A partner's partnership

Ligand's acquisition of Pharmacopeia to focus on Big Pharma partnerships

Amy Swinderman
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SAN DIEGO—As large pharmaceutical companies continue to gravitate toward risk-sharing partnerships with other market players as a way to streamline R&D operations, San Diego-based drug discovery firm and collaboration-focused Ligand Pharmaceuticals is capitalizing on this trend by acquiring Pharmacopeia, a Princeton, N.J.-based company with a similar business model.

The $70 million, stock-for-stock exchange transaction, announced in late September, is both a marriage of Ligand's biology focus and Pharmacopeia's chemistry resources as well as the two companies' numerous royalty partnerships with Big Pharma. Ligand's partners include King Pharmaceuticals, Pfizer and TAP Pharmaceutical Products, while Pharmacopeia has collaborations underway with Bristol-Myers Squibb, Celgene, Cephalon and Schering-Plough. Both companies have signed deals with GlaxoSmithKline and Wyeth. Between them, the companies count a pipeline of 15 programs in various stages of research and development, more than 20 therapeutic indications in pursuit and more than $400 million in potential R&D and milestone payments from existing deals.

Ligand President and CEO John L. Higgins says both companies' diverse partnerships with larger pharmas will create a steady revenue stream into the next decade. The combined companies are projected to have nearly $90 million in cash at closing, a 2009 pro forma operating cash burn rate of $20 million and more than $350 million in potential net operating loss carry-forwards.

"Whereas most companies' goals are to launch a new product or file a new NDA every year, our goal is to do one new licensing agreement every year," Higgins said. "It is very expensive to run a public biotech company because you risk running out of cash and having to do additional financings, so we began looking at ways to expand our business by bolting on additional drug discovery assets. We thought Pharmacopeia's chemistry focus was an ideal complement to our biological drug screening assays, and they had a similar growth strategy."

Pharmacopeia Interim CEO Joe Mollica says the acquisition comes at an opportune time, with Big Pharma increasingly leaning on smaller companies to help cut R&D division costs.

"Right now, global market conditions are overshadowing everything," Mollica says. "This kind of business model has not actively been pursued by other companies, but going forward, our basic strategy will be to continue to pursue that model and develop new products. This was the best decision we could make to give our shareholders more value."

Higgins said both companies will retain their existing offices, but the acquisition will result in some redundant staff cuts. Ligand is open to similar acquisitions, he added.

"We have a strong balance sheet and a good cash position at a time when many other companies have good assets but are still tied to Wall Street," he said. "We think there is further opportunity to expand this business model."


Amy Swinderman

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