Tuesday, August 14, 2007

The Most Important Deal of the Last 12 Months

In preparation for our Pharmaceutical Strategic Alliances meeting in September, we decided to send the same question to 35 of our smartest friends in the business: what deal signed in the last 12 months said the most about the drug industry’s current situation?

The answer (caveat: responses are still coming in) was AstraZeneca’s acquisition of MedImmune.

We suppose the choice shouldn’t have been surprising. At $15.6 billion in cash, it was arguably the biggest biotech acquisition ever. (Amgen’s 2001 buyout of Immunex looked bigger, but what was worth $17.9 billion in a combination of cash and stock at the deal’s announcement had, thanks to the dip in Amgen’s shares, dropped below AZ/MedImmune all-cash price by the time Amgen/Immunex closed in 2002.) And you can read what IN VIVO said about AZ/MedImmune at the time by clicking here and scrolling down to the sidebar (“AZ Spends Big on MedImmune”).

At the PSA meeting, we’ll interview in front of the assembly the man who engineered this remarkable deal—MedImmune’s CEO David Mott, who is now going to run AZ’s combined biotech efforts. And we’ll ask him what appetites at Big Pharma drove that astonishing price —since the auction he ran allowed him peeks at a variety of companies and their challenges.

By and large, our polltakers (a mix of heads of Big Pharma R&D and business development organizations, a few biotech CEOs, a couple of bankers, and a handful of VCs) figure the deal’s real driver was product panic.

One typical comment came from a Big Pharma R&D chief: “The deal shows the magnitude of the desperation of the pharmaceutical industry, and how badly things are going right now.” Or from a Big Pharma’s head of business development: the deal’s price “illustrates the general paucity of pipelines in many major companies. Over time I believe this is a value destruction deal and if replicated too often will lead to trouble.”

But the price also reflected, said our respondents, the capability AZ badly wants – large molecules and specifically antibodies. Relatively representative was the comment of one biotech CEO (whose company is pursuing small molecules). The price, he said, represented the fact that “biologics are likely to represent 30% of any Big Pharma’s future product portfolio and that they have to get in the game now, not via this or that product but, rather, by acquiring a soups-to-nuts biologics capability.”

Later this week, we’ll detail some of the other deals selected by our respondents -- every single one analyzed at the PSA meeting by the executive responsible for it.

No comments: