In the first part of this article (October 10, 2008 - Volume 7, No. 13), we examined the consequences of the current financial crisis (or "tsunami" as it is now often referred to) on the funding environment for life sciences companies. As we noted, the existing situation is bleak for companies which require funding to continue their research, development and commercialization programs and it is most difficult to discern when in the future the situation may improve.

As we further noted in the first part of this article, one consequence of the financial crisis has been a further surge in mergers and acquisitions activity as pharmaceutical companies look to acquire biotechnology companies which have promising products but significant cash constraints. According to some sources, M&A activity in 2008 has already hit a record US$167 million.

Roche Holdings AG is one of the large pharmaceutical companies to indicate its intention to look to acquire smaller companies. In fact, in Canada, Roche recently completed the acquisition of ARIUS Research Inc. for approximately $190 million. (Gowlings represented Roche in connection with this acquisition.) ARIUS is the developer of a proprietary antibody platform which identifies and selects antibodies based on their functional ability to effect disease before progressing into clinical development. In commenting on the transaction, Roche's Head of Global Research said that ARIUS provided an excellent fit with Roche's own research in the fields of cancer and immunology.

Bristol-Myers Squibb Company, coming off a strong third quarter financial performance, announced that it will use its strong balance sheet and cash position to supplement its pipeline with purchases. Its CEO stated that "we have a long list of companies, compounds, [and] technologies we would like to acquire over the next several years and I'm confident we'll do it".

Eli Lilly and Company, which has apparently won the sweepstakes to acquire ImClone Systems Inc., confirmed in announcing the deal that one of its key strategic priorities is to increase the flow of high quality, innovative new therapies, including through targeted acquisitions. It added that the acquisition of ImClone supports its increased focus on biotechnology.

In recent weeks, GlaxoSmithKline Plc has joined the list of other major pharmaceutical companies in publicly announcing that it will keep its cash available for small to medium acquisitions. GlaxoSmithKline's CEO stated that the financial mess has created opportunities for purchases, especially of biotechnology companies which are struggling to get financing, although he added that the company will be extremely selective.

In other words, we are seeing an acceleration of the recent trend of pharmaceutical companies looking to fill their product pipelines by acquiring or otherwise locking-up biotechnology assets. The big pharmaceutical companies, with their strong balance sheets and cash reserves, are ideally positioned. The financial crisis has dried up funding sources previously available as the lifeline for emerging biotechnology companies and eliminated, temporarily at least, financial buyers from the acquisition landscape. For those biotechnology companies facing a funding crunch, an out-licence arrangement or outright sale to a large pharmaceutical company may be the most palatable or only option available. Consequently, if they have not already done so, it is incumbent on these companies to start assessing transactions with strategic partners and positioning themselves so that, if approached, they have considered how to structure transactions in an acceptable manner while maximizing the value which they receive.

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