Drug Delivery Report

By Brendan  McClure, Business Analyst,  PharmaVentures

The drug  delivery market  has  grown  to  represent approximately 10%  of the  worldwide  US$200 B prescription  pharmaceutical market.  Looking to  capitalise  on  the  size of the  market  are more  than  300  companies  operating in the  development of new  delivery technologies. As the  majority of the  companies are  start-up/emerging companies,  the  drug  delivery industry remains  highly fragmented: there  are  a large number  of companies  in various stages  of development, operating a range of strategies.  Such an environment has  contributed to  the increasing  numbers  of drug  delivery related  mergers  and acquisitions,  as companies  jostle for the  attention of Big Pharma  and  biotech-derived products.  In addition,  some  drug delivery companies  have  used  acquisitions  to  gain competences in areas  that  enable  them  to  develop  and  market  their  own proprietary  products. Traditional  drug  delivery companies  can  be broadly categorised into  either  specialist technology  providers or cross platform  providers.  Specialist technology  providers offer drug  delivery solutions  in a single delivery area,  for example,  needle- free  delivery; cross platform  providers offer a range  of delivery technologies over a variety of delivery areas.
To remain  competitive,  specialist technology  providers need to  offer leading-edge technologies. However,  due  to  their narrow  specialisation,  these  companies  are  at  constant risk of external  supercession.  Merger/acquisition activity enables  these companies  to  both  maintain  a technology  advantage and  to broaden their  technology  platforms  within a single delivery area,  and  so offer more  complete  delivery solutions.  For example,  through its acquisition  of Southern  Biosystems  (SBS) in April 2001,  DURECT gained  access to  SBS's SABER™ depot delivery system  in addition  to  microsphere  and  drug  loaded implant  technologies (07906).  DURECT itself is focused  on  the extended delivery of drugs,  principally through its DUROS® implant  technology.

Drug delivery companies  are  facing a trend  for pharma wanting  'one  stop  shops'.  Cross platform  providers are  able to use  mergers  and  acquisitions  to  broaden their  technology capabilities and  expand  into  new  delivery areas.  An example  of such  an acquisition  is Inhale Therapeutics  Systems'  recent acquisition  of Shearwater  Polymers, a company  specialising in PEGylation technology.  The acquisition  had  a value of US$191 M, of which US$72.5  M was  paid in cash  and  the  remainder in Inhale stock (08013).  This acquisition  follows Inhale's previous acquisition  of Bradford Particle Design for US$200 M, of which US$20 M was  in cash  and  US$180 M in Inhale stock (07225). Over recent  years, a number  of drug  delivery companies have  adopted a strategy  to  evolve as integrated drug delivery/pharmaceutical  companies.  Mergers  and  acquisitions provide drug  delivery companies  with  one  method of vertically integrating in this way. Figure 1 details business  acquisitions where  drug  delivery companies  have  made  acquisitions  outside Elan has  completed the  largest  number  of acquisitions  and  is furthest  down  the  route  of becoming  an integrated pharma company  (see table  for details). Its acquisitions  have  focused on  the  areas  of neurology  and  pain management. From a total revenue  of US$1.3 B in 2000,  Elan gained  US$826 M through sale of its proprietary  products.  Such a competence positions Elan as an emerging  specialty pharma  company  with  a backbone in drug  delivery. Elan has  continued to  make acquisitions  within the  drug  delivery area.  Most recently  it acquired  Dura Pharmaceuticals in September  2000  for US$1.8 B and  Quadrant  Healthcare for US$76 M towards  the  end  of 2000  (06482  and  07937, respectively).

A notable  absentee from the  table  is ALZA, a leading  drug delivery company  that  has  recently  been  acquired  by Johnson & Johnson  for US$10.5  B (07697).  In 1993,  ALZA set  itself the goal of transforming from a traditional  client-focused  drug delivery company  to  a pharmaceutical company  developing  its own  products,  specifically in the  areas  of urology and oncology.  Its exclusion from the  table  is due  to  the  fact that this  transformation has  been  achieved  through organic  growth. It has  gained  products  though in-licensing arrangements. For example  its 1997  agreement with  IVAX, where  it licensed the US and  Canadian  rights to  four launched  products  in the urology area  (01684).  The agreement had  an upfront  value of US$75 M with  further  royalties according  to  sales. At a similar time,  ALZA substantially  increased  its sales to  support  its increased  marketing  efforts.  In addition  to  the  acquisition  of pharmaceutical/biotech companies  by drug  delivery companies, pharmaceutical companies  have  made  acquisitions  of drug delivery companies:  for example  the  aforementioned acquisition of ALZA by Johnson  & Johnson.  Through  the  acquisition, Johnson  & Johnson  will gain access to  technologies that  will create  new  product  opportunities and  extend  product  life cycles. In addition,  it will gain access to  ALZA's proprietary products  that  will serve to  broaden its product  portfolio:  ALZA will retain  its name  and  management as a free-standing Johnson  & Johnson  company.  This acquisition  follows an attempted takeover  of ALZA by Abbott Laboratories in 1999, for a value of US$7.8 B (04199).  That agreement was terminated as the  companies  were  unable  to  satisfy FTC anti- trust  concerns.

Galen Holdings' acquisition  of Bartholomew Rhodes,  and Shire Pharmaceuticals' acquisition  of Pharmavene  are  also examples  of this type of acquisition  (04237  and  01033,
respectively). In these  cases the  acquiring  companies  are operating as emerging  speciality companies.  Through  the acquisition  of drug  delivery companies,  they are  able to  acquire off-patent products  that  have  the  potential  to  be enhanced through application  of novel drug  delivery techniques. Such a technique enables  the  relatively cheap  and  cost-effective development of proprietary  products.

Drug delivery represents a dynamic,  rapidly evolving sector as  companies  continue  to  vie for positions  that  will maximise commercial  returns.  Both markets  and  technologies continue  to drive the  sector,  and  it will be interesting  to  witness  its evolution  over the  ensuing  years. The timeline for evolution  is likely to  be decades  rather  than  years due  to  the  emergence of novel technologies that  provide new  drug  delivery solutions.