Biotechs attractive as takeover targets: Amgen's purchase of Immunex signals scaling-up of industry
Seattle Times business reporter
As Immunex prepares to exit the corporate stage with a $16 billion embrace from Amgen, it leaves a legacy as the company that established Seattle as a center for, as its image-makers like to say, "Creating the future of medicine."
It's a bold ambition, but there is no shortage of contenders jockeying to follow it. Bothell-based Icos has an impotence drug that, if approved as expected near year by the Food and Drug Administration, will set up a marketing battle against Pfizer's Viagra. Seattle-based Corixa has 16 drugs in human testing, including one for lymphatic cancer that is awaiting FDA approval.
Washington state has about 170 companies with sights set on treating disease in some form, and many analysts expect more may be created by people leaving Immunex. Some of its most potent trailers, like Icos, Corixa, Dendreon and Cell Therapeutics, may appear appetizing for big pharmaceutical and big biotech companies on the prowl for promising new drugs.
The biotechnology industry, kicked off by entrepreneurs barely 25 years ago, has tended to view such mergers and acquisitions with big drug makers as unholy alliances.
Biotech drugs tend to work by altering cellular interactions and zeroing in to fix problem molecules and genes. Treatments are usually injected.
Big drug makers like Merck, Pfizer and GlaxoSmithKline tend to focus more on small-molecule chemistry that is more like a shotgun approach — oral treatments that diffuse throughout the bloodstream and affect the entire body, not just the sick parts.
Many biotechs see themselves as superior scientists who can stomach years of losing money before their company either booms or busts. Big drug makers are viewed as conservative, corporate types more adept at making money and marketing than they are at science.
Still, both sides admit they need each other. Biotechs need lots of cash to turn their research into reality, which is expensive, and to hedge bets on several drugs. Big drug makers need scientific discoveries to keep making money and impressing Wall Street. That's why many observers expect a continuing wave of consolidation.
"I think the Immunex deal underscores that we may be entering a big mergers-and-acquisitions era in biotech," said Steven Gillis, chief executive of Corixa and a co-founder of Immunex. "You may even see more of it in Seattle because it's a major biotech center of the country."
Many of the big drug makers and biotechs are hungry for drugs nearing FDA approval and, therefore, close to making money. Several big biotechs, like Amgen, are under pressure to keep posting big profits.
New drugs on horizon
That kind of profit potential makes Icos, in the eyes of analysts, the most attractive takeover target. It doesn't expect to make money for two more years, when the company turns 13, but is still worth $3.8 billion largely on the prospects for Cialis, an impotence drug, and Pafase, a drug in advanced human testing for severe sepsis.
Lacy Fitzpatrick, a spokeswoman for Icos, downplayed the idea that Icos could be the next takeover target. Because it received money from Bill Gates and three high-profile scientific founders when it started in 1990, it has not had to mortgage future profits for immediate cash, like many biotechs have done, Fitzpatrick said.
It also has the financial and marketing punch of Eli Lilly backing Cialis in a 50-50 joint venture and has $300 million it raised from the stock market last month. It also is getting more attention — Fitzpatrick said five financial analysts followed the company at the beginning of this year, but a dozen do now.
Paul Latta, an analyst with McAdams Wright Ragen, is one who sees Icos as the clear heir to Immunex. Icos says Cialis works faster and lasts longer than Viagra, but he is more confident in its second drug, Pafase. That drug reduced deaths from severe sepsis — an often lethal bacterial infection — by 50 percent in preliminary human testing. Pafase has shown the most promising results in a disease many biotechs have tried, but failed, to treat. If advanced tests back it up, Latta figures the drug could reach $1.5 billion in sales without any expensive marketing campaigns.
"What else are people going to use?" Latta said. "People need it. There's nothing else, and they're dying."
Corixa is another biotech primed for the next level. It has 16 drugs in human testing and is eagerly awaiting a hearing before an FDA panel on the safety and effectiveness of Bexxar. The drug is a radiation treatment for non-Hodgkin's lymphoma, a deadly lymphatic cancer that is diagnosed in more than 50,000 Americans every year. It combines antibodies to hone in on tumors with doses of radiation to kill them. Its other drug, which is in advanced human testing, is a treatment for severe forms of melanoma, another deadly cancer.
Corixa has broad research into cancer, auto-immune disease and infectious diseases such as tuberculosis. Gillis has built it by acquiring some companies and partnering with others that pay for most of the research, and in turn, grab much of the future profit.
Corixa's extensive web of partnerships, Latta said, may discourage potential buyers.
Many analysts have mentioned Cell Therapeutics as a takeover target. It is one of the few biotechs in the country to get a drug through FDA scrutiny. Studies have shown Trisenox, an arsenic-based treatment, is effective for a rare form of relapsed leukemia. The company is expected to sell $6 million of Trisenox this year.
The company has ambitious goals: It expects European regulatory approval of Trisenox in the next several months and is touting its effectiveness for other prevalent cancers, such as multiple myeloma, non-Hodgkin's lymphoma and prostate cancer. Some medical critics have questioned its safety, charges the company challenges.
Dendreon comes with respected executives and scientific leadership in Christopher Henney and David Urdal, veterans of the early days at Immunex. It has a prostate cancer treatment called Provenge, which harnesses the immune system to fight the disease. It is expected to unveil pivotal human test results within weeks.
But Dendreon isn't seen as an obvious takeover candidate for a few reasons: Its drugs are still a couple years away from the cusp of FDA approval; Henney is openly averse to the bureaucracy of big drug companies; and backing from Paul Allen's Vulcan Ventures means it isn't desperate for cash.
Seattle's oldest biotech
Zymogenetics is another Seattle biotech being closely watched. It filed documents Sept. 10 to go public. It is Seattle's oldest biotech but is just now finding its wings. In the last year, it spun away from corporate parent Novo Nordisk of Denmark into an independent company and brought in famed biotech pioneer George Rathmann as chairman.
Its scientists are respected in the industry, and it claims 200 mainly genetic patents, but most of its potential drugs aren't being tested in humans. That means it could be five to 10 years or more before any of them hit the market and help patients.
But that doesn't rule them out as an acquisition target.
"Everybody is a candidate for a takeover except the small handful of high market-cap companies such as Amgen and Genentech," said Stewart Hen, a vice president with Warburg Pincus, a biotech venture-capital firm in New York. "It's really coming of age for the biotech industry.
"The last several mergers were out of strength because they have drugs and need to market them. Many of the (mergers and acquisitions) in the past have been done out of weakness because the firms could not make it on their own."
Luke Timmerman can be reached at 206-515-5644 or firstname.lastname@example.org.