Biotech notebook: Many making bids to stay alive, generate revenue

09/01/2003

Mark A. DeSorbo

LONDON—Britain's Xenova Group Plc. has agreed to buy rival KS Biomedix Holdings Plc., but analysts say the deal would do little to ensure the survival of two struggling biotech firms.

At press time, the deal was the latest in an industry where the rewards for drug discovery can be big, but at high stakes. Research and development costs are enormous and many prospective treatments fall by the wayside before they reach the market.

Xenova, whose shares have plunged this year following the failure of its cancer treatment, tariquidar, said it will pay up to $24 million in shares for KS Biomedix.

The combined firm would have enough money to last more than a year. Xenova chief executive David Oxlade told Reuters the company would look to raise at least $14 million to take its most promising drug candidate—Biomedix's TransMID treatment for brain cancer—into Phase III clinical trials, adding that the deal would deliver about $16 million in annual cost-savings, including about 50 job losses.

Some analysts, however, see little prospect of success.

"Putting two weak companies together is not a reason to invest in the combined group," according to analysts at ING Financial Markets, who expected to put a "sell" rating on the new firm's shares.

Biotech firms have had a tough time since the proverbial bursting of the technology bubble, with investors ditching the promise of future riches in favor of companies that offer short-term returns. That has sparked many to join forces.

Genzyme Corp. of Cambridge, Mass. has agreed to buy SangStat Medical Corp. of Fremont, Calif., for $600 million, a bid that is expected to generate new revenue growth and jump-start its effort at building a specialty treatment for combating immune system diseases.

The driving force behind the deal is SangStat's Thymoglobulin, a drug used to help organ transplant recipients and that generated $77.4 million of revenue last year. Genzyme is also excited about a SangStat drug that is in development, RDP58, which is being tested for a variety of autoimmune diseases.

In June, Idec Pharmaceuticals Corp. (San Diego, Calif.) agreed to buy Cambridge, Mass.-based Biogen Inc. for $6.4 billion—the biggest biotech deal in 18 months. Earlier in the year, Chiron Corp. (Emerville, Calif.) bought Britain's PowderJect Pharmaceuticals, while U.K.-based Celltech Group Plc. absorbed neighboring rival Oxford GlycoSciences.