Great, great series of articles from the FierceBiotech team:
http://www.fiercebiotech.com/special-reports/10-truths-or-fictions-about-virtual-biotech-startups?utm_medium=nl&utm_source=internal
Showing posts with label FierceBiotech. Show all posts
Showing posts with label FierceBiotech. Show all posts
Thursday, October 4, 2012
Wednesday, April 25, 2012
Interesting pharma M&A stat….
From this Bloomberg article: recent pharma acquisitions of >$500M have been at an average 71% premium to their pre-deal market price.
The article suggests that this is driven by the large number of Big Pharma's products going off-patent and therefore needing to be replaced. This is true, but I think there's also the partial explanation of a cost of capital arbitrage.
Pharma companies tend to have a cost of capital just a few points more than the borrowing from the Fed. This figure can be calculated for each pharma company, but let's just assume 8% over the long run, but with today's low interest rate QE2 environment, that might be more like 6%.
Biotechs, - even public biotech's - have a MUCH higher cost of capital. This too varies based on company, disease-focus, maturity, etc., but probably somewhere in the range of 12-18% today, or 2-3X big pharm.'s cost of capital.
Big Pharma companies (generally) trade based on earnings multiples, while biotech's tend to trade on the value of growth, which is risk-adjusted by the biotech firm's MUCH higher cost of capital.
Consider the forward and trailing P/E ratios of the first 7 pharmas that came to mind:
So let's say that you've got a blockbuster ($1B in revenue) at typical pharma margins (27% operating margin - we'll use that as a stand-in for EPS.)
That suggests that on a forward basis, the blockbuster is worth $3.25B (forward P/E of 12 x ($1B x .27)) to the pharma.
But if the blockbuster has sales of only ~$250M at this point, and $1B in revenue is still years off, the discounted (risk-adjusted) value is much less perhaps half the value of its' forward value under the wings of a pharma company.
This example is pretty much a reflection of the setting of the HGSI-GSK merger talks. HGSI had $130M in revenue (JV revenue) and a market value of <$1.3B immediately before GSK launched their $2.6B takeover offer.
What I've described above - pharma's lower cost of capital relative to biotech driving M&A activities - is nothing new, but with interest rates today low enough that borrowing costs are almost negative for big pharma, it should really only be news if Big Pharma WASN'T buying, irregardless of the oncoming patent cliff.
Thanks to FierceBiotech for pointing out the article.
The article suggests that this is driven by the large number of Big Pharma's products going off-patent and therefore needing to be replaced. This is true, but I think there's also the partial explanation of a cost of capital arbitrage.
Pharma companies tend to have a cost of capital just a few points more than the borrowing from the Fed. This figure can be calculated for each pharma company, but let's just assume 8% over the long run, but with today's low interest rate QE2 environment, that might be more like 6%.
Biotechs, - even public biotech's - have a MUCH higher cost of capital. This too varies based on company, disease-focus, maturity, etc., but probably somewhere in the range of 12-18% today, or 2-3X big pharm.'s cost of capital.
Big Pharma companies (generally) trade based on earnings multiples, while biotech's tend to trade on the value of growth, which is risk-adjusted by the biotech firm's MUCH higher cost of capital.
Consider the forward and trailing P/E ratios of the first 7 pharmas that came to mind:
So let's say that you've got a blockbuster ($1B in revenue) at typical pharma margins (27% operating margin - we'll use that as a stand-in for EPS.)
That suggests that on a forward basis, the blockbuster is worth $3.25B (forward P/E of 12 x ($1B x .27)) to the pharma.
But if the blockbuster has sales of only ~$250M at this point, and $1B in revenue is still years off, the discounted (risk-adjusted) value is much less perhaps half the value of its' forward value under the wings of a pharma company.
This example is pretty much a reflection of the setting of the HGSI-GSK merger talks. HGSI had $130M in revenue (JV revenue) and a market value of <$1.3B immediately before GSK launched their $2.6B takeover offer.
What I've described above - pharma's lower cost of capital relative to biotech driving M&A activities - is nothing new, but with interest rates today low enough that borrowing costs are almost negative for big pharma, it should really only be news if Big Pharma WASN'T buying, irregardless of the oncoming patent cliff.
Thanks to FierceBiotech for pointing out the article.
Wednesday, April 18, 2012
Top 10 promising cancer drugs in development
FierceBiotech - an indispensible web site (sign up for their daily news summaries) produces an annual list of most-intriguing/promising late stage cancer programs. Here's this year's edition - it's definitely worth a read.
I was struck by the diversity of approaches. The target/technology list includes:
cancer stem cells,
the proteasome,
androgen receptor signaling,
immunotherapy,
antibody-chemo conjugates,
tyrosine kinase signaling, and
anti-angiogenesis
The good news is that there is a broad and diverse anti-cancer effort underway. The bad news is……there is a broad and diverse anti-cancer effort underway….meaning we still don't know much about how to fight cancer effectively. From a decade ago, a few anti-cancer technologies have come (stem cells) and gone (gene therapy), and some technologies have increased validation (anti-angiogenesis) while others have fallen (immunotherapy), but the nature of the list hasn't changed a great deal.
One possible lesson from this list of candidates: anti-sense/RNAi and HDAC drug development are not currently as promising as they each were 3-5 years ago.
I was struck by the diversity of approaches. The target/technology list includes:
cancer stem cells,
the proteasome,
androgen receptor signaling,
immunotherapy,
antibody-chemo conjugates,
tyrosine kinase signaling, and
anti-angiogenesis
The good news is that there is a broad and diverse anti-cancer effort underway. The bad news is……there is a broad and diverse anti-cancer effort underway….meaning we still don't know much about how to fight cancer effectively. From a decade ago, a few anti-cancer technologies have come (stem cells) and gone (gene therapy), and some technologies have increased validation (anti-angiogenesis) while others have fallen (immunotherapy), but the nature of the list hasn't changed a great deal.
One possible lesson from this list of candidates: anti-sense/RNAi and HDAC drug development are not currently as promising as they each were 3-5 years ago.
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