Thursday, April 26, 2007

Gobble Gobble Slurp

AstraZeneca's record-setting $15B+ buy of Medimmune gave the old workplace's stock a mild goose, but things have settled. It is a reminder of what the ultimate fate of virtually any semi-successful biotech company will be.

In the end, there are three possible fates for a biotech: survival, liquidation or acquisition. Liquidation is rare & will probably always happen to early-stage companies, but does happen. One genomics company (Progenitor) reputedly let their employees show up for work to locked doors. Most companies will be acquired down the road; only a few frontrunners will stay independent. There are, of course, variations on these themes. J&J has a track record of acquiring companies but then leaving them largely recognizable. Some companies (e.g. Cadus) disappear in an operational sense but never quite disappear legally -- business zombies. Mergers of equals are theoretically possible and often claimed (Biogen-Idec), but how lopsided the division of spoils is can't really be assessed by an outsider.

Millennium executed a number of acquisitions during my tenure, with many being quite successful -- influential people remain who joined through the Chemgenics or Leukosite acquisition. Leukosite brought in Velcade (then PS-341), from a company (Proscript) which Leukosite hadn't finished digesting (er, assimilating) when the the MLNM-LKST merger was announced. Much of Millennium's inflammation pipeline has strong roots back to Leukosite.

But then there was the big demonstration of 2+2<<4: COR. Millennium bought COR for Integrillin & a sales force, with some interesting early stage oncology and cardiovascular programs in as icing. The corporate cultures seemed compatible and the excitement was there. But somehow things quickly ran downhill & when it became apparent that Millennium was overstretched, the COR (now MLNM San Francisco) site was targeted for liquidation. Eventually, after sinking many dineros into further clinical studies, Millennium essentially walked away from Integrillin. So for $2B plus, a sales force was purchased plus a revenue stream from Integrillin and some other leftovers -- plus some important contributions from the ex-COR folks in wrapping up the Bayer collaboration. Was it worth it? My impression is that everybody on the COR side wished they could get a do-over.

MedImmune was hardly an isolated purchase -- big pharmas and even big biotechs (Amgen, Genentech) have been plucking out various biotechs, generally either for hot therapeutic platforms (siRNAs, advanced antibody technologies or exotic antibody alternatives) or late stage compounds. Looking around the Cambridge neighborhoods finds plenty of companies in the former (Dyax, Alnylam, Archemix) or latter (MLNM, Vertex, Alkermes) categories. The majors still have their gaping pipeline gaps, and Wall Street is starting to hound Genentech towards more acquisitions -- and Amgen is starting to experience the pain of commercial reversals. Odds are there will be more buyouts -- and more flameouts & companies (e.g. Imclone) which flop at the auction bay.

So grab a ringside seat & get comfortable -- but please don't play the ponies. If anyone tells you they know who's going to buy whom for what price, odds are they're lying. Even if they aren't, do you really want to follow in the footsteps of the famed biotech investor who was wisked from her Connecticut home to a federally-paid stay in West Virginia?


Steve Murphy MD said...

How much do you think Raju's stock is worth in Millenium?

Steve Murphy MD said...

Better yet, what about Harvard's Endowment which owns Millenium stock?

Keith Robison said...

Kucherlapti's holdings are a matter of public record since he is still a board member. Harvard Endowment tends to have a good track record but is pretty tight lipped, unless of course they hit the regulatory threshold (5%?) for reporting.

As long as everything is above board in the issuing, then I have no problem with players in a company having large holdings in it. I'd much rather they prosper or suffer with the market's perception of a company rather than be handed out cash by an excessively friendly board. Option backdating, option repricing & the like are practices which deserve condemnation -- if anything, companies should have to strongly front-date their option grants (announce that in N months grants of X will be made).