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For Biotech Takeovers, Timing Is Key

Yet another Vivus takeover rumor circulating through the market Tuesday got me thinking: When do most biotech and drug takeovers happen? Is it possible that Vivus — which will hear from Food and Drug Administration in just 13 days about the approval decision for its weight-loss drug Qnexa — could be right now in secret negotiations with a Big Pharma suitor?

Not likely if history is any guide. Biotech and small drug companies are rarely acquired immediately before or after a drug approval or even during the initial phase of a new drug launch.

An acquisition of Vivus now, with FDA’s approval decision on Qnexa looming on April 17, would be an exception to the biotech takeover rule. The same likely applies to Arena Pharmaceuticals and Discovery Laboratories, both of which are in a similar situation as Vivus and have been the subject of recent takeover speculation.

Looking back at past deals, biotech companies are typically acquired while experimental drugs are still in mid-stage to late-stage clinical trials; or well after a drug’s approval when the commercial opportunity is more easily quantified.

Examples of the former include the most recent hepatitis C-focused takeovers: Roche buying , Bristol-Myers Squibb for Inhibitex, and Gilead Sciences acquiring Pharmasset.

Other examples of deals where Big Pharma took out smaller biotech/drug firms to bolster their research and development pipelines include Johnson & Johnson buying Cougar Biotech, Amgen acquiring Micromet, GlaxoSmithKline buying Sirtris, and Pfizer for Esperion Therapeutics. (The last two deals, of course, are examples where these speculative takeouts backfire big time.)

If an acquisition doesn’t happen early, deals tend to come late. Eli Lilly acquired both Icos and ImClone Systems only after the erectile dysfunction drug Cialis and cancer therapy Erbitux had years of sales in the books. Other examples of similar deals include Takeda Pharmaceutical buying Millennium Pharmaceuticals, buying OSI Pharmaceuticals, and AstraZeneca acquiring Medimmune.

I struggled to think of examples where Big Pharma or even Big Biotech swooped in to make an acquisition of a smaller company that had a drug either under FDA review or recently approved and in the early days of a commercial launch.

The only example I came up with was Forest Laboratories buying Clinical Data weeks after the latter received FDA approval for its antidepressant Viibryd.

This is not to say with absolute conviction that Vivus won’t be acquired quickly if Qnexa is approved. It’s just that such a deal would be unusual. More likely, Vivus launches the weight-loss drug on its own, and if sales boom over the next two to three years, a suitor may come calling.

One more thought: What about Amylin Pharmaceuticals, which only recently launched a new diabetes drug Bydureon, but also reportedly spurned a takeout offer from Bristol-Myers Squibb?

In some ways, Amylin is similar to Clinical Data, which supports the thesis that drug companies can be acquired while products are in the early launch phase. But in some other ways, Amylin is also an exception. Bydureon is not so much a brand new drug as an extended release formulation of an existing drug, Byetta, that Amylin has sold for years. In this way, Amylin is more like Icos or ImClone — attracting a suitor well after commercial launch.

Additional News: Vivus CEO Optimistic On FDA Approval for Qnexa

Additional Views: Carl Icahn: Amylin Should Be Sold!

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Disclosures:

TheStreet’s editorial policy prohibits staff editors, reporters, and analysts from holding positions in any individual stocks.

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