The Senate’s Foreign Earnings Reinvestment Act, like a related bill in the House of Representatives, would reduce tax rates for CROs and biopharmaceutical firms that repatriated money earned overseas. With the money they saved, companies could hire staff and invest in research, ACRO argues.

WinAmerica, an interest group supported by various firms, says that the bill would repeat the success of a 2004 repatriation tax break. Citing information from the Bureau of Labor Statistics, the group observes that average annual private-sector employment increased by 4,385,000 jobs from 2000 through 2007, and that 98% of the increase occurred during the years when the tax break was in effect (2004 through 2006).

The tax break did not benefit the entire private sector, however. It primarily helped pharmaceutical and technology companies, according to a report by Senator Carl Levin (D-MI). Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, and Pfizer were among the top 15 repatriators that time around. After bringing $155 billion in overseas earnings back into the country, these 15 firms reduced their overall US workforce by about 21,000 jobs and spent slightly less on R&D. Instead of creating jobs, the companies used the extra money to repurchase stock and raise their top executives’ pay by about 28%—despite express prohibitions against using the money for these purposes.

The increase in employment that WinAmerica cites seems to have occurred in industries other than those that benefited from the tax break—and for other reasons. The law that granted the previous tax break did not include a means of monitoring compliance. Unless the Foreign Earnings Reinvestment Act can do this, and can impose penalties for noncompliance, it will not create jobs for those who need them. I hope Congress takes heed of Senator Levin’s report as it considers the new bills.

Some drugmakers have blamed what they see as a slow and overly cautious FDA for the industry’s weak pipelines. Last week, I cited drug-approval figures to show that the agency was not standing in the way of innovation. A closer look at the figures contradicts another part of the critics’ argument—the industry’s pipelines may not be so weak after all.

So far this year, FDA has approved 20 new molecular entities (NMEs), according to The Wall Street Journal. That’s nearly the same number of NMEs that the agency approved throughout all of 2010. “We’re seeing a lot of innovation, much more than in recent memory,” Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research, told The Wall Street Journal. She went as far as to say that the industry had reached a “turning point” in drug development.

The change in the industry’s approach to research seems to be helping to enhance its development productivity. Many companies have shifted from an expensive, and potentially wasteful, “mass production” approach to one that relies on collaboration. Bristol-Myers Squibb’s (BMS) recently approved melanoma drug was originally discovered by a scientist at the University of California, Berkeley. The scientist worked with small biotech company Medarex to develop the drug, which eventually appeared on BMS’s radar. After BMS and Medarex formed a partnership, the rest was history. Shire also has used this collaborative strategy successfully.

Woodcock’s comments reaffirm my belief in the industry’s ability to market innovative drugs that improve patients’ lives. If the pace of NME approvals continues at its current level, it will soften the blow of the patent cliff for many companies. Maybe reports of Big Pharma’s impending death are greatly exaggerated.

Big Pharma is banking on an unequivocal “yes” to that question as evidenced by its mergers and acquisitions activity during the past several years. In addition to the pending Pfizer-Wyeth deal, some notable recent deals with a biologic component include Roche-Genentech ($47 billion, completed in 2009), Merck-Schering Plough ($41 billion, pending), AstraZeneca-MedImmune ($15.6 billion, 2007), Novartis-Chiron ($5.4 billion, 2006), and Merck-GlycoFi ($400 million, 2006). Big Pharma is also proceeding with large, capital projects in biologics such as Bristol-Myers Squibb $750-million bulk biologics manufacturing facility in Devens, Massachusetts, Novartis’s $700-million cell-culture production facility in Singapore, and Eli Lilly’s $1-billion investment in biologics research and production capacity since 2004, including its acquisition of Applied Molecular Evolution in 2004.

But will biologics be the profitable panacea that Big Pharma hopes they will be? After 25 years, the biotechnology industry as a whole is still not profitable although its financial fortunes have improved. In 2007, the global biotechnology industry (as measured by publicly trade companies) posted a net loss of nearly $2.7 billion compared with a net loss of $7.4 billion in 2006, according to an Ernst & Young analysis. In 2007, US public biotech companies posted a net loss of $277 million, which was the closest the US biotech industry has come to reach aggregate profitability.

