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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