The Biggest Bargains Pharma Scooped Up in the Down Years

10/28/13Follow @xconomy

Most little biotech companies, until this year’s IPO boom, couldn’t seriously think about raising money from public investors. Most couldn’t raise big venture dollars from an ever-shrinking pool of VCs. The pool of potential partners and buyers in Big Pharma was shrinking, too, because mega-mergers reduced the number of potential bidders.

With cash running low during the recession years, many of these little biotechs were backed into a corner. When they sat down to talk about out-licensing their technology, or selling themselves, to a Big Pharma company, they often had little choice but to accept the big guy’s terms. Bidding wars among the big guys for the hot new asset were rare.

The result, as any economist could tell you, was predictable. The Big Pharma buyers used their bargaining advantage to get a lot of good new products for dirt-cheap prices. Big Pharma, for all its troubles of the past decade, spent much the last few years gleefully scooping up bargains at Nordstrom Rack. Kevin Kinsella, the longtime biotech VC at Avalon Ventures, famously called out pharma for overplaying its hand back in an interview with Xconomy’s Bruce Bigelow in 2011.

This year, of course, the dynamics between biotech and pharma have shifted. Little biotechs with hot technology have gained more bargaining power. Many biotech companies can credibly walk away from a low-ball bid from Big Pharma, and choose to raise money from public investors to develop their technology. At a minimum, the little company can force the Big Pharma company to either raise its bid or risk missing out on a big opportunity to fill up its sparse R&D pipeline.

Mary Tanner, senior managing director, Burrill & Company

Mary Tanner, senior managing director, Burrill & Company

“Pharma made some great deals in this last five-year period,” says Mary Tanner, the longtime investment banker and now senior managing director at Burrill & Co. “The leverage was on their side.”

So, with the benefit of hindsight, what were the best bargain acquisitions Big Pharma and Big Biotech made during their good old days of 2008-2012?

Here are the nominees. If you have some other suggestions, please let me know at ltimmerman@xconomy.com and provide a brief explanation for why the acquirer got such a screaming good deal.

Onyx Pharmaceuticals/Proteolix: Investors squawked loudly when CEO Tony Coles and the Onyx board made a bold move to acquire South San Francisco, CA-based Proteolix in October 2009. Onyx paid $276 million upfront, and the grand total of the deal, with milestone payments, was worth about $850 million. In return, Onyx got the rights to develop and sell carfilzomib (Kyprolis) for multiple myeloma. It didn’t take long for Onyx to prove its doubters wrong. Onyx won FDA approval of the drug faster than many expected, and it got off to a fast start in the market, grabbing share away from a well-entrenched, competing drug from Millennium/Takeda Pharmaceuticals. The drug ended up diversifying Onyx, and was the centerpiece of the biggest biotech acquisition of the year. Thousand Oaks, CA-based Amgen (NASDAQ: AMGN) paid about $10 billion this year to get Onyx this year. No doubt, Amgen was buying more than just carfilzomib. But Onyx, by paying $850 million, clearly got a screaming good deal when it bought Proteolix.

Gilead Sciences/Calistoga Pharmaceuticals: The big headline-making acquisition at Foster City, CA-based Gilead (NASDAQ: GILD) the past five years was its $11 billion purchase of Pharmasset, a leader in hepatitis C therapy. A couple years later, the Pharmasset drug looks like a winner … Next Page »

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