Over the past week or so, I have been asked by a number of people, both privately and in the media, what I think about the acquisition of Seattle-based ZymoGenetics (NASDAQ: ZGEN) by Bristol-Myers Squibb. As is usually true in Seattle, the prevailing reaction following the announcement was some moaning and gnashing of teeth, with “woe is me” pessimism about the inability of Seattle to build an independent “anchor tenant” biotechnology company. I completely disagree with that sentiment.
I have lived in Seattle and worked in biotech for 15-plus years, and I hear this tired refrain repeated each time Big Pharma or Big Biotech comes to town to acquire a company. In the beginning, I bought into the pessimistic view of what is required to sustain the biotech industry in Seattle. However, after watching the aftermath of a number of these transactions, I no longer buy that these acquisitions are harbingers of doom, or even that they are bad things at all. In fact, I have become convinced that events of this sort drive new rounds of innovation and company-formation, and are tremendous positive indicators of the vibrancy and health of the biotech industry in Seattle.
Generally (and grossly oversimplified), there seem to be two types of Big Pharma acquisitions of smaller biotech companies: (1) the strategic operational acquisition; and (2) the asset acquisition. In the strategic operational acquisition, the acquirer is looking to strategically add capabilities and expertise. In the asset acquisition, the acquirer has little interest in the capabilities and expertise and instead is acquiring key product(s). Seattle biotech has experienced a number of each, and I would argue that both are potentially significant “wins” for the local industry.
In a strategic operational acquisition, the acquirer will normally “rationalize” the local operation, trimming redundant functions (or functions in which they are not interested), but retaining key capabilities, teams, and individuals. For all of the disdain heaped upon the Big Company acquirer for subsequently beating innovative and entrepreneurial spirit out of the acquired target company, the injection of capital, stability, resources, etc. into those operations generally enables sustainable and productive operations to remain in Seattle. The acquisitions also generally provide liquidity to the investors in the acquired company, enabling a recycling of investor capital within the Seattle biotech industry and creating wealth for investors and entrepreneurs alike. I would suggest that Corus Pharma, Rosetta Inpharmatics, and Immunex are examples of this type of acquisition.
Yes, I know, things change over time as the realities of the industry catch up with the large acquirers, and occasionally large operations such as Rosetta are later shuttered. For the consequences of this, see the description of asset acquisitions below. In an asset acquisition, the Big Pharma acquirer shuts down the target company, releasing (or offering relocation to) virtually all employees. While this sort of acquisition does not leave in place the sustainable and productive operation as in a strategic operational acquisition, it does provide investor liquidity and the positive effects on innovation that this recyclable capital can (and does, in Seattle) produce. The Lilly acquisition of ICOS is a good example of an asset acquisition. The effect on employees is more abrupt and dramatic, and leads to some talented scientists and entrepreneurs leaving the Seattle area.
However, in both types of acquisition, whether the displacement of talented, innovative entrepreneurs and highly productive and competent individuals is abrupt and dramatic, or more gradual over time, the result historically in Seattle is the same. Those talented folks gather together around new ideas, and they pursue and secure investment in those ideas, and they build great new companies. And most assuredly that will be the result with ZymoGenetics.
I am not unsympathetic to the negative impact (usually short lived) on individuals who lose their employment in these transactions. Being out of work, particularly in this economy, is frightening. However, a certain amount of that comes with the territory. Working in small, innovative, exciting companies that grow to be successfully acquired (or unsuccessfully shut down) is risky. Anyone who cannot live with that level of risk should look for work in a different type of organization/industry. But for those with the stomach for the risk, the emotional, intellectual, and economic rewards can be great. It is those people who can survive and thrive in a cyclical industry of growth, acquisition, reinvention, growth, etc. The fact that Seattle as a biotech community is capable of staying in this cycle and repetitively developing and selling technologies and products is proof that there exists the critical mass for a sustainable and flourishing industry.
So, applaud the successes and marvel at the resilience and depth of biotech in Seattle.
[Editor’s Note: This post can also be found over at the OVP Blog.]
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