Dealmaking 1996: The Year in Review

While the drug industry continued to shun acquisitions in favor of alliances, service and device companies see mergers as the only way to go. Can diagnostics, still stubbornly unconsolidated, be far behind?

• Absent the cost pressures of the early-90s, drug firms have turned away from acquisitions, embracing alliances as the way to find the new products that drive growth.

• Service companies, looking for higher profit niches and earnings growth through rationalization, used acquisitions at record levels.

• The market for medical device companies was hotter than it has ever been, largely because major device companies continue to see acquisition of smaller firms as their growth strategy of choice.

• Abbott's acquisition of Medisense implies a bruising battle of giants in diagnostics, which has so far supported, albeit meagerly, a host of mid-sized players.

When it comes to big pharmaceutical deals, merger and stock market activity seem to move inversely: the better the market, the lower the M&A activity, though the activity swings lag each other a bit. Drug companies go looking for cost-reducing and quickly-accretive mega-mergers when their stocks are in trouble; when stock prices are going up, M&A looks strategically diversionary or unnecessary--though little in the business environment has changed to make it any more diversionary or less necessary than it was when the market was down.

Thus the market boom of 1995-1996 saw a marked decline in the number of big mergers: six mergers topped $500 million in 1996; compared to seven in 1995; and 13 in 1994. Even those figures underestimate the interest in mergers: there were only two horizontal consolidations among Big Pharma players in 1996, compared to five in 1995 and four in 1994.

Indeed, the only reason the acquisition dollar volumes didn't dip this year: the Ciba-Sandoz stock-swap merger that created Novartis AG [See Deal].

Not that there wasn't plenty of merger talk. At the end of the year, partly thanks to the long-awaited Hoechst bid for Roussel-Uclaf, acquisition rumors swirled around the French pharmaceutical industry, a bastion of undersized players which the French government would like to see consolidate. Synthelabo SA and Sanofi SA were under particular scrutiny.

But while no one expects mergers to come to an end, they seem to have very little rationale for doing them in the absence of compelling financial motivations such as sharp pressure on prices and unit volumes.

But drug prices and unit volume are growing again; the immediate pressure to cut headcount is over. Moreover, perhaps because of the unmistakeable success of companies that have completely avoided both horizontal and vertical mergers, in particular Pfizer Inc. , the general industry concensus is that drug companies should focus on what they know best: developing and selling drugs. It is far cheaper to do this, they reason, through alliances than through acquisitions.

Pfizer's agreement to license Warner-Lambert Co. 's atorvastatin, an NDA-stage anti-cholesterol drug with significant advantages over competitive HMG CoA reductase inhibitors, was only the most spectacular of a handful of expensive deals in which Big Pharma ponied up plenty to get the rights to late-stage drugs [See Deal], [See Deal].

And the numbers support the anecdotal evidence of the increased interest in alliance activity. Windhover covered 404 inter-company pharmaceutical alliances (i.e., not including universities)in 1996, up from 335 in 1995, a 21% increase.

All of this was great news to biotech investors. Tired of the frequent, dilutive rounds of equity they had to endure when playing the major funding role for biotech drug development, investors have been happy to hand off the financing responsibilities to drug firms.

Services: Acquiring for Higher Margins

One result: a fabulously revived equity market in which new pharmaceutical and biotech companies raised $1.48 billion in IPOs and $2.73 billion in follow-ons. As with all biotech windows, this one eventually shut--but it cracked opened again. While companies in other industry segments, most notably medical devices, seem to have been hit hard by the summer's decline in IPOs, early-stage biotech companies with the demonstrated ability to fund themselves largely with partnerships were never totally abandoned by Wall Street.

But while Big Pharma seemed in large degree to be returning to what it does best, in one important industry segment, drug wholesaling, leading companies were exploring acquisitions that took them ever further afield from their core distribution skills. Bergen Brunswig Corp. 's announced merger with Ivax Corp. , and Cardinal Health Services Inc.'s acquisitions of, first, Pyxis and then Owen Healthcare Inc. , underscored the need for distributors, given the depressed margins endemic to wholesaling and the slower growth that consolidation has brought, to find new, higher margin opportunities [See Deal].

