Big Pharma addicted to acquisitions
The recent purchase by Merck & Company, the world's #2 drug firm, is seen as a harbinger of many more to come. At least, that's the take from an article in the Financial Times ("How big pharma is made to pay," 11/8/2006).
Merck bought Sirna, a small US biotech firm with expertise in RNA manipulation for $1.1 billion. Sirna has only one product in early clinical trails. Buying a research firm with no drugs even nearly ready to bring to market betokens a change for the drug companies.
"Traditionally," the article states "big pharma would become interested in biotech companies only when their products were well into clinical trials. Now they are willing to buy technology at an earlier and riskier stage, before it has been tested on patients." Big Pharma has swelling coffers but emptying pipelines and faced the expiration of patents. They need to acquire in a hurry as their innovation dries up.
Already this year there have been 20 acquisitions of small biotech firms and the price is rising as small biotech firms see that they are becoming more desirable thanks to buyer panic. As one industry insider puts it in the article ".Pharma companies are desperate for new products…. They are prepared to pay huge amounts of money for early-stage compounds and give away geographical rights that would previously have been unthinkable."
Until recently, biotech firms would look to an eventual IPO after developing a product, but now the idea is that it is less troublesome and faster to get bought out after just developing the idea for a product. In this way, they are imitating the behavior of Internet companies like YouTube.
Whereas big drug companies would last year license a new technology, now the innovators are demanding to be bought out or no deal. One drug company executive is quoted in the article as saying "There are a few things we have been looking at where we have been told 'one of your competitors has put an acquisition bid on the table. What are you going to do?'"
Big companies are under pressure to buy up innovators to invest in future growth; keeping your rivals from buying them is just as strong.
7:47:28 PM 
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