Do Investors Dislike Biotech Alliances?
The In Vivo Blog ran an interesting posting today, which asserts that investors dislike biotech alliances.
The In Vivo Blog explains this argument as follows:
Since November 2007, there have been nine deals by public biotech companies with upfront payments (equity and cash) of greater than $20 million – to us a reasonable proxy for a biggish deal. Among them: Isis Pharmaceuticals’ mipomersen deal with Genzyme ($325 million upfront); Merck’s with GTx on its Phase II SARM and two backups ($70 million upfront); and Sanofi Aventis’ multi-antibody arrangement with Regeneron ($85 million upfront).And yet, with all this mostly undilutive capital flowing in, the market’s reaction has been distinctly negative. The median share price among these nine biotechs is down 15% from the day the deal was signed. . . .
[Y]ou’d expect better from companies with pretty darned good news. Regeneron, for the third time non-exclusively monetizing its VelocImmune antibody production system and this time adding a rich co-development deal on a series of programs, with spectacular downstream economics, has nonetheless lost 16% of its value since it announced the deal.
What is the explanation for the investors’ behavior? The In VIVO Blog concedes that the "entire decline cannot be blamed on the deals" but gives three possible explanations for the dislike of biotech alliances:
At one time, a Big Pharma deal was the required validation for an IPO or additional public round. But now it’s clear that the market no longer gives a damn about such imprimaturs. Big Pharmas’ frequent missteps in development haven’t shined up their product-picking reputations. More importantly, biotech’s institutional investors now have the teams to do their own scientific and clinical homework.
Second, the M&A-based logic of the market leads investors to the conclusion that any product-based deal subtracts value. We’re not aware of any data that actually supports that conclusion (we’ll look into it, of course). But as long as acquirers are willing to pay a nearly 100% premium to what IPO investors are willing to pay, investors are hardly willing to jeopardize a potential merger windfall by selling off rights to a key product.
And finally, investors just don’t like some of the deals biotech is signing, despite the big dollars attached to them. One reason, noted Bill Slattery of Deerfield Partners at the opening BIO-Windhover panel in New York: deals often give Big Pharma development control.
The In Vivo Blog raises some interesting arguments. As an IP transactions attorney myself, I cannot help but wonder if there is some truth in their arguments: is it possible that biotech companies are just making bad deals–perhaps due to inexperience or poor negotiating? or due to running low on cash? Or is it the case that recent alliances just have not been as successful as anticipated on signing? On the other hand, is something more going on, and alliances are just little by little becoming disfavored by the investing community?
I am interested in what California Biotech Law Blog readers have to say on this issue. What do you think: do investors dislike biotech alliances in 2008? Why or why not? We will let you know what kind of feedback we get on the issue and share it with the readers, as I am confident many biotech companies would benefit from the insight, and those of us in the legal community advising such companies would likely benefit as well.