Investors were less than enthusiastic about Bergen's play, which would in effect have Ivax shareholders owning 56% of the new company, and rumors circulated that Bergen would have to substantially alter the deal or cancel it outright. But both Bergen and Cardinal are signaling that these once-anonymous providers of logistical services playing a greater role in product selection in the future.

If the drug industry was largely abandoning acquisitions for alliances, acquisitions in services were hotter than ever. In 1996, 11 service deals topped $500 million, compared to seven in each of the two previous years. Total service acquisition volume topped $28.3 billion, a record for the sector.

Merging service providers, unlike drug companies, makes obvious sense in the era of managed care. With procedure growth in general limited by payers, and with margins always under pressure, revenue growth will come largely through acquiring other facilities and earnings growth through the rationalization of the over-bedded, over-treated American health care market. Likewise, the more doctors under management, the easier it is to smooth out costly variations in care.

Thus hospital companies continued to consolidate (e.g., the $1.8 billion Tenet Healthcare Corp. /OrNda Healthcorp. merger) as did, even more aggressively, insurers and managed care groups [See Deal]. And we began to see significant M&A activity in the area of physician practice management. MedPartners/Mullikin Inc.'s acquisition of Caremark International Inc. in May of last year formed the fledgling Physician Practice Management (PPM) industry's first real merger-created giant and may spur further consolidation in an industry that hasn't even begun to mature [See Deal].

The biggest service deal of the year, Aetna Inc. 's $8.9 billion acquisition of US Healthcare Inc. , was perhaps the most desperate expression of the need to get a firm grip on managing health care costs [See Deal]. Like the moves by drug wholesalers, the US Healthcare deal was an expression of the need on the part of service companies to find higher-margin businesses. But the major issue with service acquisitions is not the strategic logic, but management skills: can companies that make sense as merger candidates be cost-effectively folded into a single organization able to take advantage of the various efficiences? Thus Coram Healthcare Corp. , originally the product of the 1994 four-way merger of T2 Medical, Curaflex Health, Medisys and HealthInfusion, ran aground on the shoals of too-rapid expansion--not business rationale. Its own acquisition story ended in October 1996, when Integrated Health System Inc. bought the $600 million business for $280 million in stock and the assumption of its nearly $400 million in debt [See Deal].

The Big Pharma/PBM Chapter Draws to a Close

As service companies look to buy their way into higher-margin businesses, there is a strange convergence with the pharmaceutical industry. In 1993-1994, with Merck, SmithKline and Lilly all buying Pharmacy Benefit Managers (PBMs), values of the next largest PBMs, Caremark International Inc. and Value Health Inc. , skyrocketed. Rumors abounded that, after PBMs, drug companies would go after other kinds of customers with potential leverage over drug prices and drug usage, particularly managed care and HMO firms.

But no pharmaceutical companies followed their pioneering competitors into the new business, opting instead for horizontal acquisitions in an industry they understood and in which the road to increased earnings was clear (Zeneca Group PLC took a small step in the services direction, through its staged acquisition of Salick Health Care Inc. [See Deal]).

And as for the PBM companies: 1996 saw Caremark's PBM business assume largely secondary consideration in MedPartner's acquisition of the company's much smaller physician practice management business--though company officials say the PBM and disease management pieces will help the PPM business in its effort to deal more effectively with managed care customers. And Value Health, around whom acquisition rumors had always swirled, went into a deep funk, particularly after its troubled acquisition of Diagnostek Inc. in March 1995 [See Deal]. Earnings slid badly in 1995, and 1996 saw Value Health walk away from customers whose business they'd gotten with excessively low bids. Its stock, which had reached above $50 in the summer of 1994, amidst the acquisition speculation, tumbled as low as $15 in the more conservative summer of 1996.

