Good Chemistry in Biotech Deals
A Monrovia-based start-up on Thursday became the latest participant in a biotech consolidation wave that is seeing bigger players investing in or buying smaller companies.
And much of that activity is in California, where the biomedical industry has become one of the state’s fastest-growing industries, according to a report released Thursday.
The trend is driven by bigger companies needing to keep their drug development pipelines filled with new products.
That logic made Xencor Inc., a start-up founded by a Caltech graduate less than a decade ago, an attractive partner to MedImmune Inc., one of the country’s largest biotech companies. The businesses announced Thursday that Xencor had secured $45 million in new capital from a group led by Gaithersburg, Md.-based MedImmune.
The alliance will keep Xencor well financed while giving MedImmune access to Xencor’s promising technology to develop bioengineered anti-inflammatory drugs, the companies said.
Bioengineered drugs, created by manipulating protein molecules, provide potential therapies for an array of diseases that traditional, chemically based medicines have had limited success in treating, including cancer and autoimmune disorders such as multiple sclerosis and rheumatoid arthritis.
Sales of anti-inflammatory drugs, which treat such conditions as arthritis and tendinitis, are soaring as aging baby boomers suffer more aches and pains.
Alliances between big and small companies are growing as the medical biotech industry matures.
“As a whole the industry is finally becoming profitable,” said Keith Brownlie, a biotech business expert at consulting firm Ernst & Young.
In 1995, the entire industry was worth $43 billion, based on companies’ market value, he said. Today, industry leaders Amgen Inc. and Genentech Inc. are each worth double that amount, he said.
The biotech industry is California’s second-biggest employer with nearly 260,000 workers, behind only computer technology’s 300,000, according to a report released Thursday by the California Healthcare Institute Inc., an industry research group, and consulting firm PricewaterhouseCoopers. California’s biomedical firms invested $26 billion in the development of new products in 2005, up $11 billion from 2003, the report said.
Decades of research and development are yielding fruit for many of the early ventures, which is fueling more investment in newcomers, Brownlie said.
Last year, close to $20 billion of new capital flowed into biotech firms, compared with $3.4 billion a decade earlier, Brownlie said.
Across the country, much of that investment in new products is coming in the way of acquisitions or partnerships.
Thousand Oaks-based Amgen announced recently that it was buying privately held Avidia Inc., based in Mountain View, Calif., for more than $290 million. The deal gives Amgen access to Avidia’s inflammation and autoimmune disease treatments, currently in clinical trial.
Even traditional pharmaceutical companies have ramped up their biotech stakes. Recent large acquisitions include Pfizer Inc.’s purchase of Idun Pharmaceuticals for $280 million two years ago, Johnson & Johnson’s takeover of Peninsula Pharmaceuticals for $245 million the same year and Merck & Co.’s acquisition of GlycoFi Inc. for $400 million last year.
Among Xencor’s new investors is Novo Nordisk, a pharmaceutical company specializing in diabetes care.
In many ways, what is happening in biotech parallels another cutting-edge industry, the Internet. In contrast to the Web’s early days, when investment flowed frantically into almost any idea with a hint of promise, today’s investments are much more targeted and strategic, such as News Corp.’s acquisition of MySpace.com last year and Google Inc.’s recent purchase of YouTube Inc.
Biotech may have lacked the early frenzy of the Internet, but investments in biomedical ventures are increasingly strategic, seeking not only monetary returns but access to know-how that will boost investors’ own business lines, industry observers said.
Traditional pharmaceutical companies are turning to biotech to replace their existing lineup of chemical-based drugs, which over the years have lost ground to inexpensive generic versions. And established biotech companies are looking to fledgling firms with potential blockbusters to boost their future offerings.
Smaller companies also are attractive because in the drug and biotech fields, bigger isn’t necessarily better.
“It may be that creativity in biotech or in the life sciences doesn’t scale in the same way as it does in other industries; a bigger research and development department is not necessarily more productive,” said David L. Gollaher, chief executive of California Healthcare Institute.
MedImmune has invested close to $130 million in the last four years in smaller biotech companies, the company said.
“Through these investments, we get an early look at emerging technologies and develop relationships with entrepreneurial biotechnology companies,” said Joseph Amprey, a principal at MedImmune Ventures, the company’s investing arm. “In some cases, these relationships evolve into partnerships or even acquisitions.”
Alan Eisenberg, an executive vice president at the Washington-based trade group Biotechnology Industry Organization, said his group had seen a rise in such partnerships. During its annual conventions, the group arranges meetings between companies looking for new biotechnology processes and those developing such systems.
Last year, the trade group arranged 11,000 such meetings, up from 9,000 the year before, Eisenberg said.
Xencor’s relationship with MedImmune began similarly, said Bassil Dahiyat, 36, who founded the company with the help of a professor shortly after getting his doctorate at Caltech.
Last year, MedImmune wanted to license Dahiyat’s protein engineering technology, which he began developing at the Pasadena campus.
“That started the relationship,” Dahiyat said. “When we began raising money, they encouraged us to consider them for financing as well.”
The new investment represents nearly a third of the total capital the company has raised since its founding in 1997, Dahiyat said. Other investors in the $45-million pool include HealthCare Ventures, a venture capital firm, and Zen Investments, Xencor’s original financial backer.
The company’s first drug, a bioengineered anti-inflammatory that could be used in the treatment of rheumatoid arthritis and psoriasis, could reach clinical trial by the end of the year, Dahiyat said. But a commercially available medicine is still years away.
With the investment, MedImmune will reap financial benefits if the drug sells well. But, more important, the partnership gives better access to Xencor’s technology.
“They don’t just want the gold egg,” Dahiyat said. “They want the goose that lays the golden egg.”
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Xencor
Chief executive and co-founder: Bassil Dahiyat, 36
Year founded: 1997
Main investors: Zen Investments, MedImmune Ventures, Novo Nordisk and HealthCare Ventures
Number of employees: 75
Research: Discovers and develops biotherapeutics. The company has established a diversified preclinical pipeline focused on oncology and autoimmune diseases.
Source: Times research
