Financing the Future of Pharma

In pursuit of innovation, Pharma is increasingly practicing—and attempting to perfect—the science of doing deals. Pharm Exec asked a blue-chip panel of insiders to evaluate how well the experiment is working.
Dec 01, 2007

Science is the lifeblood of pharma, of course. But these days, science isn't just what you produce in your own labs. It's what you can license, buy, partner on, or gain through acquisition. Which means that, increasingly, deals are the lifeblood of pharma.

On the one hand, that means nothing much has changed: Science is science whether you do it yourself or buy it. On the other hand, it changes everything, because science-via-deal has its own rules, its own ecology—and its own arithmetic for offering a return.

The simple narrative is that Big Pharma is in need of products, and biotechs are in need of cash. But how is the equation for innovation changing—and can pharma keep up? To explore the new landscape, Pharm Exec invited an all-star lineup of executives from industry and the world of finance to debate and discuss the issue. What follows is an edited transcript of that discussion.

PATRICK CLINTON (editor-in-chief, Pharm Exec): Pharma and biotech depend on one another for drugs and capital. Is this equation changing?

Adelene Perkins, Infinity
ADELENE PERKINS (EVP and chief business officer, Infinity Pharmaceuticals): Biotech has come into its own, particularly in oncology. Look at Amgen's and Genentech's sales, which exceed that of the next eight players. Recently published data showed, for the first time, the number of entities FDA approved by biotech crossed the 50 percent threshold. This shows that biotech can do it more on their own.

Thomas Hofstaetter, Wyeth
THOMAS HOFSTAETTER (SVP, corporate business development, Wyeth): We have to get the facts straight. Biotech is not biologicals. It's simply not true that Big Pharma pipelines are empty and everything of value is in biotech. There's an issue across the whole industry and it's that the failure in biotech is just as high as in pharma. When you look at what's really attractive in the pipeline, you come up with 30, 40 compounds, and two-thirds of these belong to Big Pharma.

Frederick Frank, Lehman Brothers
FREDERICK FRANK (vice chairman, Lehman Brothers): When it comes to deal-making, most people think two-dimensionally about Big Pharma and the little guys. But an important part of the equation is the venture companies that fund this incredible repertoire of small companies. They are, obviously, investing to get a return. So when you superimpose that with the yin and yang of the IPO market, you see that the exit strategy between the bankers and the investors is what's driving the market.

Alex Scott, Eisai
ALEX SCOTT (VP, business development, Eisai): Pharma companies are beginning to interact with venture firms as often as they do with biotechs. That leads to transactions, like our acquisition of Morphotek. It started as a licensing discussion but went quickly to an acquisition because of the relationship with venture capitals.

JOANNA BREITSTEIN (executive editor, Pharm Exec): What are the most striking features of today's alliances?

CLINTON GARTIN (vice chairman, investment banking division, Morgan Stanley): Competition. People need products, which drives price up. If you look at the average premium across all industries, it's about 28 percent right now. It's closer to 40 in healthcare. That tells you something about the pursuit of assets in this business.

HOFSTAETTER: Deal values are going up. Even if you strip out the "bio-world" dollars and look at the committed stuff like up-front payments, it makes you ask, How does that work for them?

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