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Drug Firms Quicker to Pounce on Biotech Ideas MARKETPLACE By Bloomberg

Posted on: Monday, 16 January 2006, 15:02 CST

By Marni Leff Kottle and Nicole Ostrow

Mitchell Steiner, the chief executive of GTx, is seeking a partner for the company's first product, a prostate cancer drug, and he has one thing clearly at the top of his wish list: control.

"I don't want to be Pfizer's little boy," Steiner said last week during a health care conference. "I want to be able to build name recognition for when product No. 2 reaches the market."

He may get his wish. As big drug makers, increasingly desperate for new products, race to buy rights to treatments invented by small biotechnology companies, it has become a seller's market, according to investors and company executives interviewed at the conference. Competition is changing the types of deals being made and forcing companies to bid at an earlier stage in the testing of new treatments.

The average size of partnership, drug rights and other transactions involving treatments in the earliest development phases tripled from 2004, to $148 million last year, said Stephen Kujawa, director of merchant banking at Burrill, a San Francisco-based bank that provides financing to health care companies.

"You are seeing people move earlier and earlier, and those deals are commanding bigger prices," Kujawa said. The total value of partnership deals climbed to $12.2 billion last year, up 34 percent since 2001, according to a preliminary tally, Kujawa said.

Executives of drug makers, including Merck and Eli Lilly, say they are looking for new pharmaceutical compounds. Lilly, based in Indianapolis, plans to increase investment in early-stage products through a venture capital unit, said John Lechleiter, its chief operating officer.

"There has been more competition for early-stage molecules," Lechleiter said. "This reflects the fact that many companies have not been able on their own to build their pipelines."

Merck signed 30 licensing agreements in 2004 and six in the first nine months of 2005, according to DataMonitor, a London-based market research company. Merck reported completing 50 transactions in 2004 and 29 in the first nine months of last year, including agreements to license drug development technology and research collaborations with other large drug makers.

"It's very competitive," said Richard Clark, chief executive of Merck. Merck can "win deals" on the basis of its research and marketing capabilities, which can sometimes be more important than price, he said. Analysts expect Merck's revenue to drop this year as its biggest product, the cholesterol pill Zocor, loses patent protection and faces competition from generic versions.

"The majority of the big pharmas have rather serious holes to fill in their pipelines," said Steve Lampe, a fund manager at Delaware Investments in Philadelphia. "Drug makers are willing to spend more right now to get growth back into big pharma, which means the level of competition between the big companies will increase."

By 2010, big drug makers will derive about a quarter of their prescription medicine sales from products discovered by other companies, DataMonitor said in its report.

GTx, a publicly traded company with 83 employees that is based in Memphis, Tennessee, focuses on men's health products, and Steiner said building a sales force would be an important part of any partnership deal.

He said he was confident he would get the arrangement he wanted.

"For every one call we used to get" about the company's experimental drugs, "we're getting five today," Steiner said. "We've never seen deals as creative as the ones we're seeing today."

GTx expects to complete the final phase of testing of Acapodene, its prostate cancer drug, by the end of next year. By waiting until the data are released to seal a deal, the company may get more favorable terms, he said.

"We've gotten calls, and all along the way, we've said no, no, no," he said. "Pharma is going to pony up more money, the more risk we take out of it."

Eric Schmidt, a biotechnology analyst at SG Cowen in New York, said, "The balance of power has shifted to companies with products and away from big pharma. The smaller companies who have a product and might consider selling have done most of the hard work."

Anadys Pharmaceuticals, a San Diego-based biotechnology company, last year signed a $570 million deal with Novartis of Switzerland that was a record for a drug in the first phase of regulatory testing. Kleanthis Xanthopoulos, chief executive of Anadys, said every big drug company he knew had openly declared that more than 30 percent of its products, at a minimum, would be obtained elsewhere. Nuvelo, a biotechnology company based in San Carlos, California, this month announced an agreement to sell rights outside the United States for an experimental anti-clotting drug to Bayer of Leverkusen, Germany, for $385 million. Nuvelo will make 15 percent to 37.5 percent of its sales outside the United States while retaining U.S. rights to the product, alfimeprase.

Such deals are becoming more common, analysts said. Alfimeprase is in the final stage of testing, and sales of the medicine may reach as much $500 million a year in the United States alone, according to Nuvelo.

"As long as the market is willing to reward these deals, we will continue to see M&A activity," said Kris Jenner, a health care fund manager at T. Rowe Price.

Source: International Herald Tribune

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