Gut Check

It is often said that strength comes from within, that all you need to get along and be successful is a little faith in yourself. In times of crisis, this faith can require something of a gut check, where you look to see if you're being true to yourself and your supporters.

 

As it is with individuals, so it is with companies. The last year or so has seen a number of companies facing some really big decisions, if not outright crises, that reflect to the outside world how much faith these companies have in their abilities. And each one of these companies has approached the challenge in its own way, reflecting its unique corporate culture and its view of future markets.

 

For example, the past year has been challenging for Ciphergen Biosystems, at least in the financial pages of many magazines. The company has revised or restated its financial projections to reflect dramatic changes in the market, and as expected, these actions have caused market analysts to ask some hard questions, and its stock price has reflected these questions.

 

At the same time, Ciphergen appears to have the ultimate confidence in its basic technology platforms and its decision a couple of years ago to reposition itself as a leader in the biomarker and diagnostics markets. To that end, the company continues to align itself with one clinical project after another, even in the face of financial news that would cause many a larger company to retrench.

 

"We've made significant progress in the second half of the year including the signing of a strategic alliance agreement with Quest Diagnostics and further development of our pipeline of potential diagnostic tests," stated Gail Page, Ciphergen president and COO, in late December. "The [Q2-2005] restatement was a distracting event for the company, but we have been making appropriate changes to our internal controls and we are now focused on moving forward with the business."

 

Is this a good plan? Only time will tell. There is no doubt, however, that the diagnostics and testing industry is growing. All indicators are that this will become an incredibly strong market that is fostered in no small part by a steadily aging Western population. The question is, can companies like Ciphergen afford to stay the course long enough to maintain their positions in front of the wave?

 

On the other hand, where Ciphergen has decided to forge ahead, confident in the power and potential of its platforms, other companies have looked to improve their bottom lines through the acquisition or in-licensing of late-stage products or platforms. Ultimately, the goal of this approach is to augment existing pipeline efforts or to plug holes that have developed through attrition and/or shifting markets.

 

In late 2005, AstraZeneca entered a licensing deal with AtheroGenics for the global development and commercialization of a late-stage anti-inflammatory cardiovascular candidate, AGI-1067. If the drug meets development and market milestones, the deal could end up costing AstraZeneca almost $1 billion. For the smaller company, this deal offers them the chance to link a developing product with a global sales and marketing team that it could not achieve on its own. For AstraZeneca, the deal provides an expanded presence in the cardiovascular market.

 

Explained Dr. John Patterson, executive director, development for AstraZeneca: "We believe that AtheroGenics' approach to partnering AGI-1067 has provided both companies with a potential win-win situation by giving AstraZeneca exclusive access to a drug with substantial market potential for a reasonable entry fee, while AtheroGenics stands to benefit significantly with commercial success. AGI-1067 has the real potential to further enhance our position among the leaders in cardiovascular medicine."

 

Although deals like this may pay off handsomely in the future, they are still a significant gamble. "Innovation-by-acquisition" can help companies get over small financial or pipeline hurdles, but these same companies have to remain vigilant that it doesn't become a corporate crutch, providing the semblance of progress. Again, only time will tell.