The Perfect M&A Storm is Brewing.

I'm not going to write only about the financial side of cell therapy sector but I'm on a roll here so I'll continue on the theme for at least on more post.

I've been privy to a lot of conversations recently in which M&A is on the tip of everyone's tongue. I'm likely not going out on too much of a limb - and certainly won't be the only one on it - when I make the prediction that the next 12-24 months is going to see a spike in M&A activity at all levels in the cell therapy industry.

I don't think I need a hard data set to convince you that we've seen an increase in M&A activity over the past 6 months.

This I know:

• There is a fair amount of M&A activity right now in the sector.
• The M&A pendulum has now swung back to the "sexy" side after falling out of favor for some time.
  
• A high percentage of companies in the sector are expressing interest in some level of merger or acquisition.
  
• There are a lot of M&A discussions currently being explored.

Certainly we're seeing this in the larger biotech sector with Roche's offer for Genentech, MacroGenics' acquisition of Raven Biotechnologies, Lonza's purchase of Amaxa Biosystems, and Invitrogen's merger with Applied Biosystems as prime examples just in the past few weeks alone.

There is a perfect storm of factors brewing up the ideal climate for a spike in M&A. VCs are increasingly tightfisted and conservative about life sciences for now, capital markets are tough with predictions it won't get better for some time (see today's IN VIVO blog), and - to round out the trifecta - the sector's maturation translates into increasingly larger burn rates for a higher number of cell therapy companies in later stage trials.

I'm not in the business of spilling confidential information or spreading rumor so any companies mentioned below are used simply by way of example. Don't assume I know something you don't know about any of the companies referenced below.

So what might this potential M&A dustup look like?

It will certainly involve many smaller companies - think Onyvax, KeraCure, Aastrom, Memgen, ReNeuron, HemoGenix, Novocell, Opexa, IRX, BioLife Solutions, BioSafe, Cellerant, Eufets, Progenitor Cell Therapy, Angel Biotech, Epiontis, ISCO, Lifeblood Biological Services, Stem Cell Sciences, Thermogenesis, TiGenix - some of which will look to M&A to solve their fundraising needs and others will be M&A targets because of their revenue stream.

Larger companies are not likely to be immune from this swing of the M&A pendulum - say (for example!) Dendreon, Neurotech or even - might it be possible - Osiris? The newly improved, profitable, and growing Organogenesis might be a target for its revenue and Stem Cells Inc has been none-too-shy about its M&A intentions for some time. It may involve some bigger companies in the sector - say like Genzyme or Caridian BCT (formerly GambroBCT) which we know is almost certainly being positioned for a resale by the private group that bought it to maximize its value for resale.

What is not clear is who might be the buyers. Potential companies that pop to mind include BD , Celgene, and J&J. Might Amgen make a play? What about Shire, Schering, or any of a number of other pharma looking to diversify their sagging pipelines and bolster their lackluster innovation initiatives. There will likely be other players external to the field who use M&A as an entree into the sector - think Reliance Life Sciences

We know Hospira is making a play in the cell therapy space with several investments they won't yet disclose. They hiring key and experienced executives (e.g., K. Gunter from ViaCell some time ago and recent D. Perritt from J&J). It would appear they are positioning to make a significant play in the market and it would not be surprising to see it in the services side of the sector.

It is likely to be an interesting year or two for cell therapy. On the other side of it, the industry will likely look much different, be more robust, held by a much wider diversity of parent companies, investors, and shareholders, and likely somewhat more integrated with other biotech/pharma.

So...make sure your boat is tied up, get a good window seat (if you're a watcher) or a kite sail (if you're want to participate), and let's have fun. Let's make sure smart deals get done that get good technologies in the hands of companies that will make them work - as therapies, as the base of sold companies, and rewarding to investors with the cojones & foresight to put cell therapies in their portfolio.

Drug Companies Ready for Cell Therapies?

Ok I won't title every blog in the form of a questions but this one seems a fitting follow-up to my last blog re: VCs.

Today Pfizer announced an investment in an early-stage (pre-clinical) cell therapy company. Forbes' commetary on the deal begins: "Big drug companies have largely stayed away from testing exotic stem-cell treatments. But now Pfizer is betting that a radical new adult stem-cell treatment may be able to stave off diabetes-induced retina damage, a leading cause of blindness. In an unusual deal, the big drug maker is funding the creation of a biotech company in San Diego called EyeCyte, which will develop stem-cell treatments for eye diseases." (click here for full Forbes article).

The press release states "The financing will fund the company into 2010 [the target date for phase I] and will be primarily used to drive product development of the company’s initial clinical target, diabetic retinopathy."

Friedlander and El-Kalay have a fascinating technology and it looks very promising in mouse models. It is, I believe, now being tested in primates. The approach is unique in that it encourages vascularization in a disease states often marked by overvascularization on the premise (borne out in very nice pre-clinical data) that using a highly purified progenitor cell population isolated from the patient’s own bone marrow using proprietary reagents and processes then injected to support healthy vascularization, prevents ineffective vascular proliferation.

In a conference this spring they also spoke of their efforts in looking at not only their scientific methodology but also already working on scale-up (bioreactor me-thinks?) technologies and closed production systems. This is uncharacteristically forward thinking (and admirable) for a company in early development stage.

