Thursday, July 23, 2009

Bristol’s Poker Game: Doubling-Down on Research

Back in December ’05 Amgen paid a 50% premium, $2.9 billion in cash and debt assumption, to buy Abgenix and with it the 50% of panitumumab (Vectibix) that Abgenix still owned. (For our take at the time, which we still agree with, see this IN VIVO story).

So far, the deal looks like a poor bet. Vectibix has been an economic disappointment; it certainly hasn’t paid back Amgen’s investment in the drug or the company. The anti-cancer antibody could still work out business-wise -- thanks to some smart Amgen work in KRAS testing, Vectibix could ultimately overtake its main rival, ImClone/Lilly’s Erbitux. And there’s a small benefit for Amgen in not having to pay Abgenix single-digit royalties on denosumab, the sine qua non of Amgen’s future: if that osteoporosis/bone cancer drug isn’t approved, goodby Amgen.

Now Bristol-Myers Squibb, playing the role of Amgen, is paying $2.1 billion for Abgenix’s one-time rival in the human monoclonal business, Medarex. Thanks to the sharp decline in biotech values, Bristol will get more for its money than Amgen has, at least so far.

First, the price is less than Amgen paid for Abgenix (though at a 100% premium, it's hardly cheap). Second, Bristol will get more royalties than Amgen ever will – in particular, from Simponi, the J&J/Merck/Schering follow-on to Remicade, and J&J’s Stelara, as well as a series of other molecules. Medarex licensed its technology far more broadly than Abgenix did and so has more of pipeline from which to draw royalties. It also has a richer pipeline of its own than Abgenix managed to build.

More importantly, as Amgen bought itself out of a profit sharing deal on Vectibix, so Bristol is buying itself out of an estimated 45% US-profit-split on ipilumumab, its Phase III anti-CTLA4 oncology antibody, as well as what we assume to be a double-digit royalty ex-US. If ipilumumab works, the deal will be well worth it.

But the real issue isn’t the comparative value of the deals – it’s the similarity of the strategies. Like Vectibix at the same point in development, ipilumumab is hardly a slam dunk. This is a big bet on research.

And the deal is thus one more clear example of how different Bristol is than most other pharmas (and how similar it is to Amgen). As we noted in this IN VIVO analysis from June, Bristol continues to double down on research rather than protecting itself, and its top management’s jobs, by diversifying towards slower growth, but at least predictable, businesses.

Instead, one way or another, it’s divested itself of virtually all its non-research-based pharmaceutical interests, using the $6.2 billion in proceeds to invest back into its own or in-licensed research.

As Barclay’s Tony Butler told us a few months ago: “Jim Cornelius is perfectly willing to sell Bristol. Essentially, he’s saying: ‘If we don’t execute [the R&D-based strategy], we don’t need to be a company.’ But few other CEOs and boards are willing to accept that fate.” Cornelius himself told us that “we’ve never said we were going to sell.” But he also noted that Bristol has chosen definitely is higher risk – “the employees know that we have to be on our game or we’ll fail.”

Image by Flickr user Screen Door Slams and used under a creative commons license.

1 comment:

Anonymous said...

This would be a great title if doubling down had more to do with poker than blackjack. Except it doesn't...