Monday, June 28, 1999
This report was compiled by BioCentury staff in the U.S. and U.K, and was written by Editor-in-Chief Karen Bernstein.
Over the past few years, pharma companies both small and large have been swallowed up in mergers and acquisitions: Sandoz, Ciba-Geigy, Wellcome, Astra, Pharmacia, Synthelabo, Squibb, Rorer, Marion Merrell Dow, Boehringer Mannheim, the list goes on.
The same phenomenon is occurring in biotech as companies reach a relatively significant size, with a number of mid-tier and top-tier companies throwing in the towel and concluding they don't have the wherewithal to go it alone or are better off under the wing of parents. These have included Athena Neurosciences Inc., Sugen Inc., Neurex Corp., Agouron Pharmaceuticals Inc. and now the planned purchase of Alza Corp. by Abbott Laboratories.
In fact, the acquisition of AZA - which had a market cap of about $6.2 billion before the deal was announced - implies that there's no "safe" size that biotech companies can reach and remain independent (see BioCentury Extra, June 22).
When a large number of independent actors make the same decision, it implies that there are characteristics of the industry in general, or structural factors at work in the larger environment, that may be driving those decisions.
Some of these have been well analyzed. For example, the burgeoning size of institutional investors has made it increasingly difficult for them to buy the relatively microcap biotech companies. But other factors are not as simply divined. These include the serendipitous nature of drug discovery and the fact that as companies increase in size, the need for ever more, ever-larger products to sustain their growth rates increases accordingly - and often cannot be met from internal growth alone.
Given those realities, biotech companies that want to survive need to think about two related strategies to ensure that they remain predators rather than prey. First is how to make sure that they keep pipelines full - whether from internal or external growth, while maintaining balanced growth in internal operations. Second is how to keep playing in the high-growth disease areas that will ensure robust revenue streams going forward.
Everyone under the gun
The environmental drivers forcing many biotech companies to give up on independence are twofold, said Jeremy Levin of Perseus Capital. "The macro issue is the restructuring of capital markets," he said. This, coupled with the long timetable for pharmaceutical product development, has caused even companies that are reaching profitability with strong pipelines to "face the sieve of the capital markets" and decide they will not have sufficient funds to remain independent.