Columbia/HCA Healthcare Corp.'s announcement at presstime that it was buying Value Health for $1.3 billion, or about $23 a share, may have been the best valuation investors could have hoped for. But it dramatically changes the business assumptions of the other big players. In 1993, Merck & Co. Inc. paid 2.5 times sales for Medco; in 1994 Eli Lilly & Co. paid 10.8 times sales for PCS and SmithKline Beecham PLC paid 16 times sales for Diversified Pharmaceutical Services [See Deal], [See Deal]. Each justified the acquisition prices with the argument that, not only was the underlying PBM business growing rapidly, but that the PBM could increase market share for the company's pharmaceuticals and thus drive up earnings. Of the three deals, only Merck has seen any dramatic share gains for its drugs.

In contrast, Columbia is paying--entirely in stock--just two-thirds of ValueHealth's sales. Unlike the drug company acquirors, Columbia doesn't have to find a return for an extraordinary acquisition premium, nor must it sidestep the conflict of interest issue drug companies have always struggled with in trying to sell truly objective pharmacy benefit management services. In effect, Columbia can now become a true consolidator, focusing on what it has done so well in its core hospital business: driving costs down by eliminating duplicate overhead, streamlining operations and cutting supply expenses. And the application of pharmacy benefit management skills is, arguably, both more straightforward and more valuable to its core business than it is to the core operations at drug companies, as hospital groups like Columbia are beginning to stretch their wings to become diversified providers of risk-based care.

In fact, this year saw a major shift in the PBM alliances--away from drug companies and toward hospital systems. Earlier, Premier Health Alliance had signed a ten-year deal with Express Scripts Inc. to provide PBM services to the managed care organizations its hospital members were forming, and last year Voluntary Hospitals of America Inc. joined with Advance ParadigM.

These hospital alliance/PBM deals will have less immediate impact on the market than the earlier drug company/PBM deals for a number of reasons. For one thing, the obvious synergies between the inpatient GPO business and the outpatient or retail PBM business are less than clear--in fact, these deals can be seen as experiments to test how far the connection can go. For another, Express Scripts, Advance ParadigM, and ValueRx don't have the market strength of Medco and PCS, meaning that their reach into the managed care market is more limited.

Still, the new alliances suggest that providers are beginning to seek the leverage and benefits in PBM alliances that drug companies once sought, largely unsuccessfully. The advent of Columbia, arguably the most powerful hospital group in terms of consolidating services and driving synergies, raises interesting possibilities about hospital/PBM alliances. Now when ValueRx, Value Health's PBM, goes to negotiate formularies and pricing, will it have the full support of the one hospital group that can demonstrate its ability to switch market share from one supplier to another, preferred vendor? Whether it does or not, Columbia's move reinforces the notion that consolidation among providers offers far greater leverage than consolidation between customers and suppliers.

More to the point for drug companies, with Premier, VHA, and Columbia now in the business, the Big Pharma parents of PBMs may begin to see their own PBM businesses as increasingly unattractive. After all, only Merck has seen the kind of benefit to their core drug business that the drug-company acquirors anticipated when they made their acquisitions.

This broader failure to integrate drug company and PBM goals, combined with the drug companies' return to core values and their customers' new-found interest in PBM alliances, makes some industry executives speculate that at least one of the drug company PBMs, most likely Diversified or PCS, will be sold--perhaps to Columbia. Not only do the drug companies no longer want to compete with major customers such as Premier, VHA, and Columbia, but the PBMs themselves will find it harder to compete with Columbia which has proven it can leverage its reach across different service capabilities to drive down operating costs.

Devices: Bigger is Better

If the boom in the market for biotech stocks was largely driven by Big Pharma alliances, the boom in devices offerings was largely driven by the possibility of acquisitions. The 1996 stock market loved medical device offerings: 47 device companies raised $1.6 billion in IPOs in 1996 and another $893 million in follow-on public offerings.

Few of the companies that have gone public are at all interested in remaining independent long-term. And some of those that did want to remain independent, simply threw in the towel.

