Pharma’s Feeding Frenzy

September 9th, 2008 | Sources: Economist

Global pharmaceutical companies tend to be long on cash and short on innovation. To fix the latter, they strike deals with biotech firms including license arrangements, alliances and small acquisitions. Until recently however, Big Pharma shied away from large biotech acquisitions.

That has changed. Bristol-Meyers Squibb recently offered $4.5 billion for the 83% of ImClone that it doesn’t already own, and Roche recently offered $44 billion for the 44% of Genentech that it doesn’t own. These proposals come on the heels of large biotech acquisitions by Astra-Zeneca and Takeda.

Many factors feed the frenzy. Patents for key drugs (such as Pfizer’s Lipitor) will soon expire and when they do, Big Pharma will lose billions in revenue. Drugs from biotech goliaths can buffer these losses because they are selling well and are hard for generics manufacturers to copy. As well, the regulatory environment has turned nasty after safety scandals involving Glaxo-SmithKline’s Avandia and Merck’s Vioxx. In this environment, big biotech firms with safe, efficacious drugs on the market are safer bets than early stage firms who still must navigate the approval process.

Roche’s proposal might also have been prompted by hopes that Genentech’s Avastin will prove useful in early stage colon cancer, a finding that would be worth billions to the patent holder.

Will Big Pharma get what it wants? Leaders at ImClone and Genentech rejected the proposals made by their part owners. They may be posturing or they may believe that their companies’ vibrant culture would be destroyed by the plundering giants.


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