A Season in Financial Hell - Pharmaceutical Executive


A Season in Financial Hell

Pharmaceutical Executive

Michelle Dipp, MD
Michelle Dipp, MD
Vice President, Head of US
CEEDD, Center for Excellence for
External Drug Discovery,

When you look at the megamergers, you see two large pharmas looking for what one lacks and the other has. Some of the unintended consequences will be downsizing and the effects on biotech. If Pfizer and Merck are spending a lot of money on major acquisitions, they'll have less money to do other deals. Whether there will be more consolidation depends on the strategic vision of each company. At GSK, Andrew Witty stated publicly that we are absolutely not out to do public mergers. So where Pfizer may be focusing on products that are already on the market or close to it, GSK is looking a little bit more toward innovation.

The financial downturn is having a winnowing effect on the biotech industry. I think it's a good thing. We were in a bubble, where it was easy to raise money. Companies that have a clear, well-reasoned business plan and are working on good science will be the survivors.

In a biotech, you have to conserve cash and extend your runway, and the only way to do that now is to cut programs. But at the end of the day, forcing a biotech to focus on only one or two programs is actually the way to generate therapeutics.

This is an opportunity for pharma to really dip its toe into innovative science. The volume has increased a lot in terms of companies wanting to partner right now. At the CEEDD, we have about ten companies a day wanting to talk to us.

We're also seeing pharma downsize. At GSK, we've not only cut but also refocused our programs, so the entire R&D arm has been reorganized into smaller therapeutic groups. GSK has made a strategic effort to foster an entrepreneurial spirit, so we've taken large groups of 500 to 2,000 people and broken them down into groups of 60, 70, 80 people. You don't have to go to large committees and wait two weeks for information to proceed. You can get things done, and you're empowered to make decisions. It's like a biotech company, right?

Steve Holtzman
Steve Holtzman
CEO, Infinity Pharmaceuticals

To state the obvious, these are very hard times for the biotech industry. The financial downturn is dramatically affecting public biotechs that are, say, three to ten years old—in the past, their alternatives were partnering with pharmaceutical companies or accessing the equity markets. Now, with those markets closed, pharma has tremendous leverage.

In contrast to the many struggling biotechs, Infinity has a very aggressive investment in R&D over the next several years and a cash runway through at least 2012. We entered into a partnership with Purdue Pharmaceuticals, which is building a cancer franchise outside of the US. They made a $75 million equity investment in Infinity at a premium of more than 100 percent, and will invest another over $400 million over the next five years. They will market outside of the US, whereas we retain the domestic rights.

It's emblematic of the kind of win-win deals that are being struck between pharma and biotech. It provides us significant funding so that we can develop our later stage molecules and continue to fuel discovery without being turned into a contract research house with minor royalty rights.

In order to stretch their cash out, many young biotechs are cutting back on discovery efforts and focusing on their late-stage clinical asset. The cumulative effect could be to diminish discovery efforts across the industry. It also renders these companies very vulnerable—if you're reduced to betting on a single project, your probability of failure is higher. Even the companies that can preserve capital to get to the next set of data points are likely to end up having to sell to a pharmaceutical company and—having been reduced to a single asset—they will just be bought up and split up. The discovery platform will be gone.

An alternative would be for pharmas to find ways to work with biotechs, to truly take advantage of their innovative capabilities. We keep hearing about how Big Pharmas want to be more biotechlike. But becoming more like a biotech doesn't just mean getting smaller—taking your 1,000 R&D people, who have been trained and socialized in a certain environment, turning them into groups of 100, and now all of a sudden they'll act differently. There's a lot to be said for identifying high-quality biotechs, bringing them under your wing, and leaving them alone.


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