Vultures Descend and Phoenixes Rise in the Wake of Biotech Consolidation

Biotech start-ups always rise from the ashes of consolidation -- heck, the entire San Diego biotech industry was spawned after Eli Lilly (LLY) acquired Hybritech in the mid 1980s.
So it's no surprise that the biotech mergers, acquisitions, bankruptcies and liquidations of the past 18 months are turning out to be a boon for new companies. But the cycle-of-life is taking a different turn this time around.

In the past, execs from an acquired company often spun-out an early-stage asset or started from scratch with a similar technology. Now start-ups can get their hands on late-stage assets from failed biotechs -- products that already have hundreds of millions invested into their development.

Start-up Alnara Pharmaceuticals picked up Phase III cystic fibrosis drug Trizytek after Altus Pharmaceuticals (ALTUQ.PK) went belly-up. Similarly, Ohr Pharmaceutical acquired the Phase II cancer cachexia drug AVR118 from Advanced Viral Research (ADVR.PK) and the Phase II wet age-related macular degeneration drug Evizon from Genaera.

And start-ups aren't the only ones to benefit. Ligand Pharmaceuticals (LGND), no spring chicken itself, has been snapping up troubled firms like Neurogen, Metabasis Therapeutics (MBRX) and Pharmacopeia.

The knee-jerk reaction to all of this is that all these biotechs failed, so the companies acquiring their assets are buying something that has already proven worthless (or at least unfundable). But licensing and turning around failed assets is a tried and true strategy in biotech -- folks will tell you almost every FDA approved drug failed at least three times along the way.

And drugs aren't the only assets available on the cheap these days. An article in The Boston Globe notes that start-ups are picking up second hand incubators, centrifuges and more at bargain basement prices:

"Cannibalism is rife within the biotech industry!" Barry Canton, a cofounder of Ginkgo Bioworks, wrote in an e-mail. His company has acquired an estimated $600,000 worth of recycled equipment -- for about a 90 percent discount.