Is biotech really such a bargain?

By Sam Cage

NEW YORK (Reuters) - Cash-strapped biotechs may be hoping Big Pharma rides to the rescue, but they shouldn't count on it.

Many biotechnology assets, which may look like good buys as the financial crisis has beaten down share prices, have already been examined and rejected, pharmaceutical executives told the Reuters Health Summit in New York.

"This is well picked over," said Arthur Higgins, chief executive of Bayer AG's BAYG.DE Bayer HealthCare. "We know what's there. There's no short-term answer for the industry's woes in biotech."

Big pharmaceuticals makers, facing looming loss of exclusivity on key products and ever tougher development and approval processes, have been keen to invest in promising biotech drugs by acquisition or licensing deals to bolster their pipelines.

On the surface it is a marriage made in heaven -- large, cash-rich companies looking for exciting science to bolster growth, and impoverished start-ups that need to raise funds.

David Brennan, chief executive of AstraZeneca Plc (AZN.L) -- which acquired biotech company MedImmune last year for $15.6 billion -- said there are certainly more discussions between pharma and biotech. But most biotechs have been scrutinized and rejected as uninteresting or too expensive, he said.

"But, quite frankly, my bias when we are looking at compounds is to license them because then we share the risk and share the reward," Brennan said.

Francesco De Rubertis, partner at venture capital company Index Ventures, said the underlying trend of pharma vacuuming up biotech assets would continue, but investors should not expect a flood of deals right now.

"It will be some time before we really see the impact of these last three months in terms of dealmaking," he said. "I think we will see that in the first part of next year."

BARGAIN-HUNTING

Potentially, there is more opportunity today to make money on a deal.

Tim van Biesen, partner at consultancy Bain & Co, says deals done in economic downturns have three times the return of those concluded during a boom.

"That is a huge opportunity, but it requires a little bit of courage to be the first one out there to start doing the deals," he said.

Merck & Co Inc (MRK.N) certainly sees an opportunity. Chief Executive Richard Clark said he would consider buying a biotech company with annual revenue of as much $10 billion, as long as it was profitable.

"There are a lot more potential licensing (deals) and acquisitions out there," Clark said.