Monday, June 28, 1993
Biotechnology companies, groping for alternatives to the closed
financing window, are likely to find partnership deals harder to come by over
the next six to 12 months, and with less favorable terms than in the recent
The changes are not yet obvious, because the deals now being announced have been in the works for some months. But conversations with licensing executives from 11 pharmaceutical companies indicate that $50 million deals with extensive co-marketing rights will be rarer now than in the heady days of 1991-92, when open-handed investors gave biotech companies more leverage in negotiations.
The shift in bargaining power will be reinforced by changes in the pricing structure of the drug industry. Pharma companies are under pricing pressures they haven't seen before, with some experiencing quarterly losses for the first time since the Depression, said Ronald Henriksen, who was director of business development at Eli Lilly and Co. before joining Khepri Pharmaceuticals Inc. as president and CEO in April. Until uncertainties over health care regulation are resolved, big pharma has every incentive to husband its resources carefully.
'Window is closed'
"The partnering window is closed," said Henriksen, who expects to see 50 percent fewer deals this year than in 1992. "A lot of the deals being reported now have been in the cooker for nine or 10 months. Fewer fresh deals are being started."
Michel Bergh, until recently director of business development for biotech at Schering-Plough Corp., also expects to see fewer deals done. "There will be some down-sizing and lean years for pharmaceutical companies, and part of having a lean year is doing less outside," said Bergh, now vice president of business development at Shaman Pharmaceuticals Inc. "As research people have smaller budgets, they'll want to keep working on their own projects. The effect will be felt by biotech companies."
Pharmaceutical companies are having to cope not only with health care issues emanating from Washington, but also with structural changes in product markets and the coincidence that several major drugs are going off patent in the near future.
"We're getting hammered now by large buying groups," said David Brush, director of commercial development for biotechnology and oncology at Bristol-Myers Squibb Co. "At the same time, a large number of compounds are coming off patent. We have a $1.6 billion product coming off patent in 1995 - the ace inhibitor Capoten - that will reduce revenues and reduce the amount of risky ventures we'd want to do, and reduce the amount of capital we have to spend outside. We're not unique. Upjohn, Merck, Warner-Lambert, Marion Merrell Dow and SmithKline Beecham all have drugs coming off patent."
As big pharma retrenches, biotech companies have to lower their sights accordingly. The view from the pharmaceutical side is that biotech companies are being more realistic about partnering terms, no longer expecting broad co-marketing arrangements