For big companies, acquisitions increasingly allow them to buy skills they would otherwise have had to create. As Sam Colella, a general partner with Institutional Venture Partners, notes, "Through acquisitions, large companies are capitalizing their research." St. Jude Medical Inc. 's Pacesetter pacemaker division, for example, has been working on an implantable defibrillator for several years. But it was simply easier, St. Jude felt, and less expensive, to move into the crucial defibrillator business through the acquisition of Ventritex Inc. [See Deal]

Indeed, the story of Ventritex was a cautionary tale for start-ups. Ventritex had taken the defibrillator market by storm with its first two defibrillators. But as Frank Fischer, Ventritex's CEO noted to IN VIVOshortly after the St. Jude acquisition, the company made the unavoidable mistake of focusing on getting its early products developed and marketed--rather than turning its engineers' attention quickly enough to developing a second-generation model. The delay cost Ventritex several hundred million dollars in market value as Medtronic and Guidant, caught short by Ventritex's first product, leapfrogged their smaller competitor with smaller defibrillators, taking away much of the share Ventritex had already gained.

In short, while the start-up provided the original innovation, the large companies quickly capitalized on it and used their greater financial, development and marketing resources to put out competitive products.

An equally cautionary tale: the complex saga of River Medical Inc. In 1994, the founder of the innovative IV pump start-up, Greg Sancoff, came across what looked like a great opportunity: buying an IV pump company with an established marketing and distribution presence. Raising money from LBO investors, Sancoff bought Ivac Corp. from its parent, Eli Lilly & Co., which was divesting itself of its device businesses [See Deal]. The theory was simple: Ivac would provide the marketing clout; River would provide the innovative products to drive growth.

It didn't work out that way. The management problems proved far more difficult than Sancoff had envisioned and he quickly brought in a turnaround specialist from Mallinckrodt, Bill Mercer, to manage the process. As Mercer did so, River and its innovative pump--which turned out to be more expensive to make than first anticipated--became far less important than figuring out how to grow an already large business in competition with IV giants Baxter International Inc. and Abbott Laboratories. The eventual solution was another merger, this time with Advanced Medical Inc. and its subsidiary Imed [See Deal]. Mercer became CEO of the combined company, now a solid number three in the market but struggling to gain share against larger competitors who argue to customers that the value of individual IV pump technology is less than that of a broad bundling of IV related supplies and equipment.

And the River Medical project that started it all? It's been shelved.

For most major medical device players, acquisitions have become the growth strategy of choice. The question is not so much whether to acquire, but how broadly: a range of products for different kinds of specialists or a relatively narrow focus on a few specialists?

The dealmaking of the Big Four cardiovascular players offers, perhaps, the best view of this dilemma. On the breadth side of the argument is Johnson & Johnson and Boston Scientific Corp. J&J has been steadily refocusing itself to be able to sell all its products to large consolidated buyers through a single corporate face, J&J Healthcare Services, though as a medical device acquiror it has been taking a more modest approach since its out-of-character late-1995 hostile takeover of Cordis Corp. [See Deal]. J&J is focusing instead on incremental technology additions to its core Ethicon and Ethicon Endo-Surgery surgical product businesses, additions such as Indigo Medical Inc. 's laser [See Deal] used in the treatment of BPH.

Both J&J and Boston Scientific are part of a major trend among large device companies to be in all areas of less-invasive surgery; J&J's arch rival, US Surgical Corp. also spent much of last year doing a series of deals that extended its reach in minimally-invasive surgery, and the company this month announced the launch of a new instrument system for minimally-invasive cardiac bypass surgery.

But Boston Scientific is clearly formulating the most interesting acquisition strategy. In the first place, the more the company pays out in stock to its acquistions, the more investors like it. At $68 a share, up from $40 in January, Boston Scientific shares are a juggernaut on the exchange; its market cap, $13 billion, nearly equals Medtronic Inc. 's valuation, though Boston Scientific is only about half Medtronic's size in terms of revenues.

Investors clearly like Boston Scientific's strategy of being in all areas of less invasive medicine and getting there through acquisition. Its most spectacular move to date: the agreement, announced at press-time, to pay $1.1 billion in stock for Target Therapeutics Inc. and its air-tight interventional neurology franchise, fenced round with patents (see "BSC Buys Target; SulzerMedica Spins Off," p. 95).

