Biotechs may seek to sell nutraceutical cash cows
as a cash cow to fund pharmaceutical R&D; as research yield
results and prompts a re-focus on the lucrative pharma market,
mature nutraceutical businesses are becoming available for
acquisition.
Drug development is dominated by the likes of Pfizer and Merck - big pharma with big budgets. But a rash of small biotech companies have come onto the scene in recent times.
In order to compete, smaller companies need to have a solid revenue stream to feed into R&D and help keep their head above water - at least through phase I and II trials, after which they may seek a mid- to large-size partner or licensee to take the technology to phase III and commercialization.
However another model has emerged, whereby companies build up their nutraceutical activities and plough a large chunk of the sales revenue into developing pharmaceuticals.
As this development reaches maturity, they then look to refocus by selling off their nutra interests and provide a cash injection for ongoing pharma activities.
This means that companies in the nutraceuticals market (who intend to stay in it) should be keeping an ear to ground for news of established, well-performing nutraceutical business put up for sale.
For instance, last month Zila revealed that it is considering selling off its key nutraceuticals division, home of successful advanced vitamin C Ester-C and to which Phosphagenics licenses its Phospha E (aka Ester-E) for dietary supplements.
Zila chairman, president and CEO Douglas Burkett, said that for several years Zila's strategy has been to grow the nutraceutical business, then treat it as a cash cow to get the pharmaceutical and biotechnology businesses off the ground.
"The plan has worked and we believe we have reached a point where it is prudent to evaluate a more targeted focus on the company's highest potential products," he said.
Anyone hearing of this for the first time may already have missed the boat, however. The company was in discussions with some of its customers for several months before it communicated its intentions and is now understood to be at an advanced stage of discussions with one party.
A similar strategy was followed by Forbes MediTech, which recently sold its share in Phyto-Source to its joint venture partner, as it returns to its original aim: the "developing and marketing a continuum of products for the prevention and treatment of cardiovascular disease."Building up sales of its Reducol sterols brand plays a key part in this, but the company has high hopes for its new drug, too. Last year it increased its R&D spend from C$4.7m to C$10.2, as it initiated a US phase II clinical trial for its cholesterol-lowering drug FM-VP4.
It isn't hard to understand the reasoning behind this strategy. The global nutraceuticals market is expanding rapidly as consumers take more interest in their own health and disease prevention.
Datamonitor valued the European market for foods and beverages containing nutraceutical ingredients at $4.56bn in 2004, and the US market at $18.99bn. It projects the European market to be worth $6.77bn by 2009 with a compound annual growth rate (CAGR) of 6.4 per cent, and the US market to be worth 24.99bn with 5.7 CAGR.
