The Resurrection of Affymax
This article was originally published in Start Up
A group of venture firms decided to buy Affymax from GSK at a bargain-basement valuation. They felt it had not merely the makings of a product company but could jumpstart the creation of a fully integrated biology/screening/chemistry drug discovery company. In effect, they bought, at a discount, a proto-Vertex that wouldn't have to wait nearly a decade to see a valuation explosion.
You may also be interested in...
The notion of building up a new drug company with the unwanted, undersized products of ever-bigger Big Pharma is hardly new. But MedPointe, with its acquisition of Carter Wallace's medical products business, is aiming to build up a new firm faster and bigger than can be done simply by in-licensing.
The industry's decade long search for novel drugs with novel mechanisms of action has increased the risk of drug discovery; meanwhile, new technologies have not significantly improved productivity. One result: enormous pressure to find late-stage products, and extraordinary prices for them, best exemplified by Bristol's $2 billion purchase of rights to ImClone's cancer antibody. And while these prices don't necessarily reflect the values of the particular drug, but far more important defensive issues, they nonetheless raise the pricing umbrella for all late-stage transactions, forcing buyers, in the short-term, to figure new ways of amortizing these increasingly costly investments. Meanwhile, the industry has seen a sharp decline in the number of early-stage transactions, reflecting the fact that such deals have not improved new-product productivity but have in fact increased R&D risk, or at least not decreased it. A number of relatively young biology companies are therefore exploiting valuation disparities to buy older chemistry firms in order to create integrated discovery platforms, on the model of Vertex and Millennium. These newer acquisitive biotechs hope to leverage the platform and sign the same kind of high-value deals the older firms have, but to do so far sooner in their corporate lives. Meanwhile, companies founded around predictive technologies aim to provide the R&D (and potentially marketplace) risk reduction Big Pharma wants in return for collaborations that give them the discovery assets they don't have. But apart from a few high value deals, Big Pharma hasn't yet bit. A few companies aim to amortize the risk of their R&D investment by broadening their goals from small molecule therapeutics to less traditional areas, including diagnostics.
By spinning off 50% of Metagen, Schering gets an opportunity to concentrate on near-term projects, leaving Metagen free to seek funding for its early stage research from other partners