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While no strangers to financial challenges, biotech and pharmaceutical companies are scrambling to find ways to weather the recession. The worldwide cash and credit crunch has been particularly challenging for small to midsize biotech companies, which tend to rely on debt (loans) and equity (stock) funding before they can generate revenues through licensing their discoveries and bringing products to market. Biotech’s challenge is survival: cut costs, find additional revenue sources, or go out of business.
“We are at a critical point in the evolution of the biotechnology industry,” said Joshua Boger, PhD, president and chief executive of Vertex Pharmaceuticals Inc. (Cambridge, Mass.) and board chairman of the Biotechnology Industry Organization (BIO) trade association in Washington, D.C. “In the coming months, we will see more volatility. And we will see collateral damages across our industry.”
The major pharmaceutical companies, sitting on billions of dollars in cash generated from product sales, face a very different, though familiar, set of challenges: patent expirations, thinning, late-stage pipelines, pricing and regulatory pressures, and shifting demographics, among others. The economic downturn has exacerbated these challenges, forcing company executives to rethink their strategies and business models.
In some cases, pharma execs see a future more closely associated with biotechnology. Merck & Co., Novartis SA, Pfizer Inc., Eli Lilly and Co., AstraZeneca, and other big pharmas have announced initiatives to create or expand biotech activities in 2009, including developing novel or “follow-on” versions of biological drugs. This year will be “a period of fundamental transformation,” Merck president and chief executive Richard T. Clark told investors in December.
Clark said a new division, Merck BioVentures, will develop “generic” versions of biotech drugs such as Amgen Inc.’s blockbuster Aranesp, using drug discovery technology Merck acquired through its $400 million purchase of GlycoFi in 2006. Congress and the Obama Administration are expected to create a regulatory pathway by which the FDA could approve marketing of large-molecule biosimilar drugs.
With US drug sales this year expected to rise only 1% to 2%, expanding sales into emerging markets, including China, India, Russia, and Brazil, is another strategy major drug companies are employing to pick up the slack. GlaxoSmithKline PLC (GSK), Novartis, and sanofi-aventis SA are among the most aggressive in this worldwide expansion, according to consulting firm IMS Health, which forecasts growth in these countries should boost global pharmaceutical sales by 4.5% to 5.5% to as much as $830 billion this year.
One silver lining in the economic storm is the opportunity for big pharma to acquire or license—at bargain-basement rates—promising lead compounds and innovative technologies from struggling biotechs. “It may well be that the credit crunch provides big pharma with exactly the opportunity it needs to rebuild its ailing pipelines,” said Chris Phelps, chief company analyst for Datamonitor, a London-based consultancy.
Some recent deals are huge. Last year, Japan’s Takeda Pharmaceuticals bought Millennium Pharmaceuticals for $8.8 billion, while Eli Lilly bought ImClone Systems Inc. for $6.5 billion. Many analysts expect Roche will acquire the remaining shares of Genentech Inc. this year, after its previous $43.7 billion offer rejected as too low.
While giant Genentech can afford to hold out for a better deal, many small- and mid-sized biotechs find it difficult to resist cut-rate overtures, especially when the alternatives are fewer and less attractive. TorreyPines Therapeutics Inc. agreed to sell its Alzheimer’s disease genetics research program to Japan’s Eisai Co. Ltd. for a reported $1.5 million in cash. GSK bought Genelabs Technologies Inc., a developer of Hepatitis C treatments, for $57 million after the latter’s stock plunged by 82% in 2008.
A growing number of biotechs have been forced to retrench by cutting costs, firing staff, and curtailing all but the most promising R&D programs. As of late 2008, 91 biotech companies had less than six months of cash on hand, and 140 out of 370 public biotech companies had less than a year’s worth, according to BIO. AtheroGenics Inc. in Georgia filed for bankruptcy in October after defaulting on $302 million in debt. In November, San Diego-based Amylin Pharmaceuticals Inc. cut 340 employees in an effort to save $80 million this year.
In its effort to save cash, Rockville, Md.-based EntreMed Inc. laid off 60% of its workforce in December, including its CEO, CFO, and other senior executives. The clinical-stage biotech company (profiled in Drug Discovery & Development in July 2007 and referenced in December 2008) will focus its remaining resources on one near-term product candidate for angiogenesis. “These are difficult economic times for biotech companies,” said former CEO James S. Burns, in a clear understatement.
Jerusalem-based Oramed Pharmaceuticals Inc. is seeking $25 million from investors to fund clinical trials of its oral insulin in exchange for potential revenue shares. Ardana PLC and Phoqus Pharmaceuticals PLC, two small UK-based biotechs, went into insolvency administration last year after running out of funds.
Still, there are signs of optimism. While expecting an overall dismal economic environment in 2009, most US venture capitalists predict investment in biotechnology will either increase or remain stable in 2009. In a survey of 400 US venture capitalists conducted by the National Venture Capital Association (NVCA), 25% believed VC investment in biotech would increase this year and 33% said it would remain stable.
About the Author
Contributing editor Ted Agres, MDA, is a veteran science writer in Washington, DC. He writes frequently about the policy, politics, and business aspects of life sciences.
This article was published in Drug Discovery & Development magazine: Vol. 12, No. 2, February, 2009, pp. 8-9.
Filed Under: Drug Discovery
