Although the market for biotech IPOs is opening, capital constraints remain a key issue for biotech companies. Recent years have proven difficult with limited access to financing, and venture capital in particular has been virtually non-existent. Biotech companies with limited resources have focused on core development activities.
This has resulted in delayed development of pipeline products and is likely to have a future impact on the availability of new drugs for licensing and acquisition by big pharma. One of the consequences is that big pharma cannot rely on biotechnology companies to be the sole source of new products to keep their portfolio's stocked. They will have to continue to invest in their own R&D, however inefficient this may be. However, the trend of big pharma is to outsource and divest R&D as evidenced by the recent layoffs at AstraZeneca and GSK, and the loss of R&D facilities post-merger at Wyeth/Pfizer. The current strategy of big pharma is only likely to exacerbate their pipeline shortages in the face of the generic cliff many companies are facing.
Additionally, as reported earlier this week in the FT, the benefit to pharmaceutical companies of investing in their own R&D is that early stage development is cheap compared to the high cost of buying developed research. Late stage products come at a price premium reflecting their lower risk.
An example of this is the $1.2B licensing and development deal that AstraZeneca did last week with Rigel Pharmaceuticals (Nasdaq: RIGL) for their rheumatoid arthritis drug, fostamatinib disodium (R788). The Pharma Strategy Blog has further insight on this.
Big pharma cannot rely on outsourcing and biotech for all their new drug development and need to invest in their own R&D.
An emerging French biotech company, AB Science has plans for an IPO on the Paris based Euronext exchange. The company is reported to be seeking €50 million. What makes AB Science interesting is not only that it has a tyrosine kinase inhibitor that has particular promise in pancreatic cancer, but the company has grand designs to follow the growth strategy of biotech companies such as Genentech, Celgene and Biogen Idec.
In the initial company filing with the French Autorité des Marchés Financiers (AMF), the stated corporate strategy is to become a “fully integrated pharmaceutical company (FIPCO)” in order to preserve as much of the potentlal value of the drugs in the pipeline. Very few biotech companies have been able to succeed with this busienss model, so it will be interesting to see if AB Science makes it.
The CEO of AB Science, Alain Moussy provided insight on his plans for the company in the interview he did last year with Sally Church of the Pharma Strategy Blog.
In the interview he states why AB Science has not pursued alliances or partnerships with large pharma companies:
“Biotechs are owned by venture capitalists, who have a 5 to 7 year cycle to make money, but the cycle of drug development is 10-12 years, so in the middle of the cycle they have to sell where the risk is not too high. Typically, venture capitalists do not care whether the product ends up being approved or not. Most biotechs end up following this strategy because they are owned by VC firms. AB Science is owned by entrepreneurs, and we have chosen to dedicate our life to developing products that make a difference. We have to stay independent, because if we try to make money in the middle of the drug development cycle, then we will just select drugs that we can sell to a big pharma, and this is not what we want. What we want is stability for the long-term to have time to take the necessary risks to make the right products.”
AB Science is a company to watch, not only because the CEO has a passion for wanting to make a difference to the lives of patients, but their business model is different from many other biotech companies who instead have adopted a licensing and shared risk approach with major pharma companies.
Ultimately, AB Science’s success will rest on clinical data and in particular the phase 3 clinical trial results for mastinib in pancreatic cancer. Recruitment is set to end in this study in mid-2010 with results in 2011.