Amgen will acquire privately held Kinetix Pharmaceuticals for $170 million, while Corixa will gain fellow biotech drug maker Coulter Pharmaceutical for $900 million in stock. These mergers illustrate the rules of the biotech game. A big powerhouse like Amgen can cherry-pick complementary technology and products from nimble start-ups. The smaller upstarts can ally with cash-rich partners, but also synergize each other's strengths. Either way, biotech consolidations are accelerating.
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Biotech R&D: In-house or outsourced?
Kinetix must have something Amgen wants badly, because the big drug makers can pay genomics-era biotech companies for research without buying the permanent overhead. According to the parties, Kinetix contributes expertise to Amgen's small molecule drug discovery program: "Small molecule" loosely refers to drugs that can be taken in pill form. Kinetix has key know-how for a certain class of proteins, kinases, that are crucial regulators inside cells and between cells and their outside environments. Like Human Genome Sciences (Nasdaq: HGSI) and other biopharmaceutical firms, Amgen believes that proteins hold the key to fundamental drug breakthroughs. (For more on proteins, check out the Proteomics discussion board.)
Fill the drug pipeline and build marketing power
Corixa and Coulter illustrate another paradigm: fill the pipeline and bring in the salespersons. Corixa gets Bexxar, a Coulter cancer drug that could hit the market in 2001, and the technology behind it. It's space age -- a monoclonal antibody linked to a radioactive isotope. A monoclonal antibody is an engineered protein that joins with and neutralizes a particular virus or bacterium. The idea is to deliver the radioactive bullet via the protein to cancerous cells alone, reducing harm to the rest of the body. Corixa also gains Coulter's sales force.
And Coulter gets Corixa's rich drug development pipeline with many products in preclinical and clinical (human) trials, filling in behind Bexxar and protecting Coulter should the FDA deny its application to market the drug. Despite gaining the radioactive isotope/monoclonal antibody technology, Corixa does face the risk of Bexxar disapproval. But in that event the deal provides that Corixa can walk in exchange for $15 million loan to Coulter.
The small biotech dilemma
I think it can be a smart for small, focused biotech company like Kinetix to be acquired by a powerhouse like Amgen. True, Kinetix could stay single and dream of future riches: The company could take advantage of a favorable IPO environment and sell stock to the public. Many have done just that in the last year or so. But smart management would look down the road and see its future, which would likely mean joint ventures (alliances, partnerships) with big drug makers like Amgen anyway, or at least steady dilution of its new stock through stock issue or convertible debt financing. If a company like Amgen can offer the right price and environment to grow in, the company can achieve its goals. Instant fantasy riches? No. Steady growth and staying power? With Amgen, absolutely -- and I'm not saying that $170 million is shabby, either.
If you want to keep up with consolidation among companies using biotechnology to transform existing businesses and create new ones, check out the Fool's brand new biotechnology sector page, chock full of Foolish resources!
Your Turn:
Smart deal for Amgen? Join the Fools already talking on the Amgen discussion board. Should smaller biotechs go stag and fight for their own riches, or look for bigger, richer suitors? Sound off on the biotechnology discussion board!
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