But while the Target acquisition has been Boston Scientific's biggest deal so far, it is just one of a series of forays outside its cardiovascular business. For example, the company continues to add to its core urology franchise--perhaps its fastest growing business. In 1996 it signed marketing deals with Endocare Inc. , Urologix Inc. and B&K Medical and acquired Vesica Medical Inc. Indeed, while much of Boston Scientific's dealmaking has been based around catheters, which it can manufacture very cost-effectively, catheters are hardly the common denominator: the consolidating buyer is.

Also aiming at this buyer, though in a far more focused manner, is Guidant Corp. Ron Dollens, CEO, noted at the Hambrecht & Quist Health Care Conference that his company has seen a 22% growth in capitated contracts for interventional cardiology--with "great margins," he says. And while Guidant has only 31 capitated contracts in cardiac rhythm management (largely pacemakers and defibrillators), the number is growing dramatically, he says.

Of the Big Four, Guidant has been the quietest dealmaker. Not that Guidant isn't interested in acquisitions--quite the contrary, says Dollens. But all his acquisitions, he told the H&Q audience, will have to be in areas that leverage Guidant's technology or its customer base. Unlike Boston Scientific, Guidant is moving away from a broad investment in minimally invasive surgery to focus on cardiovascular medicine. Although inching towards a customer willing to make compromises on brand preferences, Dollens is clearly reluctant to move into areas where brand preferences make no difference and where distribution, logistics and price are the ultimate points of distinction: "We want to sell to a customer that appreciates technology," he says.

But in terms of resisting the inroads of corporate or managed care buyers, St. Jude Medical stands alone. St. Jude, too, is aiming at a buyer who will make purchasing decisions for all cardiac rhythm management (CRM) products. But St. Jude CEO Ron Matricaria believes that the buyer making these decisions will be a highly specialized cardiologist, the electrophysiologist, who will make his choices entirely on the basis of technology. While a CRM offering must be complete in terms of the basic products--pacers and implantable defibrillators--it must also offer plenty of technological glitz.

Thus, in 1996's most complex transaction, St. Jude bought Ventritex for $505 million in stock--6.8 times Ventritex's sales--almost entirely because it needed defibrillators to fill out its CRM line [See Deal]. To get Ventritex free and clear of patent problems, it also had to buy Pacific Dunlop's Telectronics unit (for $135 million plus a $40 million earnout) and a $25 million license from Intermedics Inc. [See Deal].

Platform extensions are expensive, but the leading edge of technology is even more so. St. Jude's January 1996 acquisition of Daig Corp. cost St. Jude better than 11 times sales and 43 times earnings [See Deal]. But St. Jude was willing to pay this price because it put the company at the leading edge of a CRM technology of utmost interest to its target customer. Daig, in effect, provided for St. Jude a foot in the electrophysiologist's door. And its September 1995 deal with Heartport Inc. , the pioneer of instruments for arrested-heart applications of minimally-invasive cardiac surgery, will enable St. Jude to keep ahead of the fast-running trend in this new area, in effect anticipating the next generation of technology currently focusing only on cardiac bypass [See Deal].

Ultimately, perhaps, the differences among these philosophical bases for acquisition strategies in medical devices make little difference. The big are getting bigger and differences in individual strategies--Boston Scientific's move toward minimally-invasive surgery versus Guidant's move away; J&J's obvious embrace of the new managed care customer versus St. Jude's staunch traditionalism--seem increasingly less meaningful to others in the medical device industry.

Indeed, for companies wishing to compete at the highest levels, an aggressive acquisition campaign now seems imperative--witness Sulzer Group's recent announcement that it will spin off its profitable SulzerMedica device businesses into a public company so that it can raise the cash to begin to do more deals. Absent such a move, it's hard to see how Sulzer's US subsidiaries, Intermedics and CarboMedics, would keep pace.

