Will CombinatoRx Be the Next Cambridge Biotech Put on the Block?

6/18/08

Millennium Pharmaceuticals. Sirtris Pharmaceuticals. Maybe Biogen Idec (or maybe not). Will CombinatoRx (NASDAQ:CRXX) be next on the list of Cambridge, MA, biotech firms scooped up by a Big Pharma buyer?

That’s the question raised by Bloomberg’s Kelly Riddell, who noted on Monday that several fund managers recently boosted their holdings in the eight-year-old firm. Riddell pays special attention to billionaire investor James Simons, whose Renaissance Technologies tripled its holdings in CombinatoRx in the first quarter. But while the Bloomberg story’s headline called the Cambridge firm “Takeover Bait for Simons,” don’t expect any Carl Icahn-like maneuvering in this instance; Simons is a former mathematics professor who runs his $17 billion fund purely by the numbers. And Renaissance’s stake in CombinatoRx was still relatively small by the end of the first quarter—it’s the firm’s 22nd largest shareholder, with some 150,000 shares (out of about 35 million) worth $513,000.

Other funds took bigger pieces of the CombinatoRx pie in the first quarter, though, according to Bloomberg: Biotechnology Value Fund wound up with 2.96 million shares, double what it had held previously, and QVT Financial raised its stake by a third to 1.88 million shares. Riddell’s implication is that such investors may be hoping to make money when a pharmaceutical company swoops in to buy the Cambridge biotech, which was founded by Xconomist Alexis Borisy (who ditched his chemistry PhD program at Harvard to go into industry) on the intriguing idea that carefully combining existing drugs could yield treatments for completely different indications while avoiding the toxicities and side effects that tank many drug candidates before they can reach the market.

The approach has helped CombinatoRx rapidly fill its pipeline, but so far it hasn’t yielded a commercial product. (Three of the eight CombinatoRx drugs that have reached clinical testing were dropped, the firm’s VP of communications, Gina Nugent, told Bloomberg.) CombinatoRx’s current lead candidate, CRx-102, combines an anticoagulant and a steroid to treat arthritis. Other candidates are targeted at psoriasis and diabetes. The, well, combination of drugs aimed at such potentially lucrative targets and a platform to produce more of them could be quite attractive to pharmaceutical firms facing record-low drug approvals.

So has Big Pharma come calling? Nugent told me it’s CombinatoRx’s policy not to comment on M&A activity, but acknowledged that “There has been a bit of consolidation in the industry of late, and especially the smaller companies with pipelines are getting gobbled up by the larger companies.” CombinatoRx has a fiduciary responsibility to shareholders to consider any offer, she said, but given the strength of its pipeline, “an offer would have to be substantial to merit that.” So far, all the speculation hasn’t seemed to make much difference to CombinatoRx, which popped up 25 cents or so on Monday but closed yesterday at $3.72, a penny under last Friday’s close. Still, as Millennium and Sirtris can attest, substantial offers are becoming awfully familiar in this neighborhood.

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