Who’s on Biotech’s Endangered Species List? Mid-Sized Drugmakers

5/21/12Follow @xconomy

[Updated: 9:20 pm PT] Only a few companies have ever been successful enough to call themselves Big Biotechs. If boards and shareholders lack vision and guts, we’ll look back in a few years and wonder why the Big Biotechs went extinct.

The group of Big Biotechs includes companies like Amgen, Gilead Sciences, Biogen Idec, and Celgene. They grew from scrappy venture-backed startups with a dream into big, independent, profitable, diversified enterprises. They have enduring ability to create new jobs and new medicines. They are like ballasts in a stormy industry.

There are several challenges in the market today that make it harder than ever to create companies like these. The biotech venture community can’t afford to build startups anymore that have Big Biotech aspirations; there’s only a lukewarm biotech IPO market; and Big Pharma companies have an endless appetite for acquisitions to replace their aging drugs with expiring patents. Wall Street values the short-term payday over long-term potential.

All of these factors are conspiring to put a lot of pressure on biotech companies to sell to Big Pharma companies. You’ve seen it with GlaxoSmithKline’s $2.6 billion hostile bid to acquire Rockville, MD-based Human Genome Sciences (NASDAQ: HGSI). San Diego-based Amylin Pharmaceuticals (NASDAQ: AMLN) is reportedly another object of Big Pharma desire. If these deals get done, they could end up tipping over a set of M&A dominos that would significantly change the biotech industry—and not necessarily for the better.

Richard Pops

“We’re at a unique moment in the history of the industry,” says Alkermes CEO Richard Pops. “When you look at the companies in the $2-plus billion market valuation tier, it is an incredibly important time and an incredibly vulnerable time. These companies are big enough to help to solve big problems in Big Pharma.

“If you are a Big Pharma company facing a patent cliff, you really have a huge revenue gap to fill, and small companies don’t really help you. They aren’t scaled to solve your problem. And this is precisely why companies in this valuation tier are so vulnerable. When you have a $2 billion valuation, it’s usually because something made your company an economic enterprise rather than a big science project.”

Pops runs one of the Big Biotechs. Rather than being acquired by a Big Pharma company that might want its technology that makes drugs last longer in the blood, Alkermes decided to do the acquiring. It bought Elan Drug Technologies, in a move that turned it into a trans-Atlantic 1,200-employee enterprise with revenue streams from multiple products—and a good shot at profitability for the long haul.

[Updated to add Ariad and Pharmacyclics.] A fair number of companies out there have some realistic chance to be members of the Big Biotech class. I count 23 companies in the NASDAQ Biotech Index with market valuations of more than $2 billion. Will they remain independent, like Alkermes, or go extinct? You can size up the list here yourself.

Company Name Headquarters Ticker Valuation  Employees
Amgen Thousand Oaks, CA AMGN $53.8b 17,500
Gilead Sciences Foster City, CA GILD $37.8b 4,500
Biogen Idec Cambridge, MA BIIB $31.5b 5,000
Celgene Summit, NJ CELG $30b 4,460
Shire Dublin, Ireland SHPGY $16.7b 5,251
Alexion Pharmaceuticals Cheshire, CT ALXN $15.8b 1,008
Vertex Pharmaceuticals Cambridge, MA VRTX $13b 2,000
Regeneron Pharmaceuticals Tarrytown, NY REGN $11.2b 1,729
Life Technologies Carlsbad, CA LIFE $7.3b 10,400
Illumina San Diego ILMN $5.3b 2,200
Amylin Pharmaceuticals San Diego AMLN $4.4b 1,300
BioMarin Pharmaceuticals Novato, CA BMRN $4.2b 1,002
Medivation San Francisco MDVN $3b 154
Incyte Wilmington, DE INCY $2.8b 368
Ariad Pharmaceuticals Cambridge, MA ARIA $2.8b 150
Human Genome Sciences Rockville, MD HGSI $2.8b 1,100
Onyx Pharmaceuticals South San Francisco ONXX $2.7b 420
Cubist Pharmaceuticals Lexington, MA CBST $2.5b 669
Seattle Genetics Bothell, WA SGEN $2.4b 483
Vivus Mountain View, CA VVUS $2.2b 38
Pharmacyclics Sunnyvale, CA PCYC $2.2b 77
Alkermes Dublin, Ireland ALKS $2.1b 1,200
Myriad Genetics Salt Lake City MYGN $2.1b 1,057

When I look at this list, a few things jump out. Amgen, Gilead, and others at the top have gotten so big and rich that someone would really have to move mountains to buy them. At the bottom of the list are a few little companies, like Vivus, that are surely built for quick and easy takeover. What concerns me more are the companies in the middle. They are the ones with compelling technologies, strong management teams, and at least … Next Page »

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  • http://twitter.com/matthewherper Matthew Herper

     Minor point, but I thought it was pretty clear that $GSK probably wants $HGSI as much for the other co-owned pipeline compounds as Benlysta…

  • LJStewartTweet

    I’m hopeful that Seattle Genetics can make it on their own.  Tired of seeing our Seattle winners get taken out.  Maybe good for investors, but not so good for Seattle Biotech Hub growth unless after acquisition the facility / people etc can continue operations