There have been some encouraging signs recently regarding Pharma's involvement (or potential involvement) in the field.

As Langreth alludes in the Forbes article, J&J is indeed more involved than any other pharma peer. In fact, by my account they are by far the largest cell therapy company in the world if you add up their diverse projects around the globe. They have wisely diversified their investments to internal and external, therapuetic and tools, early and later-stage companies.

There were some, of late, who even presiently opined (or at least wondered aloud) about Pfizer's potential interest in cell therapy (see fellow-blogger J. Rowley's Dec 2007 post at http://tinyurl.com/3kj93m) given the creation of a new Bioinnovation Center "to focus on discovering and developing new medicines". Then in April Pfizer announced the creation of Pfizer Regenerative Medicine "a new research unit focused on stem cells and modulators of regenerative processes".

For the most part, pharma's interest in the sector to-date has been largely focused on the use of stem cells for discovery or testing. Understandable.

Pfizer's investment is modest: $3 million - with rights of first refusal to buy it outright. Hopefully with Pfizer on the board, the team finds a way to ensure that the fact EyeCyte can now leverage Pfizer's "prowess" is a positive influence on prudent development rather than a drag on momentum.

This is an encouraging notch on the bed post of cell therapy. Particularly autologous cell therapy at a time when many are - rather prematurely in my opinion - writing autologous therapies off in favor of allogeneic models. The venture might be a one-off and it might fail, but to me, this is just another small checkmark in the 'reasons-to-be-positive-about-cell-therapy-going-forward' column.

Stay tuned...

VCs ready for stem cells?

Traditional wisdom on the street (that's main st. not wall st.) says that VCs are not yet backing cell therapies or regenerative medicine type investments because (a) it's too early, (b) they got burned at the tip of the gartner curve in or around 2000, (c) they're waiting for the first home-run/blockbuster or even modest success story, (d) the regulatory pathway is too ambiguous, (e) the business models are not clear, and/or (f) all of the the above or any any other logical sounding reason.

While there certainly is some truth to the cited reasons, it's not true that VCs have stayed away from the cell therapy/regen med pool - ok maybe they've just rolled up their pants and stepped gingerly into the wading pool end! While VC participation to-date may be modest relative to the size, number, and/or enthusiasm of VC funding in other sectors, there certainly is evidence to counter a blanket statement about lack of VC participation.

• I maintain a database which today lists ~225 investors with one or more investments in a cell therapy or regen med play representing ~290 investments in ~110 cell therapy companies plus ~23 pharma, biotech, or device companies with an investment in an external stem cell and/or cell therapy-related venture.
• Toucan Capital - likely one of the undisputed pioneers in VC funding for stem cells - has been building a very early-stage portfolio for several years.
• So far this year there has been deals announced representing ~$500M largely in the purchase or license of product lines. Additionally there has been~$149M in direct investment deals announced.
• Certainly companies like Geron on the public side and Tengion on the private side have done just fine raising money to-date.
  

This week's positive sign was the announcement of Kleiner Perkins Caufield & Byers funding of iZumi Bio Inc - an induced pluripotent stem cells play. KPCB (namely Beth Seidenberg and perhaps others) has been following the sector for some time but to my knowledge has not made any investments.

While iZumi has not revealed their business strategy, the announced focus of their research will be "potential use of stem cells in cardiovascular medicine and drug discovery". Certainly the use of stem cells for drug discovery and testing is now the sexy low-hanging fruit for investors and companies looking to create revenue in the short-term while funding their longer-term therapeutic programs (similar in a way to the approach Gail Naughton's new company (Histogen Inc) is taking).

While Bioheart's IPO did not fare so well earlier this year, Aldagen has announced its intention to launch an $8o+M IPO sometime soon and given their success in raising private money appears to have reason to have some confidence.

This IPO and the progress of Proteus Venture Partners in closing their regenerative medicine fund should be two very interesting events to watch in the second half of 2008!

--Lee

[the] cell therapy group is launched

So it's official. I'm taking the leap - well at least a little baby puddle jump. I've spent this week launching my own consulting business.

I won't make this an advert for my business - if you're interested, you can check it out at www.celltherapygroup.com.

I've accessed all kinds of great online tools that make starting one's own venture now so easy and cost-effective. The domains are registered, website is up, email is working, North American toll-free number is in place, contract templates are done, logo has been delivered, business cards are ordered -- all of the above for under $500! Not bad, huh?

My first job rolled in yesterday - a project focused on market analysis, market positioning, and business strategies for a young but not start-up company in the cell therapy sector. Should be interesting.

In the meantime, I've decided to learn about the blogosphere with this little experiment and also signed up today for Twitter .

I can't promise to be as eloquent or as well researched as J. Rowley was with Regeneration Station before he iced it but my intent is to provide my ongoing commentary, insights, opinions, and general ramblings on the cell therapy/regenerative medicine industry along with the occasional update on what I'm up to like conference reports, business updates, etc. Don't expect anything too controversial or secretive -- I do have clients to protect and solicit after all!! :)

Anyway, I hope I can offer an interesting voice and in the meantime develop a network of readers, colleagues, and (this is your invite...) co-contributors.

Blog to you soon!

--Lee