Biopharmaceuticals account only for approximately 10% of the global prescription drug market, based on a 2007 global prescription drug market of $712 billion, but are considered an important engine for growth for Big Pharma. The compound annual growth rate (CAGR) of prescription drug sales from Big Pharma is expected to be only 1.8% through 2013, increasing from $366.6 billion in 2007 to a projected $407 billion in 2013, according to a recent analysis by Life Science Analytics. As small-molecule drug sales are pressured, sales of biologics from Big Pharma are expected to rise, with biologics expected to account for 20% of Big Pharma’s prescription drug sales by 2013. At the same time, sales from its core products are expected to fall by nearly 50% to $47 billion by 2013.

The clinical efficacy of a drug, whether a small molecule or biologic, and its ability to improve clinical outcomes ultimately determines the market success of a drug. As the industry’s understanding of the targeted mechanisms of macromolecules increases and therefore, prospects for improved clinical efficacy brighten, the future of biologic-based therapeutics bodes well. But such optimism does not come without caveats.

I recall a speech that I covered in 2000 from Juergen Drews, former head of R&D for Roche and author of a landmark analysis of the innovation deficit in the pharmaceutical industry and a book, In Quest for Tomorrow’s Medicines. At that time, Drews observed that medicinal chemistry is as much art as science. He commented on the limitations of combinatorial chemistry and high throughput screening (HTS) as a tool to improve R&D productivity. At its introduction two decades ago, combinatorial chemistry and HTS were seen as the next paradigm shift to increase R&D productivity. The approach involves the rapid synthesis of a large number of separate, but structurally related molecules that can be assessed against disease screens. To paraphrase, he said, if we are asking the same or wrong question, but doing so just 1000 more times, should we really expect a better result?

Recalling his comments makes me ponder whether a more measured view of biologics should also be applied. Do biologics simply represent the R&D approach du jour or will they truly meet the mark of fundamentally shifting the pharmaceutical industry? Time will tell.

Eli Lilly & Co. (Indianapolis) CEO John Lechleiter earlier this week told the Financial Times that he is not interested in becoming part of the recent mega-merger trend (see Pfizer+Wyeth, Merck+Schering-Plough and Roche+Genentech). Rumors and speculation have had some thinking Lilly+Bristol-Myers Squibb (BMS) would be the next big thing, but Lechleiter specifically ended rumors of that combination and remained critical of Big Pharma’s recent big deals. 

As he told the Financial Times, “I think we are seeing deals that are really driven more by weakness than what I would describe as strong strategic combinations … That will improve short-term problems but fail to answer the long-term question of research productivity.” He also said that mega-mergers were “very disruptive to research and development.”

His interest lies in smaller acquisitions of up to $15 billion. He recently told the Wall Street Journal that he “got hungry again about three weeks after ImClone got closed.” Lilly purchased ImClone in November 2008 for about $6.5 billion, successfully outbidding BMS’s two unsolicited offers that ImClone had rejected last fall.

Though Lilly is out of the mega-merger picture, there is talk around the web that BMS could be involved in a takeover deal. As PharmTech Senior Editor Patricia Van Arnum wrote in a Feb. 27, 2009 blog post, BMS could be eyeing merger plans with companies it has previous collaboration relationships with, like sanofi-aventis and AstraZeneca. Similar reports from analysts cropped up following the industry’s huge consolidation announcements earlier this year.

However, in early March, sanofi CEO Chris Viehbacher dispelled rumors of a mega-merger with BMS, telling CNBC that the two companies have “a fabulous partnership and that’s sufficient for us right now.” And AstraZeneca CEO David Brennan told Reuters last week that his company would also not jump on the mega-merger bandwagon, saying, “I don’t believe we need to engage in a large transaction.” Unfortunately for BMS, none of its rumored partners seem to be interested in pursuing a deal at this time. At least not publicly.

Although analysts differ on the partners in possible Big Pharma marriages, there are common reasons for companies to take the plunge, most notably generic-drug incursion on key products, weak pipelines, cash-ready positions for such a deal, and/or an interest to strengthen their biopharmaceutical product portfolios.

Another factor that may come into play in a choice for a partner is whether a company already has a collaboration with a possible acquisition target. Analysts are divided over whether Merck, for example, would seek another traditional pharmaceutical company such as Schering-Plough (Merck and Schering-Plough had partnered in anti-cholesterol drugs), or seek a smaller acquisition in biotechnology with Gilead Sciences. Some also see Johnson & Johnson as a possible suitor for Schering-Plough as well.

