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Wednesday, April 30, 2008
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 Biotech Blossoms Anew
A month ago, things looked bleak in the biotech sector. So bleak, in fact, that I suggested investors might want to go against the herd and start nibbling away at stocks in the sector, because sour sentiment can turn on a dime. After all, any sector where product development moves this slowly, costs this much, and the companies mostly lose money along the way is naturally going to be subject to occasional bouts of pessimism. But the extremes are always short-lived. Biotech remains the engine of innovation for many large pharma companies, and some companies were--and still are--sitting on assets that look very undervalued by the traditional standards of the life sciences industry.
Things look a lot rosier today, and we can thank Big Pharma's deep pockets for a good portion of the turn in sentiment. Last year, and into the first part of this year, the biotech sector was fueled by the prospects of large, profitable biotech companies being snapped up by Big Pharma at healthy premiums. MedImmune was bought out at a staggering price, and when Biogen Idec put itself on the block, investors smelled a trend (and saw the seasoned hand of Carl Icahn pushing these sales). Icahn's interest in Genzyme looked like the genesis of another potential acquisition.
Well, it turns out that most of the shotgun weddings envisioned by activist investors didn't take place. But the announced acquisition of Millennium Pharmaceuticals by Takeda this month opens up a whole new area of speculation: consolidation among mid-cap biotechs, brought about not by disgruntled outsiders, but by mutual agreement among management teams without guns to their backs.
There's reason to think Millennium won't be the only beneficiary. According to the Wall Street Journal, Merck CEO Richard Clark is on the hunt for the "perfect" biotech acquisition: "a company with a mid-sized market cap, some products already for sale, and a research focus that would complement Merck's research efforts." Given the 53% premium Takeda just paid for Millennium, investors are eager to determine who that might be--whether it's Merck doing the shopping or another large company. Might Eli Lilly want to snap up Amylin at only about 4 times projected sales? Or maybe Cubist Pharmaceuticals? Might Astellas decide it wants all of CV Therapeutics, not just a piece of Lexiscan? Will someone snap up Alnylam now that Sirna and Sirtris are taken?
I'm not going to make any formal predictions, but I can tell you there's a lot of speculation circulating. And it's speculation of this sort that builds rallies.
Ah, but will it last? I actually doubt there will be a slew of high-profile acquisitions in the coming months. Still, it doesn't take many investments by Big Pharma to support the idea that many small-to-medium sized biotechs are sitting on approved or advanced products that can, in the hands of the right partner, be turned into very valuable assets. Investors take note.
More By Karl Thiel
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The crowded field of potential hepatitis C protease inhibitors just got a little less crowded since Wyeth and Viropharma formally dissolved their partnership on HCV-796. That leaves the field to just Vertex...and InterMune...and Schering-Plough...and Idenix...and, well, OK, this isn't exactly inhalable insulin. There are still a lot of contenders. The fate of HCV-796 was already called in question this past summer when researchers raised safety concerns about the drug. Genentech and Biogen Idec also faced a disappointment in extending the Rituxan franchise. They are still testing Rituxan in lupus, although a couple of years ago the companies warned about sporadic cases of the same PML infection that temporarily waylaid Tysabri. -KT
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Why choose Quintiles in Latin America? In Latin America we provide fully integrated services for Phase I-IV studies including central laboratory services and report writing for US and European (FDA, EMEA, and ICH-GCP) regulatory submissions.
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DIA 44th Annual Meeting Join more than 8,000 attendees as they share information about the latest innovations in drug development and search for solutions to industry challenges.
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New FDA Chief Scientist and Deputy Commissioner Frank Torti is what Jane Austen might have described as an "unobjectionable" choice for the post. He is an academic with a long and distinguished career as a cancer researcher (most recently at Wake Forest University). And perhaps most importantly, he has no real ties to industry. Although the "Chief Scientist" role is newly created, he essentially replaces Janet Woodcock, who recently vacated the Deputy Commissioner post after appointing herself head of CDER. Torti may also be furthering the trend of filling top FDA posts with temp staffers. Torti reportedly only plans to stay in the role for several months...just as commissioner von Eschenbach was originally thought to be a temporary head of the agency. Some members of Congress are lately wishing it had actually worked out that way. -KT
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BayBio Medical Device Breakfast: Navigating the Reimbursement Maze. If you build it, will they pay? Even if FDA approves it, will anyone pay? May 13, 8:00am - 10:00am, Palo Alto, CA
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BioWorld Financial Watch. Weekly must-have resource monitoring the economics of the biotech industry: IPOs, Collaborations, Mergers & Acquisitions, Licensing, Venture Capital Funding, Grants, FDA Submissions and more.
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Takeda has been on a spending spree, announcing not only the nearly $9 billion acquisition of Millennium but also a deal with Cell Genesys--both on the heels of its recent 13-product deal with Amgen. Takeda has a reason to be aggressive; it hasn't had an FDA approval in two years and its top-selling diabetes drug Actos goes off patent in 2011. Japanese companies have long profited from selling drugs developed by U.S. and European companies in their domestic markets, but Japanese regulatory reforms are opening up the country to more foreign competition. Japanese companies, as a result, are becoming more global in their aspirations. Luckily, a warchest of yen goes a lot farther in the U.S. than it used to. -KT
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The Boehringer Ingelheim Career Fair is coming to Boston, Massachusetts on May 8, 2008 at the Sheraton Boston Hotel from 11:00 a.m. to 4:00 p.m.
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The Biotech Bay Career Fair is coming to Burlingame, California on May 6, 2008 at the San Francisco Airport Marriott from 2:00 p.m. to 7:00 p.m.
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Who says that CFOs can't be creative? A new trend in financing emerges this month with at least three companies--CV Therapeutics, VIVUS, and Plethora Solutions--making deals that exchange present or future royalties for cold, hard cash in hand. The deals aren't dilutive to shareholders, but they do trade away an ongoing revenue stream to financial institutions that have traditionally gravitated toward more straightforward transactions. But such deals can be sliced and diced many ways; CV Therapeutics, for instance, sold off only a portion of its Lexiscan royalties. -KT
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FDA came under further fire this month--and not just on Capitol Hill. True, Rep. John Dingell's (D-Mich.) table-pounding rant against Commissioner Andrew von Eschenbach for being unwilling to clearly quantify the inadequacy of the Bush Administration's proposed 2009 budget expressed a lot of frustration on the Deomcratic side of the aisle. But the Journal of the American Medical Association (JAMA) also had a go at FDA, attacking its proposal to relax restrictions of off-label promotion using published research articles...just when it was revealed that some peer-reviewed articles supporting the Merck pain drug Vioxx were ghostwritten. Ouch! Bad timing indeed. -KT
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Unless you're a shareholder of Genzyme, you might not think much of the fact that FDA delayed approval of Myozume, an enzyme replacement therapy for Pompe disease. After all, the drug is already approved in many countries around the world, including the U.S. But to meet rising demand, Genzyme scaled up production from 160 liter to 2000 liter batches. FDA said that there was a difference in the carbohydrate structure of the molecules (the sugars that decorate the surface of functionally identical proteins) making them different drugs for regulatory purposes. This might be taken as an early read on the agency's attitude toward follow-on proteins or "biogenerics," which also would presumably be identical proteins that differ slightly in manufacturing. To be fair, carbohydrate changes can sometimes cause major functional differences. -KT
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Karl Thiel is an analyst for The Motley Fool, a columnist for BioWorld Today, and a contributor to Nature Biotechnology. He lives in Portland, Oregon.
You may contact Karl Thiel at Karl.thiel@biospace.com.
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