The hunted go hunting Midsize companies are hot M&A targets, but will also be the ones doing the acquiring in the future. Angela Larson, an analyst
with Susquehanna Financial Group, says, "Forest has traditionally been a partner to companies, but in their last earnings
call—and facing the 2012 expiry of Lexapro—they used the c-word. That is, they said they were looking to acquire companies,
and they've always just acquired products." She also expects King, Sepracor, and Endo to be more active dealmakers in the
coming year.
Why buy the cow? Strategic alliances between companies are the arrangement du jour, allowing pharma to practice some measure of risk control.
Les Fundtleyder, an analyst with Miller Tabak, says, "There's a lot of personal career risk in acquiring a big public company—and
most people don't want to take it," he says. "Instead, we'll probably see 10 to 20 times more strategic alignment of companies
than M&A."
A classic example of today's new alignment strategies can be seen with Targacept, which recently inked a broad CNS deal with
GlaxoSmithKline worth up to $1.5 billion to find drugs that help patients quit smoking and to treat pain, obesity, addiction,
and Parkinson's disease. "GSK has a whole series of relationships with Targacept," says Steven Burrill, CEO of Burrill & Company.
"Targacept is also a freestanding company that is doing very well and that has a relationship with AstraZeneca. Could GSK
have bought Targacept? Theoretically, it could, although that would have been expensive. GSK is much better off letting Targacept
remain independent and getting access to certain areas than acquiring the company."
Rent to own Says Leerink Swann's Gertler, "Licensing and acquisitions remain a continuum and are not separated in some quantum way."
For example, anticipating the patent expiration of its cash cow Adderall, in 2005 Shire partnered with New River Pharmaceuticals,
which was developing a next-generation, abuse-resistant ADHD drug called Vyvanse. The original deal terms called for Shire
to pay hefty royalty payments to copromote the product. But in a deal that closed early this year, Shire decided to buy out
New River for $2.6 billion, which gave it access to Vyvanse without the royalty payments.
In addition to a financial advantage, this deal step therapy also gives companies an information advantage. "You will truly
know the quality of the management team, because you're working with it," says Larson. "You'll also know the platform and
technology—and have the knowledge about what other opportunities there might be for that program beyond what the drug is being
developed for."
Although most companies have developed sophisticated clauses in their deal terms to provide for the changing of hands of a
company's ownership, extensive licensing does complicate things. It's important to understand how licensing can position a
company, says Ben Bonifant, vice president of Campbell Alliance's business development practice. "None of the Big Pharma companies
want to buy a small company's position in a bunch of outlicense deals," he says. "Once you've done that big license that covers
many of your assets, you've identified who your potential partner is going to be."
The world of small drug-discovery-and-development companies is a complex and ever-growing maze. To give you a taste, we sample
three distinct categories focusing on established, semi-established, and brand-new areas.
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