Shares of Vicuron Pharmaceuticals increased 79% to an all-time high of $28.21 Thursday after Pfizer agreed to buy the biotechnology company for $1.9 billion, or $29.10 a share in cash (an price 84% premium with a market capitalization of about $1 billion).
The trend in Big Pharma seems to be one of buying biotech companies with products in late stages of development. Vicuron focuses largely on anti-infectives, with two New Drug Applications under review at the FDA. One, anidulafungin, is intended to treat fungal infections and recently showed superiority to fluconazole in a Phase 3 study. The other compound, dalbavancin, is an antibiotic targeted toward gram-positive infections. The present NDA for dalbavancin covers skin and soft-tissue infections (also called SSTIs).
Ever since penicillin, the first known antibiotic, was discovered in 1928 by Fleming, a small percent of the bacterial population is naturally resistant to antibiotics and drug pressure is increasing this percentage. In 1987 only .02 percent of bacteria were penicillin–resistant. By 2002, 16.5 percent were. Staphylococcus resistance is now at 40 percent. Resistance to Vancomycin, the most powerful of the antibiotics and so prescribed only as a last resort, had reached 12 percent by 1994.
All antibiotics are derived from the same 15 or 16 compounds. With the average cost of developing a new drug now at $500 million, there is a disincentive to developing new antibiotics. In 2000, $26.4 billion was spent on drug research and of that, only 14 percent was toward new anti-infectives. Within that category, most money is directed toward finding drugs effective against HIV. Because few new antibiotics have been discovered, newer ones tend to be held in reserve for use against resistant germs, thus limiting their market potential.
So, will other Pharmas follow suit? Drug companies seem to have plenty of cash (see our earlier discussion of the tax repatriation perk). Some companies, like Merck and AstraZeneca, will probably follow with their own deals given their shortage of big hits in the pipeline. But, it’s probably not going to be a wave of M&A’s washing across the continent. Many will look to increasing development partnerships and collaborations with smaller companies (why buy when you can rent?).
Still, the pipelines of new drugs that the big drug makers maintain are too thin to support their present valuations. Drug companies need lots of new drugs in order to maintain such amazing profitability and pick up slack for those drugs going off patent. This should make smaller, biotech companies look plenty attractive.
