In 1999, when it became abundantly clear that having the suffix "omics" in the boilerplate did not constitute a business plan, many companies began morphing into therapeutic plays. This is not an easy transition, and many observers said it couldn't be done, given the differences between the two models. These range from the tasks that need to be accomplished, to corporate culture, development timelines, and costs.
While the ultimate proof, as always, will be getting a drug on the market, three years later the experiences of six of these companies shows that it is possible to put together a fairly complete R&D value chain in relatively short order.
In the two years since BioCentury published its Back-to-School issue on value chain integration, these companies are showing what can be accomplished via a combination of internal hiring, collaborations and acquisitions (see BioCentury, Sept. 4, 2001). One take home message may be that companies need the wherewithal to carry out M&A as a key component of the transition strategy. Indeed, all six of the companies polled by BioCentury have used M&A as an integral part of their move into drug discovery.
This was reflected in moves last week by two of these companies. Incyte Genomics Inc. purchased Maxia Pharmaceuticals Inc. to add small molecule protein phosphatase inhibitor development capabilities to INCY's internal therapeutic areas. Meanwhile, Hyseq Pharmaceuticals Inc. announced a merger with Variagenics Inc., which will provide much-needed cash as well as experience in cardiovascular and cancer areas.
The cash is likewise important, as switching gears is expensive. While the two companies that started as database players have reduced headcount, the four that began with various tools have added payroll. And on average, R&D has more than doubled.
Despite the outlay, the P&L effects have been more mixed: the operating loss for three of the six companies has increased significantly, while five of the companies have actually grown revenues (see "Headcount Shifts," A8 & "Picturing the Transition," Online links, A15).
Incyte: Discovery chain in place
Since Incyte decided to transition to small molecule therapeutic development in February 2001, the company has added downstream biology and chemistry capabilities on top of its genomics information base. Last week, INCY disclosed that it has launched its first fully staffed drug discovery program focused on identifying chemokine receptor antagonists for inflammatory diseases.
The company has made two major restructuring moves since beginning its transition. Last week, INCY announced plans to eliminate $88 million in annual expenses by reducing 37% of its 700-person workforce, decreasing spending, and consolidating