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Biotech / Medical : Munch-a-Biotech Today -- Ignore unavailable to you. Want to Upgrade?

To: Biomaven who wrote (1459)	2/10/2003 5:55:13 PM
From: Biomaven	Respond to of 3158

Here's a Forbes' piece on these two recent munches: Pharmaceuticals For Drug Deals, Think Small Matthew Herper, 02.10.03, 2:45 PM ET Biotech observers are eagerly watching the year's first big deal, as Johnson & Johnson agreed to scoop up Sunnyvale, Calif.-based Scios for $2.4 billion in stock. Will the combination of J&J and Scios lead to a new round of biotech merger activity? Sort of. Expect a lot of mergers, but they won't necessarily look like the combination of Scios (nasdaq: SCIO - news - people ) and Johnson & Johnson (nyse: JNJ - news - people ). The reason: Scios is a rare find, with a marketed drug that is already going like gangbusters. Since Natrecor, a treatment for heart failure, was approved a year ago, Scios' shares have more than doubled in value. Furthermore, New Brunswick, N.J.-based Johnson & Johnson has a unique strategy when it comes to drug industry mergers. Whereas Pfizer (nyse: PFE - news - people ) makes big buys and then wrenches all available cost savings from them, J&J buys for revenue growth. As with J&J's biotech unit, Centocor, Scios will remain under the control of its current management. But Johnson & Johnson's management will use its large, skilled sales force to push Natrecor sales farther and faster. Already, it was expected that the drug could bring in as much as $500 million per year. With many of J&J's existing drugs--such as Procrit for anemia and Remicade for rheumatoid arthritis--facing more competition, the firm could use the extra sales. "The whole point of merging would be for Scios' drug to reach a higher peak and to get there faster than Scios would alone," says Mark Monane, a biotech analyst at Needham & Co. who covers Scios. But make no mistake about it: More mergers will be hitting the biotech sector soon. They just won't resemble the J&J/Scios deal. Instead, they'll be driven by the many biotechnology companies that are running out of money. According to Biotechwatch.com, which runs a proprietary database of biotech companies, more than 158 biotech firms have one year's worth of cash in the bank or less. That means deals in the near future could look a lot like another deal from today: OSI Pharmaceuticals' (nasdaq: OSIP - news - people ) acquisition of tiny Cell Pathways (nasdaq: CLPA - news - people ) for $32 million in stock. Cell Pathways had almost run out of cash, but it has one marketed product, for treating chemotherapy side effects. It also has a drug that is being tested in late-stage clinical trials and another in the early stages of development. "In this kind of environment, a company running out of money simply can't execute," says OSI Chief Executive Colin Goddard. That allowed Goddard to pick up Cell Pathways for only 7% of OSI's market cap, without outlaying any cash. Until now, OSI had only one major drug in development: Tarceva, a cancer drug that it is developing with Roche and Genentech (nyse: DNA - news - people ). Goddard emphasizes that investors shouldn't look at today's acquisition as having anything to do with Tarceva's development. Tarceva hits the same target as Erbitux, made by ImClone Systems (nasdaq: IMCL - news - people ) and Bristol-Myers Squibb (nyse: BMY - news - people ), and AstraZeneca's (nyse: AZN - news - people ) Iressa. Those drugs have been hit by trouble that has limited the size of Iressa's market and kept Erbitux in clinical testing. Yet Goddard is still optimistic about Tarceva's development. He thinks that by giving "aggressive" doses of OSI's drug, and by testing it both as a single agent and with chemotherapy, he and his colleagues stand a very good chance of getting Tarceva approved. "This is about building a long-term, high-quality cancer company," Goddard says. Peter