There’s a pivotal
shift taking place the pharmaceutical industry, one that bridges the gap
between the company with an $80 billion market cap and heavy cash flow and the
one with an $8 million market cap scraping the bottom of the barrel. That
bridge is called public market, and by connecting the landmass (market space,
in this case) of both companies, there is considerable and growing symmetry in
the balance of power between the pharmaceutical giants and the little guys.
In an interesting
article entitled, “The Big Guys Have Lost Their Iron Grip, and It’s All Good,”
author Luke Timmerman likens big pharma’s relationship with the small biotech
players to his seventh grade physical education teacher, who used his size and
a “patented ‘pinch’” to drag students to his office for disciplining.
Noting that big
pharma companies for the last decade have taken the upper hand at the
bargaining table against small companies with high-potential new therapies,
Timmerman writes:
“That’s no longer
true. The little guy with a promising new drug candidate can walk away from a
low-ball bid and go public now. The rising tide of the stock market has roughly
doubled the group of companies that have the cash to buy innovative new drugs.
…What it means, essentially, is that the little guy in biotech that develops
most of the innovative products suddenly has options. … More people will now be
encouraged to start new biotech companies, to invest in them, and they will be
fairly rewarded when successful. It’s the healthiest environment for innovation
that I’ve seen in years.”
Here’s what used to
happen. Biotech companies painstakingly and expensively worked for years to
advance their innovations from idea through the development to validating
results in clinical trials and setting out in search of licensing deals or
acquisition. Then, a big pharma would flag the potential of this drug candidate
and low-ball a measly bid to the biotech company who didn’t have the power to
negotiate or ask for more.
“Then along came the
great biotech bull market of 2013. It was the second-biggest year on record for
biotech IPOs, with 52 companies going public by my count. The Nasdaq Biotech
Index rose 66 percent last year, compared with the broader Nasdaq Composite
Index, which saw a 39 percent gain,” writes Timmerman.
With the numbers
comes leverage, and mid-cap pharmaceutical companies have grown into positions
of opportunity to compete in acquisition bidding wars against bigger industry
players. Now, small biotechs are in a better position to play the field of
interested bidders and negotiate higher upfront payments, and more profitable
milestones.
Take small-cap
biotech company VistaGen, for example. VistaGen is focused on advancing its
stem cell technology for drug rescue with the goal of generating a pipeline of
drug rescue variants that it plans to license or sell them to larger biotech
and pharmaceutical companies who have the resources to further develop and
commercialize the product.
VistaGen is
addressing major challenges in the drug development process based on the
patented and clinically predictive drug development capabilities of its Human
Clinical Trials in a Test Tube™ platform. In today’s market, VistaGen has an
incredible change, buoyed by several variables, to sell its drug rescue variants
to a larger company that will be willing to shell out a fair price.
“Part of what’s
driving the higher prices, of course, is simple supply and demand. There’s
always a scarcity of great new drugs in the pipeline … Pharma companies are as
hungry as ever, and desperate in some cases, to fill up their meager R&D
pipelines. … The big guys should be able to pick up a steady stream of
innovations they can purchase, at still-reasonable prices. A few (not more than
a handful) of venture capital firms will refill their coffers. They, along with
a few good entrepreneurs, will be encouraged to invest in more groundbreaking,
platform type technologies …,” states Timmerman.
Thanks to increasing
equilibrium of power between pharmaceutical behemoths and innovative small-cap
plays, companies like VistaGen find themselves in an unprecedented position of
power and opportunity.
Read Timmerman’s
full article here:
http://www.xconomy.com/national/2014/01/20/the-big-guys-have-lost-their-iron-grip-and-its-all-good
For more
information, visit www.vistagen.com
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