Some point to Bristol-Myers Squibb, who faces near-term patent expiry on one of its top-selling drugs, “Plavix” (clopidogrel bisulfate) as a possible takeover candidate for companies for which it has prior or current collaborations such as Sanofi Aventis, AstraZeneca, and Merck.

But there is no consensus among analysts that any of these companies will be willing to take on large-scale acquisitions, but instead they may look to smaller companies. One such company is the Dutch company Crucell, a vaccine and biologics production technology provider, which was in discussions with Wyeth as a possible acquisition target prior to Pfizer’s announcement that it was acquiring Wyeth.

Although speculation on who may partner with whom makes for lively debate, it raises perhaps a more fundamental question: to merge or not to merge? One side of the debate would argue that increasing critical mass, market share, and resources to fund escalating costs for research and development is an imperative for the large pharmaceutical companies. Others, however, would raise a broader point—the dubious success rate of mergers and acquisitions (M&A). In examining M&A over a 15-year period between 1986–2001, researchers from Bain and Company found that 70% of large deals fail to create meaningful shareholder value (D. Harding and Sam Rovit, Mastering the Merger: Four Critical Decisions that Make or Break the Deal, Harvard Business School Publishing, Boston, 2004).

It would be too simplistic to cull from either perspective that seeking growth by acquisition is either all good or all bad, but perhaps some basic takeaways is that bigger is not always better and achieving true integration and synergies in a merger is a formidable task. For drug companies, specifically, these caveats are particularly challenging as they try to balance size while retaining an environment that encourages innovation, something unfortunately in short supply these days as measured by recent approvals of new molecular entities.

ImClone and Eli Lilly announced Monday that Lilly offered to buy the company for $6.5 billion. Lilly turned out to be the $70-per-share mystery suitor, as was rumored last week. The acquisition will strengthen Lilly’s oncology portfolio, which includes “Gemzar” and “Alimta,” and now, ImClone’s “Erbitux.”

Bristol-Myers Squibb, which co-markets Erbitux in the US, issued a statement on Monday in which James M. Cornelius, chairman and chief executive officer of BMS, gave the deal his blessing. “We are pleased to have initiated a process that has resulted in the substantial increase of ImClone’s value for all of its stockholders,” said Cornelius. “We are also proud to have contributed to this creation of value by providing commercial and R&D support to the company over the course of our relationship, which will continue now with Eli Lilly, a well-respected research organization.”

BMS chairman said the company stands by its decision not to raise its Sept. 22 bid of $62 per share, the offer that was called “absurd” by ImClone Chairman Carl C. Icahn in one of a series of letters the heads of the companies exchanged last month. BMS has no plans to pursue ImClone further, and Cornelius said the company looks forward to working with Lilly on Erbitux and other cancer compounds. BMS expects to receive $1 million for its 16.6% stake in ImClone.

With BMS out of the bidding picture, it would seem to be the end of one of many dramatic chapters in ImClone’s history, which includes the insider-trading scandal that jailed ImClone founder Sam Waksal, Martha Stewart, and her broker, Peter Bacanovic. But more drama may be on the horizon, as BMS and ImClone seem to disagree about commercialization rights for the compound IMC-11F8, which is in Phase II trials for colorectal cancer. Icahn and Cornelius argued about BMS’s rights in their publicly released letters in September, and Cornelius mentioned the compound once again in his statement on Monday.

Rumors abound in today’s news that Eli Lilly is the mystery bidder. A Wall Street Journal story cites unidentified sources close to the deal, but for the moment neither ImClone nor Lilly has confirmed or commented on the speculation.

On Tuesday, Merck KGaA jumped in the ImClone-takeover mix and said it might be interested in the company, according a Reuters report. Karl-Ludwig Kley, Merck KGaA’s chief executive officer, told a group of business journalists that his company is not ImClone’s mystery bidder, and would not seek to purchase ImClone on its own, but that Merck is open to a possible partnership with another company. Merck owns the development and marketing rights outside the US for ImClone’s cancer drug “Erbitux.” Kley said, “Anyone who wants to take Erbitux further would be well advised to talk to us.”

