With research and development pipelines lagging and patent expirations on many key drugs looming, large pharmaceutical and biotech companies are increasingly looking to biotechnology acquisitions as a way to bring new drugs forward.
Over the last year, biotechs including Millennium Pharmaceuticals Inc., MGI Pharma Inc., Pharmion Co. and Kosan Biosciences Inc. were bought, and industry observers say the trend is likely to continue.
"I would make the case that all this acquiring is really outsourcing research and development," said Jeffrey Greene, transaction leader for Ernst & Young's biopharmaceuticals sector, referring to a trend of companies looking to biotechs to pump up their pipelines.
In an annual report on the biotech industry released last month, Ernst & Young said that in 2007, the potential value of transactions involving biotech companies reached an all-time high of $60 billion.
Jim Reddoch, an analyst with Friedman Billings Ramsey, said that he sees acquisitions picking up going forward "because we're at a unique time in the U.S. biotech market. Biotech companies are advancing pipelines, but their valuations are not increasing."
Reddoch added that some biotech companies can be acquired at what he terms "fire sale" prices.
He sees San Diego-based Amylin Pharmaceuticals Inc. as a potential target with its diabetes treatments Byetta and Symlin, and a once weekly version of Byetta in late-stage development, Exenatide LAR.
An Amylin spokeswoman indicated the company is not keen on being bought, as its corporate strategy is focused on Byetta, Symlin, and gaining approval for Exenatide LAR.
Although some recent biotech buys with high price tags have grabbed headlines, that's something that could become more rare, as biotechs with established products and late-stage products in the pipeline won't be as willing to sell, according to Cowen & Co. analyst Eric Schmidt.
When it comes to acquisitions, analysts agreed companies are most interested in biotechs working on cancer and metabolic disease treatments. For example, Takeda Pharmaceutical Co.'s $8.8 billion acquisition of Millennium in April gave the company the blood cancer drug Velcade, while GlaxoSmithKline PLC got a promising diabetes candidate from its $720 million acquisition of Sirtris Pharmaceuticals announced in April.
Another trend expected to continue is foreign-based pharmaceutical companies seeking biotech buys, a result of globalization and favorable exchange rates making U.S. companies cheaper to acquire.
This has been particularly noticeable with Japanese pharmaceutical companies, notably Eisai Inc.'s December purchase of Bloomington, Minn.-based MGI Pharma and Takeda's acquisition of Cambridge, Mass.-based Millennium.
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