When a partner becomes too expensive

What do Abgenix, Icos and Tanox have in common?

Just as Eli Lilly decided it was better off buying Icos for the biotech's share of Cialis upside and Amgen acquired Abgenix to secure 100% of potential panitumumab revenue, Genentech--not exactly a serial acquirer of any kind--did the math and figured it was time to take out Tanox, with whom it has been involved in a three-way partnership (along with Novartis) for more than a decade. The biotech giant will pay $20/share in cash for Tanox, a 47% premium to the stock's previous close, or a total of $919 million.

The companies' omalizumab (Xolair) is an anti-IgE monoclonal antibody that downregulates the allergic response in patients with moderate-to-severe allergic asthma. Genentech can now breathe a bit easier--it eliminates the Tanox royalty and will now receive the cash from Tanox's royalty and profit sharing arrangement with Novartis. Tanox's pipeline is gravy.

US Xolair sales surpassed $300MM in 2005, it's second full year on the market.