Desperate But Not Crazy

There are all sorts of eulogies being written on the passing golden age of Big Pharma--stories of how a slew of generic versions of blockbusters are going to hit the pharmacy shelves over the next few years, while weak pipelines will be unable to make up the difference. So it’s not surprising if there’s a whiff of desperation in the air...and perhaps a hint of opportunism too

Major pharmaceutical companies have made it clear they are eager to invest in or buy up biotech companies as a means to shore up R&D, and biotech execs have been able to wield unprecedented power in negotiations--just look at the premium Regeneron commanded late last month as Sanofi-Aventis upped its stake in the company to 19%. Or look at the price AstraZeneca paid for MedImmune in a buyout engineered by billionaire activist investor Carl Icahn.

You know all about Carl Icahn, right? He’s been very active in the biotech sector lately, following up his victory with MedImmune by taking a stake in Biogen and convincing its board and management to follow in MedImmune’s footsteps by planting a For Sale sign out front. Investors, able to recall extremely recent history, got very excited and sent Biogen shares up as high as $84.75 a share in October. Big pharma was expected to swoop in and pay a 20-some percent premium to whatever the company was currently worth--at that time, about $25 billion.

Now it’s true that Big Pharma is, by and large, cash rich and increasingly product poor. But no one, it turned out, wanted to pay this kind of price for Biogen. Why not? Because a) that’s just a lot of money for any company; and b) so much of the value of Biogen is riding on the controversial multiple sclerosis drug Tysabri. Biogen’s other big sellers, the non-Hodgkin’s lymphoma drug Rituxan and the MS drug Avonex, have seen their best growth, and Biogen’s pipeline has a scant-ness a little too familiar to pharma execs.

Tysabri may be...probably will be...a great product, but Big Pharma is seriously risk averse. The industry likes to acquire two sorts of things: Sure bets and platforms/products so early in development that by the time they implode it will be hard to assign blame to the people responsible for bringing them in-house. No budding pharma MBA wants to bring in a program that’s going to receive potentially negative pivotal trial results in a few months...nor buy a product that’s priced for major blockbuster status while its still early in a re-launch with safety questions looming.

Adding to Icahn’s woes, Genzyme CEO Henri Termeer has decided not to play ball, having publicly said his company isn’t for sale (citing many of the reasons outlined in this column last month) and going on a road show to win institutional investors to his cause.

Sometimes the most interesting deals are the ones that don’t happen.

Have a great holiday and a fantastic start to 2008.