By Gil Roth | April 1, 2009

With bio-financing tight, can service providers find new models?

I hate rehashing topics from my past columns, and I wish I could use this space to write a little something about the relationship of drug development to Montaigne's Of physiognomy and my dog's squeaky-toys, but the ongoing financial meltdown keeps casting a pall over my more lighthearted rambles. I guess they don't call it a depression for nothing. (No, wait! I didn't mean to call it a depression! It's just a recession!)

In last issue's column, I wrote in the wake of Pfizer's purchase of Wyeth about the long-standing belief that mega-mergers are bad for drug R&D. Since then, Merck and Schering-Plough announced merger plans and Roche closed the deal with Genentech. Boy, is my Top Companies issue going to be a toughie next year . . .

Contra the merger madness, I was glad to read some words of pharma-sanity from John Lechleiter, chief executive officer of Eli Lilly & Co., who recently told London's Financial Times,

I think we are seeing deals that are really driven more by weakness than what I would describe as strong strategic combinations . . . That will improve short-term problems but fail to answer the long-term question of research productivity.

in his explanation of why Lilly wasn't interested in acquiring Bristol-Myers Squibb. (Of course, this means that they'll be in a four-way merger with Novartis, Sanofi-Aventis and AstraZeneca before this issue sees print . . .)

Mr. Lechleiter added, "Most of what I have read about large mergers is that they are very disruptive to research and development." Now, conventional wisdom has said that mega-pharma's R&D model has to change anyway, and the majors will work ever more closely with smaller pharmas and emerging biopharma, in-licensing promising compounds and playing off of the entrepreneurial science of startups.

Unfortunately, on the eve of the INTERPHEX2009 event in March, we were greeted by the news in The Wall Street Journal that - according to biotech VC fund Burrill & Co. - one-third of publicly-held biotech companies have less than six months' worth of cash on hand. While the fund's head, G. Steven Burrill, contended that this isn't a huge deviation from the norm for public biotechs, these companies are finding it nearly impossible to raise new cash. Of the 120 companies that fell into that cash-short category, the fund predicted that 100 of them will go out of business or be acquired this year.

If you keep up with industry news and scuttlebutt, then you've seen plenty of layoffs, project cutbacks and outright liquidations by small biotechs in the past few months. As that WSJ article put it, "The industry has long had a close relationship with failure." (Hence the FAILblog.org-inspired headline above.)
P.S.: If you're looking for a bio-laugh, head over to New York Magazine and read Sam Waksal Was Right All Along (Just Ask Him). You may never find a greater example of man's capacity for delusion than Mr. Waksal's attempts at explaining
  • how he always believed in Erbitux, and
  • why he told his family & friends to dump ImClone stock after he figured out that the FDA would not review his company's horrifically designed clinical trial for Erbitux.

  • Y'know, no matter how "brilliant" a mind you have, you really need to look inside sometimes.

    Two issues ago, I fretted about the capital crunch among smaller companies, and how project cutbacks could damage the pharma outsourcing industry, beginning with preclinical services and eventually cascading on to commercial scale manufacturing. During INTERPHEX, several providers told me that that they'd seen clients go out of business at an alarming rate this year. None sounded panicked, but all sounded concerned.

    On the plus side, many of them sounded positive about increased outsourcing by major pharmas, even as those companies merge and rationalize their R&D and manufacturing infrastructures. Some providers look at those mergers as opportunities to reshape the outsourcing landscape and establish new relationships with revamping companies.

    One firm even used the conference to launch a new service to help large companies handle their restructuring and decide which products to keep in-house and which products (and facilities) to outsource. When I mentioned the program to another provider, I was told, "Seriously? We were talking about launching something just like that!"

    That's not to say it's a home run of an idea, but it does mean that some contract service providers are looking for new ways to build business.

    Gil Roth has been the editor of Contract Pharma since its inception in 1999.