Step-Ups: Three Types of Deals Emerge for Public Biotechs
This article was originally published in Start Up
Executive Summary
It's clearly a buyer's market in the public biotech sector. On the shopping list: products, chemistry, and cash.
It's clearly a buyer's market in the public biotech sector. On the shopping list: products, chemistry, and cash.
Triangle Pharmaceuticals Inc. is one of the relatively fortunate acquirees. In November, Gilead Sciences Inc. agreed to pay $464 million to acquire it for its HIV drug candidates, including an almost ready-to-market emtricitabine (Coviracil), for which it will also conduct Phase III studies in chronic hepatitis B. The purchase price was one of the most attractive biotech multiples of the year: two-and-a-half times Triangle's 1996 IPO market value and seven-and-a-half times its cash.
But for earlier-stage products, deal values are far lower. In July, Versicor Inc. acquired its partner Biosearch Italia SPA , from which it had earlier in-licensed US rights to Phase II antifungal dalbavancin. The Italian firm boasts three infectious disease drug candidates, but also some $100 million in cash. That means Versicor bought Biosearch's compounds for only about $130 million in stock while Biosearch sold out for approximately half of its 2000 IPO market cap.
The outcome for Matrix Pharmaceutical Inc. was harsher. Following the FDA's recent dismissal of its lead product, Matrix's pipeline consisted of only one Phase I cancer drug, tezacitabine, so it accepted an offer from Chiron Corp. of $62 million—just twice its cash level and 42% of its 1992 IPO market cap.
Biology companies looking for scarce chemistry resources were willing to pay higher premiums relative to cash, though the deals were hardly lucrative for the sellers. deCode genetics Inc. , for example, acquired MediChem Life Sciences Inc. in January for $82 million —ten times cash—but just half of MediChem's 2000 IPO market cap.
And cash was worth cash. In two virtual financing transactions, Invitrogen Corp. and Hyseq Pharmaceuticals Inc. were able to swap stock on a one-for-one basis for the cash in, respectively, InforMax Inc. and Variagenics Inc.