The credit crisis may force MediGene AG to accept a less-favorable licensing deal for its most advanced cancer medicine because limited financing options have weakened biotechnology companies' bargaining power.
The Martinsried, Germany-based company needs to fund the expensive last round of human trials required for approval of EndoTAG, Chief Executive Officer Peter Heinrich said in an interview. MediGene estimates the drug may bring in at least 1 billion euros ($1.28 billion) in peak sales.
MediGene today presented positive study results on EndoTAG and plans to start talks with pharmaceutical companies at a time when investors are seeing deals dry up or close at less attractive terms. The company's situation indicates a shift of bargaining power from the biotechnology industry to large drugmakers. Cash-poor biotech companies have little choice other than relying on drug industry financing, investors said.
``Biotech is between a rock and a hard place now,'' Alistair Sinclair, senior strategy analyst at Datamonitor Plc, said in an interview. ``They need the money and they are going to have to sacrifice products or the value of the deal.''
Major drugmakers are flush with cash, having on hand an average $7.5 billion in funds, according to Datamonitor. Bayer AG and Eli Lilly & Co. have said they are ready to take advantage of the situation. Deals will dry up as drugmakers wait for potential partners to become more desperate, Sinclair said.
Venture Capital
For the biotech industry, alternative financing is dwindling. Venture-capital funds cut their investment in both European and U.S. biotech companies by more than one fifth in the first half of 2008 compared with a year earlier, Julia Schueler, a senior biotechnology analyst at Ernst & Young in Mannheim, Germany, said in an interview.
EndoTAG, which consists of fat spheres filled with the cancer drug paclitaxel, attaches itself to blood vessels and destroys them, starving tumors. The mechanism lends itself to any solid tumor with a large number of blood vessels, including breast and liver cancer, giving the medicine an annual peak sales potential of more than 1 billion euros for pancreatic and breast cancer alone, Heinrich said.
The experimental drug is in mid-stage human tests in breast cancer and earlier trials in non-small cell lung cancer, two of the most-promising growth fields for the pharmaceutical industry. Heinrich wants to share development and marketing rights in Europe, and possibly keep all rights to develop and sell the drug in a smaller indication.
``These products are rare and highly sought after,'' Heinrich says. ``We are in a strong position.''
Oncology Market
The competitiveness of the oncology market is a positive for MediGene, Sinclair said. Still, MediGene may have to sell rights to all indications to get a deal, he said.
Early studies show the medicine might be effective against a wide range of tumors, as is Roche Holding AG's Avastin, said Hanns Frohnmeyer, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart. Avastin generated $3.4 billion in sales last year.
``The data are surprisingly good,'' he said.
Declining stock markets make raising capital through share sales difficult, and investors may prefer writing off losses to raising their stakes, Sinclair said. On Oct. 3, Austrian vaccine maker Intercell AG said the credit crunch forced one of its U.S. venture-capital investors to place 1.5 million shares on the market.
Jerini Sale
Jerini AG's 349 million-euro sale to Shire Plc in July and Direvo Biotech AG's sale to Bayer for 210 million euros in September were brought about partly because the companies faced a more-expensive credit market, said Hubert Birner, a partner in the venture-capital fund TVM Capital GmbH, in Munich, that had a stake in both deals.
While Direvo and Jerini did well in their deals, they would have gotten more favorable terms without the credit crunch, he said.
MediGene shares fell 33 cents, or 6.3 percent, to 4.89 euros at the close of German electronic trading. The company, which reports third-quarter results on Nov. 7, has lost 8.6 percent this year, giving the company a market value of 166.4 million euros.
Heinrich said talks with potential partners will extend at least until next quarter. Heinrich needs to finance one or two studies of 500 to 800 pancreatic cancer patients, at a cost of about 20,000 euros each, and additional tests in other cancers.
MediGene has 41 million euros in cash, enough to operate for two years. That's less than what's needed to fund all the trials.
Upper Hand
The quality of the data being released may still give Heinrich the upper hand, Birner said.
Still, ``the market environment will be against him,'' he said. ``They've got cash until the end of next year so the pressure is rising'' on MediGene, he said.
Recent data have shown that the treatment increased the survival rate in pancreatic-cancer patients. About a third of the volunteers in a test were still alive after 12 months of combination treatment with a standard drug called gemcitabine and EndoTAG, compared with 17 percent taking gemcitabine alone.
There's little doubt that MediGene will be able to find a drugmaker to help with the funding, said Friedrich von Bohlen, a partner in SAP founder Dietmar Hopp's Dievini Hopp Biotech Fund GmbH.
Datamonitor's Sinclair agrees demand will stay strong.
``Pharma still want the late-stage products, they just want them as cheaply as possible,'' he said.
