A piece of news that hit at the end of last week is something that some of us in the RTP area have been anticipating for a while: the acquisition of local pharmaceutical company Icagen by Pfizer.
For a small pharmaceutical or biotech company, the ultimate objective is to either get a drug to market or get acquired by a larger entity and everyone – the investors, management team and employees – all make a small fortune on the back of their stock options. Icagen have had a rough time of it, their stock price was dangerously low and they were in danger of being removed from the NASDAQ. There had been the inevitable lay-offs. Their collaboration with Pfizer was the one thing that they had going that was keeping the company afloat. So Pfizer coming through and extending their 11% stake into a takeover was their most likely exit strategy.
So why isn’t it a happy ending? Some are clearly not happy. One investor has filed suit, saying Pfizer undervalued the company. But a look at the recent stock price says that $6 a share was quite within line for what the stock was worth: even running up to the deal, the stock price was never more than $5.75.
The trouble is, of course, that no one who invested in Icagen is getting much out of this deal. When Icagen’s stock was initially floated, it was worth the equivalent of $64 a share, but the price tumbled and to avoid the ire of NASDAQ, a reverse split was done, with 8 shares of the old Icagen worth 1 in the new version. So $6 a share is still less than a dollar per share of what was originally bought – not exactly the financial bonanza that we think about when we take up our stock options. Some speculation prior to the sale (when Icagen shares reached a 12 month high of $6.33) suggested a valuation of $50 up to $100 million (or $13 a share) but ultimately the agreement reached is at the low end of that speculation.
This seems like a great deal for Pfizer. They were heavily involved in their own project of course and so can evaluate the potential of that alone, plus here are a number of other projects that Icagen worked on but did not reach an endpoint on, giving Pfizer a boost to its pipeline. They had the upper hand here and could have declined to continue the collaboration if it wasn’t going anywhere, or – as they did – acquire the company before the next milestone or royalty payment kicked in (why pay twice?). So some good business for them.
I have to wonder what that will mean for future collaborations though. With big pharma cutting their research budgets, small pharmaceutical companies were expected to take up the slack, with the prospect of a lucrative pay day coming at the end of it. It is nice to get the financial support of a big company when you are struggling to make way, but if you do that, what is to stop them picking up your I.P. for a song when the time is right?