Faced with patent expirations on highly profitable drugs, big pharmaceutical firms are turning to small biotechs to restock their medicine chests.The latest example came last week, when Pfizer Inc. agreed to buy Vicuron Pharmaceuticals Inc. for $1.9 billion. Vicuron, based in King of Prussia, Pa., worked on antibiotics and drugs for fungal infections, key areas for Pfizer. Faced with patent expirations on highly profitable drugs, big pharmaceutical firms are turning to small biotechs to restock their medicine chests.The acquisition followed one in April by GlaxoSmithKline, which agreed to buy Corixa Corp., a Seattle company focused on vaccines. Other recent deals include the purchase of Angiosyn Inc. by Pfizer, Idun Pharmaceuticals by Pfizer, TransForm Pharmaceuticals Inc. by Johnson & Johnson and Peninsula Pharmaceuticals Inc. by Johnson & Johnson.Of course, Pfizer, Glaxo, Johnson & Johnson, Merck & Co. and some other big pharmaceutical companies have always looked to the biotechnology industry as a source of new products. In fact, drugs licensed from biotech firms account for 30% of their revenues, according to consulting firm Deloitte & Touche. What’s changed is that big drug makers aren’t just negotiating product deals but are snapping up biotech companies themselves. There have been 16 acquisitions of biotech companies by drug companies this year, compared with three during the first six months of 2004, according to data provided by investment bank Barrington Associates. Big drug companies were responsible for a small fraction of the total merger deals in the biotech sector, which jumped from 59 in 2003 to 99 the next year, according to merger information company FactSet Mergerstat.But they clearly were the biggest spenders. Pfizer, Johnson & Johnson and others together have spent $5.5 billion to acquire biotech companies this year, half the total value of all mergers in the sector.There’s no mystery to the trend, said Paul Kacik, head of healthcare practice at Barrington. The big drug companies need to fill their product development pipelines because they stand to lose billions in revenue when some popular drugs lose patent protection and face competition.In addition, the American Jobs Creation Act has allowed U.S. companies to repatriate earnings from foreign subsidiaries at a reduced tax rate, leaving big drug companies with massive cash hordes available for investment. The 2004 law was promoted as a way to galvanize job growth by encouraging companies to invest overseas profits domestically.
