a real bidding war, but they definitely do now. Mid-cap companies like Cubist Pharmaceuticals (NASDAQ: [[ticker:CBST]]) are now serious bidders. Last week, Alkermes (NASDAQ: [[ticker:ALKS]]) raked in another $250 million to do some shopping.
Patrick Heron, a general partner at Frazier Healthcare Ventures, said he now works off a list of 25-30 companies that are in the pool of buyers who might want to acquire something in his firm’s portfolio. That’s about twice as a big as the buyer pool was three or four years ago. Suddenly, the venture math looks a little better. If there are 25 potential buyers, the chances of a little company getting four or five interested bidders for a promising drug are higher than they were a few years ago.
Entrepreneurs smell the opportunity. More and more often, entrepreneurs walk into business development talks and ask the big guy with the strong grip for richer upfront payments, more 50-50 co-promotion arrangements, and more lucrative milestones, said James Sabry, the senior vice president of Genentech Partnering.
Part of what’s driving the higher prices, of course, is simple supply and demand. There’s always a scarcity of great new drugs in the pipeline, like Pharmacyclics’s ibrutinib (Imbruvica). Pharma companies are as hungry as ever, and desperate in some cases, to fill up their meager R&D pipelines.
That’s the market at work. It doesn’t always work, but when it does, it should create some good results. The big guys should be able to pick up a steady stream of innovations they can purchase, at still-reasonable prices. A few (not more than a handful) of venture capital firms will refill their coffers. They, along with a few good entrepreneurs, will be encouraged to invest in more groundbreaking, platform type technologies, like CAR-T immunotherapy for cancer.
On the down side, it could also encourage people to start funding more crappy companies, and lose sight of the financial discipline that all development-stage biotech companies needed to survive during the lean years.
“This should increase the number of investors who are willing to take risks on cool new science,” Genentech’s Sabry says. “Hopefully it will get rid of some of the risk-averse approaches of some venture guys, who would say, ‘We’ll fund you if you come to us with a Phase II compound.’ Sometimes that would work, where you knew something about a compound that others didn’t, but most of the time those are failed compounds. Rarely do you know something nobody else knows. Now what we’re seeing are people investing in new technologies, new targets, new kinds of biologics. I see it as positive.”
So do I. The little guys, thankfully, no longer have to feel like the 13-year-old boy with a grown man’s powerful grip on the collarbone.