Stay tuned for more on the mystery bidder, the negotiations, and who will ultimately own ImClone.

Update: Sanofi & Zentiva. Sanofi-Aventis this week upped its bid for Zentiva and agreed to buy the Czech generics firm for $2.6 billion. Zentiva’s board had previously rejected Sanofi’s offer of $2.4 billion, but unanimously approved the increased offer.

Update: BMS & ImClone. On Monday, Bristol-Myers Squibb raised its bid to $62 per share, the value increasing from about $4.5 billion to $4.7 billion, and said it intends to commence a tender offer. On Tuesday, Carl C. Icahn, ImClone’s chairman, called the increased offer “absurd” in a letter to James M. Cornelius, chairman and CEO of Bristol-Myers Squibb.

On the horizon? There is speculation that Karo Bio, a Swedish firm with a novel cholesterol-fighting drug, could receive a buyout offer from a company like Pfizer or AstraZeneca, both of which are looking to boost their cardiovascular portfolios, according to a Bloomberg report and other posts around the web.

So far, so good. Teva’s acquisition of Barr is still in the works. The companies announced at the beginning of this month that, as expected, they received a request from the FTC for more information about the $7.5-billion deal. Teva and Barr still expect the transaction to be completed by the end of the year.

Recent Successful Deals
September 2008. Bayer HealthCare (Leverkusen, Germany) acquired DIREVO Biotech AG (Cologne, Germany) in a cash deal in a transaction valued at approximately $354 million. DIREVO Industrial Biotechnology GmbH, a wholly owned subsidiary of DIREVO Biotech AG, is not included in this transaction and has been sold in a separate deal to a group of financial investors.

Novartis (Basel) announced it holds 99.8% of the biotechnology company Speedel’s (Basel) currently outstanding shares following completion of a mandatory public tender offer, and a “squeeze out” procedure was initiated on Sept. 25 for the remaining shares. Novartis announced its takeover plans in July 2008. The total acquisition costs were estimated at $880 million.

In other September news, Solvay Pharmaceuticals (Brussels) won the bidding war against Gen-Probe for the biotechnology company Innogenetics (Gent, Belgium). This month, Solvay successfully acquired Innogenetics in a cash transaction valued at approximately $319 million. In June 2008, Gen-Probe topped Solvay’s original April 2008 offer, and in July 2008 Solvay responded by raising its bid to $319 million.

July 2008. The healthcare group Fresenius (Bad Homburg, Germany) agreed to acquire APP Pharmaceuticals (Schaumburg, IL), a pharmaceutical company focused on injectables, for a cash purchase price of $3.7 billion. APP will join Fresenius as part of its Fresenius Kabi division. Fresenius Kabi will gain access to the US injectable generics market through the acquisition.

Sanofi Aventis (Paris) announced that Sanofi Pasteur, the vaccines business of Sanofi-Aventis, will acquire the vaccine maker Acambis (Cambridge, UK) for $546 million.

Also announced in July, Eli Lilly (Indianapolis, IN) will acquire the biotechnology company SGX Pharmaceuticals (San Diego, CA), in a cash transaction for approximately $64 million.

In early July, the specialty biopharmaceutical company Shire (Basingstoke, UK) announced it will acquire biotech company Jerini (Berlin, Germany), for approximately $516 million.

June 2008. Boehringer Ingelheim (Ingelheim, Germany) agreed to acquire the privately owned biotechnology company Actimis Pharmaceuticals (San Diego, CA) in a deal worth up to $515 million. The acquisition will occur through a structured buyout based on the achievement of several milestones of Actimis’ leading asthma compound “AP768.” If AP768, currently in Phase I clinical development, is advanced into a Phase III, Boehringer Ingelheim will own 100% of Actimis’ shares.

Early in the month, GlaxoSmithKline (London) acquired Sirtris Pharmaceuticals (Cambridge, MA) for approximately $720 million. Sirtris specializes in the field of sirtuins, a recently discovered class of biomolecules that is believed to be involved in the ageing process.

Other news in June involves Novartis, which agreed to acquire the biotechnology company Protez Pharmaceuticals (Malvern, PA) along with the rights in North America and Europe to PZ-601, a hospital antibiotic in clinical development, for up to $400 million.

