Laughing all the way to the bar

Remember all the excitement about resveratrol, the red wine extract that some hoped would be proven as a wonder drug for cancer and other ailments? Quackwatch (Resveratrol: Don’t Buy the Hype) had the substance pegged as a loser as early as 1999, but that didn’t stop GlaxoSmithKline (GSK) from paying $720 million for Sirtris Pharmaceuticals, the Massachusetts company developing resveratrol, two years ago. As you may have heard, GSK has just shut down development after data showed the drug did little good and posed a danger to the kidneys.

Big pharma is running scared now because they need to replace their aging portfolio with new drugs, so it’s understandable that they need to take risks on unproven drugs. Still, you can bet whoever led the charge for Sirtris at GSK is feeling a little sheepish right now. It would have been much better for him (her?) if it took longer for the drug to fail. Sirtris founder Christoph Westphal put some serious cash in his pocket when the deal was done. He’s now running GSK’s venture fund and has definitely had the last laugh. Read my Myth of the Innocent Drug Company for more on his perspective.

This background may help explain why Merck just bought SmartCells, another Massachusetts firm, for $500 million. The company has a cool sounding, patented approach for insulin development, but it’s apparently years away from even entering a clinical development program. That seems like it should make the company worth a lot less, but actually from the perspective of the Merck business development person, it may make it worth more. After all there’s little chance SmartCells will fail and be written off for at least five years. By that time the deal maker will have been promoted and/or moved on to another company. No one will be able to pin the failure on this person.

The deal does include some milestone payments, which have not been publicly disclosed. Still it’s a safe bet that there’s a goodly amount of cash upfront.

December 2, 2010

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