The biotechnology industry is highly competitive and dominated by a few major pharmaceutical companies, making it difficult for smaller companies to succeed. Biotechnology companies frequently face substantial challenges that may lead to dissolution or necessitate the sale of intellectual property to bring products to market.
Key challenges for these companies include extensive regulations, such as the United States Food and Drug Administration (FDA) requirements. Most companies must obtain FDA approval and undergo extensive trials before commercializing a product, a process that can be extremely lengthy. It typically takes 10-15 years to develop a single new medicine. Additionally, bringing a new product to market is costly, with expenses driven by trials, professional hiring, marketing, and so on. The average cost of developing a drug can reach up to $2.6 billion. Furthermore, given the high failure rate of businesses in this ecosystem, investors tend to be cautious about their investments.
Despite these obstacles, many biotechnology companies pursue acquisitions motivated by both societal impact and financial profit. The following mergers and acquisitions strategies are particularly relevant and common in this industry since they are influenced by and result from the unique challenges of this field.
Continuing the research and development of a drug to eventually commercialize it. Biotechnology companies frequently acquire assets at a reduced cost when a target corporation with late-stage products faces financial difficulties. Acquisitions may also be made with the future intent to sell or license a promising product. This strategy is common in the orphan drug industry, which focuses on treating rare medical conditions, where investments are often purpose-driven. However, big pharmaceutical companies also target this sector for profit. The Orphan Drug Act incentivizes drug development with benefits like tax relief and treatment protection, yet it does not regulate prices. As a result, big companies often acquire orphan drug rights and charge their consumers high prices, capitalizing on the lack of alternatives to life-saving treatments.
An example is seen with Ligand Pharmaceuticals (“Ligand”), which acquired the assets of Novan, Inc. (“Novan”), a company developing skin disorder treatments. In June 2023, after falling below NASDAQ listing requirements, Novan’s board decided to file for bankruptcy following an assessment of the company’s financial challenges and market conditions. In September 2023, the Bankruptcy Court approved Ligand’s $12.2 million bid to acquire Novan’s berdazimer gel and other assets. At the time, the FDA had already reviewed the berdazimer gel for molluscum contagiosum, approving it shortly after the acquisition. Ligand’s acquisition aligns with the strategy of purchasing underpriced, promising drugs from distressed companies to commercialize and generate profits, possibly selling or licensing them later without lengthy trials or high development costs. This helped rebuild Ligand’s reputation and restore shareholder confidence, despite the company’s earlier struggles and legal issues (including regulatory investigations, stock exchange issues, and lawsuits).
Enhancing or developing a new product (based on the same IP as an existing product). This strategy highlights the potential for drug repurposing in biotechnology, where existing drugs or formulas can be adapted for new uses (also seen in the orphan drug sector). Repurposing offers biotechnology companies many benefits addressing the unique challenges they face by providing existing data for clinical trials, reducing development costs, and quicker development time overall. Additionally, a formula or technology may complement or enhance another, and advance research and development. Therefore, biotechnology companies are incentivized to acquire other biotechnology corporations that hold existing intellectual property they think has the potential to be repurposed.
An example is seen with Novartis AG (“Novartis”), which acquired products from GlaxoSmithKline plc (“GSK”). In 2015, Novartis paid $16 billion to acquire GSK’s oncology portfolio, including Arzerra, a drug for chronic lymphocytic leukemia (CLL). Though Arzerra struggled in the CLL market due to extensive competition, Novartis saw its potential as a treatment for multiple sclerosis (MS). This acquisition for repurposing proved successful when in 2020, Novartis secured FDA approval for its use for MS. This example demonstrates how acquiring and repurposing drugs offers biotechnology companies a cost-effective, lower-risk alternative to developing new drugs from scratch.
Expanding the company’s portfolio to strengthen market presence or enter new markets. This strategy is common among large pharmaceutical companies with the resources to invest in emerging markets and trends. By acquiring assets from other sectors, they stay competitive and lead innovation. However, this approach isn’t exclusive to big companies, expanding a portfolio can be profitable for any pharmaceutical company by broadening its product range and strengthening its market presence.
An example is seen with Merck & Co., Inc. (“Merck”), which acquired Sirna Therapeutics, Inc. (“Sirna”), an RNAi (RNA interference) drug development company, for $1.1 billion (almost double Sirna’s stock price). At the time, Merck’s partnership with RNAi leader Alnylam Pharmaceuticals, Inc. (“Alnylam”), had faltered, with Alnylam pausing joint development of their RNAi-based blindness drug. Sirna’s similar drug positioned it as an alternative. This acquisition highlights Merck’s strategy of diversifying its portfolio to maintain its presence in the growing RNAi market after setbacks. Ultimately, in 2014, Merck sold Sirna to Alnylam for only $175M. This sale likely reflects frustration with slow progress, as extended trials often result in sale of assets, to recoup losses. Another reason for the sale could be Merck’s effort to re-strengthen its partnership with Alnylam.
Occasionally, this strategy can lead to antitrust issues, as seen with Amgen, Inc. (“Amgen”) acquisition of Horizon Therapeutics plc (“Horizon”). As Amgen tried to broaden its rare disease portfolio, the Federal Trade Commission raised concerns that it might bundle its products with Horizon’s, using discounts on its existing drugs to limit competition. Eventually, Amgen received the green light after committing to refrain from such practices.
Ultimately, companies pursue acquisitions for various reasons, often achieving multiple purposes through a single transaction. While these methods are not exclusive to the biotechnology industry, they illustrate the unique and evolving ecosystem of this industry, being widely recognized and used within the sector because of the unique challenges that pharmaceutical companies face. The biotechnology sector, along with the regulating entities operating within it, presents significant obstacles for those looking to participate and contribute. However, successful acquisitions can be highly profitable and beneficial to humanity.