On June 24, Roche (Basel) announced it successfully completed a tender offer begun in May 2008, which increased its stake in the biotechnology company Chugai Pharmaceutical (Tokyo, Japan) from 50.1% to 59.9%.

May 2008. Bristol-Myers Squibb agreed to purchase the biotechnology company Kosan Biosciences (Hayward, CA) for $5.50 per share in cash, an estimated value of about $190 million. Also announced this month, Daiichi Sankyo (Tokyo) will acquire the privately held biotechnology company U3 Pharma (Martinsried, Germany) for approximately $235 million.

BMS & ImClone. In New York, ImClone Systems rejected an unsolicited $4.5-billion takeover bid from Bristol-Myers Squibb, calling it “inadequate.” The BMS offer was for $60 per share in cash, and ImClone said on Sept. 10 that it was approached by another company offering $70 per share. BMS currently holds a 17% stake in ImClone, and the companies worked together to develop and commercialize the cancer drug “Erbitux” (cetuximab). The heads of both companies have publicly exchanged letters disapproving of the other’s handling of the offer and disagreeing on the future of their collaborative product candidate IMC-11F8. ImClone did, however, say the company would consider another BMS offer. On Sept. 16, Jean-Marc Huet, chief financial officer for BMS, said the company was prepared to walk away from a deal with ImClone, according to an AP report.

King & Alpharma. Alpharma (Bridgewater, NJ) rejected a $33-per-share takeover bid from King Pharmaceuticals (Bristol, TN) on August 22, 2008, a deal worth $1.4 billion. On Sept. 12, King commenced a tender offer to acquire all of the outstanding shares of Class A common stock of Alpharma for $37 per share in cash, or $1.6 billion. The tender offer is scheduled to expire Oct. 10, 2008. Meanwhile, Alpharma’s board of directors urged shareholders to take no action until it evaluates the offer and makes a recommendation to shareholders, which it plans to do within 10 business days following the commencement of the tender offer. Alpharma said its board is exploring alternatives to maximize shareholder value, including a possible sale of the company to King or to another company.

Roche & Genentech. In late July, Roche made an unsolicited bid for the 44% of Genentech (South San Francisco, CA) that it does not already own. The offer was for $43.7 billion, or $89 per share. On Aug. 13, Genentech announced its special committee of the board of directors unanimously concluded that Roche’s offer of $89 per share “substantially undervalues the company” and the board rejected the offer. Genentech’s special committee says it would consider another proposal. Industry analysts predict Roche may up the offer to $53 billion, Reuters found in a recent poll.

Sanofi-Aventis Europe & Zentiva. On Sept. 3, 2008, Zentiva (Prague) advised shareholders to reject Sanofi-Aventis Europe’s (Paris) July 2008 unsolicited takeover offer. Sanofi is Zentiva’s largest shareholder and owns a 24.9% stake in the company. Zentiva’s board of directors said the offer of CZK 1050 per share ($63 per share), or 40 billion crowns ($2.39 billion) undervalues the company. Jiri Michal, chairman of the board and CEO of Zentiva, said “the Board believes that this offer falls a long way short of reflecting Zentiva’s fundamental value.” On Sept. 18, 2008, Sanofi extended the offer an additional 10-week period until Nov. 28, 2008.

Sun & Taro. In May 2008, Taro Pharmaceutical Industries (Haifa Bay, Israel) announced plans to terminate the merger agreement made with Sun Pharmaceutical Industries (Mumbai, India) in May 2007. This past August, Sun announced its victory over the litigation brought against it by Taro in the Tel-Aviv District Court, which rejected Taro’s idea that Sun violated Israeli law by not conducting a “special tender offer.” The Supreme Court of the State of Israel prohibited Sun from completing its existing tender offer to Taro shareholders until it hears arguments surrounding Taro’s appeal of the lower court’s decision. On Sept. 3, Sun extended the expiration date of its tender offer to Oct. 3, 2008. According to a Sept. 10 letter to shareholders, Taro Chairman Barrie Levitt says Sun’s unsolicited tender offer is on hold until December 8, 2008, when the appeal will be heard in the Supreme Court. Taro has urged shareholders not to accept the tender offer since July 2008 when Taro’s board of directors said it was “financially inadequate and is a ’sham’ offer.”