Drug firms eye small biotechsBig pharmaceutical companies flush with cash boost their stakes in small biotech firms.
Unlike most industries, the biotechnology business has a sugar daddy and archrival all rolled into one.
These days, when a biotech outfit is looking for cash, it's just as likely to get it from a large pharmaceutical company as it is an equity-investment firm. So-called Big Pharma can and does do battle with biotech labs for the next blockbuster drug, but often as not the industry is also serving as a de facto investment bank for life-science research at small companies as well as universities and research institutes.
Pfizer, the world's largest pharmaceuticals firm, recently made a 5-year, $100 million deal to finance drug discovery at The Scripps Research Institute, including its new lab in Jupiter.
The hitch: New York-based Pfizer gets first crack at the best science coming out of Scripps.
''The big pharmaceutical companies recognize that biotechs are more willing to take risks and do research in areas that are more on the edge of science,'' said Jim Greenwood, president of the Washington-based Biotechnology Industry Organization.
In some ways, Big Pharma finds itself backed against a wall. For the 15 largest drug companies, the number of new molecules approved for medications by the Food and Drug Administration fell to 11 in 2005, less than half of the 24 approved in 1998.
The story for biotech was essentially the reverse: The number of new molecules jumped to 18 in 2005 from 11 in 1998, and there were even more -- 20 -- in 2004, according to a report on the industry by Ernst & Young.
This comparison becomes more striking when the dollars each spent on research are factored in. Big Pharma spent $62.7 billion in 2005, while biotech spent $16 billion, according to the report.
''You have excellent scientists in Big Pharma but they have tight schedules and missions that are very narrowly defined. They can't expand their science,'' said Donny Strosberg, an infectologist for Scripps Florida. ``It's like a big oil tanker. It can't move or change direction quickly.''
While Big Pharma's own drug discovery dwindles, investors in these behemoth companies worry about where sales will come from when a locker full of major medicines loses patent protection. Once the patents expire, drugs are quickly copied for generic sale by companies such as Miami's IVAX, recently acquired by Israel's Teva Pharmaceutical.
Zoloft, Pfizer's $3.3 billion depression treatment, lost patent protection this year, while Zithromax, its $2 billion infection fighter, lost protection in 2005. Lipitor, its $12.2 billion cholesterol medication, becomes fair game for generics in 2011.
And it's not just Pfizer. Merck's Fosamax, its $3 billion treatment for slowing bone loss, comes off patent in 2008; Singulair, the $3 billion drug for controlling chronic asthma, in 2010. Bristol-Myers Squibb loses the anti-clotting drug Plavix, the second largest-selling drug globally, in 2011. And that same year Eli Lilly & Co. will lose exclusivity for Zyprexa, a schizophrenia drug worth $4 billion in annual sales, said Arthur Wong, an analyst with Standard & Poor's.
''It's not like they haven't been launching new drugs. They [each] have two or three a year. But who knows whether they will become blockbusters?'' Wong said. ''The worry with Lipitor is, how do you replace $13 billion in sales that vaporize?'' That's why, when Pfizer scrapped development of Torcetrapib, its new cholesterol drug, the per-share price plunged $2.96 in one day, as 4.5 billion shares traded hands.