The Biggest Bargains Pharma Scooped Up in the Down Years
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.
“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 firstname.lastname@example.org 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 headed for FDA approval and a mega-billion dollar future. But $11 billion is still a lot of money. The best bargain purchase Gilead made in the recession was of Seattle-based Calistoga Pharmaceuticals in 2011. By paying $375 million upfront and a maximum of $600 million with milestones, Gilead got ahold of what clearly appears to be a leader in the new class of PI3 kinase inhibitors for blood cancers. This drug, idelalisib, passed its first pivotal study in slow-growing non-Hodgkin’s lymphoma, and just nailed another Phase III trial in chronic lymphocytic leukemia. It has a clean side effect profile, and has the potential to be a high-priced chronic therapy. It has all the markings of a drug that could easily generate $1 billion plus in sales per year. A competitor now a couple years behind idelalisib in development, Cambridge, MA-based Infinity Pharmaceuticals (NASDAQ: INFI), is worth more than $700 million largely on the promise of its PI3k drug.
Bristol-Myers Squibb/Medarex: It is still a bit early to call, but this might be the best bargain acquisition ever in the biotech industry. By paying $2.4 billion in September 2009 for Princeton, NJ-based Medarex—a price many investors thought too high—Bristol-Myers got ahold of what now appears to be a trailblazing cancer immunotherapy franchise. Bristol-Myers got ipilimumab (Yervoy), which releases a molecular brake on the immune system, enabling it to better attack tumors. The drug extended survival time in melanoma patients and won FDA approval in March 2011. The drug generated more than $700 million in sales in 2012, its first full year on the market. But that’s only the beginning. Bristol also got ahold of drug candidates against PD-1, which removes a cloaking mechanism tumors use to hide from the immune system. Cancer physicians are super-excited about this whole new class of immunotherapies, which have shown signs of working against multiple tumor types and providing long-term remissions. It’s not far-fetched to think that Bristol-Myers could generate $10 billion a year plus in sales from its cancer immunotherapies five years from now. In that light, a $2.4 billion purchase is a jaw-dropping bargain.
Celgene/Avila Therapeutics: This one might be a bit early to call, because I haven’t yet seen clinical trial data to absolutely prove the worth of the BTK inhibitor that Summit, NJ-based Celgene (NASDAQ: CELG) got from Bedford, MA-based Avila Therapeutics. But it is clear that a competing BTK inhibitor for blood cancers from Pharmacyclics (NASDAQ: PCYC) has generated terrific clinical results, and turned Pharmacyclics from an industry nobody into an emerging company worth $9 billion. And oh yeah, how much did Celgene pay for its competing BTK inhibitor? It paid $350 million upfront, plus $575 million in milestone payments, for a potential grand total of $925 million. And, it’s worth noting that Boulder, CO-based Clovis Oncology got one of its most important assets for lung cancer from Avila. Clovis is worth $1.6 billion, largely on the promise of this drug, CO-1686.
Takeda Pharmaceuticals/Intellikine: It’s early, but it’s hard for Takeda to go wrong on this one. Takeda paid the ultra-cheap price of $190 million upfront, plus another $120 million in milestones, to get San Diego-based Intellikine. This was a prolific drug discovery shop focused on all kinds of variations on inhibiting the PI3 kinase pathway. Intellikine licensed one of its PI3k inhibitors to Infinity. If Infinity (market value—$700 million) is successful in getting this drug to the market, Takeda will be in line to collect royalties that could be worth way more than the price it paid for Intellikine. Takeda also got a lot more than just one drug candidate from Intellikine, although it’s too early to say with real certainty what any of them are worth.
Roche/Genentech: I’m going on a limb on this one, because anytime a company pays $46.8 billion for a minority ownership stake of anything, it’s hard to call it a bargain. But when Switzerland-based Roche pulled the trigger on this megadeal in March 2009, it got the biotech industry’s crown jewel and the world’s No. 1 cancer drug franchise. It’s still pretty early to truly judge this deal in historic terms, but Genentech has continued to deliver big innovations with trastuzumab emtansine (Kadcyla), pertuzumab (Perjeta), and now the coming ‘son of Rituxan’ still known as GA101. Genentech hasn’t fulfilled the most bullish expectations for its blockbuster bevacizumab (Avastin) in every form of cancer under the sun, but it’s not a bust, either. The company has managed to retain much of its scientific firepower, and it’s now more than just an oncology company, with its sights set on big long-term challenges in neuroscience, like Alzheimer’s. I think historians 20 years from now will say Roche got quite a bargain with its takeover of Genentech. “It’s the goose that keeps laying golden eggs,” said David Lowe, CEO of Austin, TX-based Aeglea BioTherapeutics, a former partner with Skyline Ventures, and a former scientist at Genentech.