs that would subsequently be shown to have proven efficacy.

Two more examples should suffice: First, Gilead Sciences, which acquired Pharmasset in 2012. For 2011, Pharmasset reported revenues less than $900,000. Its focus was on developing oral drugs to treat hepatitis C. Gilead concluded that Pharmasset’s pipeline was such an excellent strategic fit with its own, that it purchased Pharmasset for $11 billion. The price per share was $137, which was almost 90% higher than what the stock had been trading at right before announcement of the offer.

Second, Celgene’s acquisition of the former privately held Avila Therapeutics. Celgene was particularly interested in Avila’s targeted covalent drug technology platform. Targeted covalent drugs are small molecules that silence disease-causing proteins by forming chemical bonds with them. In particular, Avila was in the midst of clinical trials with a potential drug that targeted a specific tyrosine kinase. Inactivation of this enzyme might lead to a potential treatment for various hematologic cancers and autoimmune diseases. Because Avila’s technology platform and pipeline fit with Celgene’s strategic focus, Celgene acquired Avila for $925 million in 2012.

As it turns out, creative acquisition serves the biotech industry well. In tough times, when it is difficult to obtain investment capital with acceptable terms, creative acquisition may be the preferred way to go. In good times, the fact that it exists may attract investors, betting that their picks are promising candidates to be acquired at a premium price.

J. Leslie Glick, Ph.D. (, is an independent corporate management advisor.