But this strong industry movement toward acquisitions--funded by the increasing value of the acquiring companies' shares--leaves small device companies with fewer and fewer options. Many small device executives are beginning to worry whether they have any long-term future in a marketplace in which big companies are monopolizing the attention of customers--either with their technological edge or because of their ability to leverage broad product offerings.

Cardiovascular devices is only the most advanced industry segment in which the small niches of small companies are becoming unsustainable. In urology, for example, the significant acquisition activity in 1996, with J&J's purchase of Indigo and US Surgical's pursuit of Circon, threatens to change fundamentally an industry in which small technology-oriented companies historically competed on a level playing field [See Deal], [See Deal]. In turn, the growing distance between big and small companies only fuels the acquisition activity--as company buyers and sellers agree that acquisition is the only way to go.

In Diagnostics, A Move Toward Consolidation?

As in devices, so in in vitro diagnostics. While the overall market remains quite fragmented, key growth areas are consolidating--new players are betting on it.

The best example is glucose monitoring. With growth in its core immunoassay market slowed to a crawl, Abbott had almost no choice for its diagnostics business other than to buy growth. It had tried, and failed, to buy Du Pont's chemistry business so that it could create a J&J-like one-stop-shopping supplier for its large customers. But apart from the bundling play such a move would have represented for Abbott, chemistry is by itself an even slower-growing business than immunoassay.

But glucose monitoring for diabetics is growing at about 15%--a tremendous boost for a company whose markets are probably growing at about 3%. For Abbott, the acquisition of MediSense Inc. for $876 million represented not merely a growth opportunity in itself, but a launch pad for less-invasive and non-invasive glucose testing technology it has been developing in-house and through licensing (e.g., an October deal with SpectRx Inc. for a painless testing technology) [See Deal], [See Deal]. Had it simply launched its new products on its own, without an existing marketing channel, Abbott executives felt that they would have been fighting an uphill battle, with every delay dragging down the returns on their investment.

Nonetheless, the premium for Medisense was stunning--five times sales and 40 times earnings. Abbott is convinced it can make it back, accelerating Medisense's growth by putting its products into the hospital (where Medisense isn't particularly strong) and into retail outlets, helped by Abbott's Ross division, which has strong ties to the pharmacy.

But the effects of the Medisense deal on the industry as a whole are still being worked out. It will clearly mean fewer competitors: Boehringer Mannheim Group, the number one chemistry player, will be forced to more aggressively move into Abbott's home turf of immunoassay, which still provides a living, albeit a meager one, for a few dozen companies. Similarly, it no longer seems to make sense for J&J to operate its diagnostics business, which encompass its broad position in diagnostics, encompassing point of care and glucose monitoring, chemistry, immunoassay and blood banking, as separate businesses rather than a single, unified operation.

Mid-sized players are worried by the increasing cost of competition implied by the Medisense acquisition. International Murex Technologies Corp. is a case in point: CEO David Tholen recently resigned reportedly because, while he wanted Murex to stay independent, the founders believed that mid-sized players wouldn't be able to continue to compete, and favored selling out.

In fact, though, the problem isn't deciding whether to continue independently or sell out--the real problem is whether selling out will bring much value. Few of the mid-sized companies have assets the largest players really want. Mostly, they duplicate product lines the big players already have, implying that acquisition values for most traditional diagnostic players are going to be relatively low.

And while the public markets of 1996 welcomed new diagnostics issues, pouring $458 million into IPOs, few of these players are competing in traditional markets. Many of the new players--Qiagen NV , for example--plan to develop analytical instrumentation and genetic-based testing technologies that will be developed into end products by larger diagnostic companies. One of the most spectacular of the diagnostics IPOs, DNA chip maker Affymetrix Inc. 's $83 million financing, represented not so much the company's diagnostic opportunity but its play in genomics, the hottest area of biotechnology. Other IPOs took advantage of the market's fascination, thanks to the acquisition promise implied by the Medisense deal, with glucose testing (Integ Inc. and Selfcare Inc. ) as well as cytopathology (Neuromedical Systems Inc. , AccuMed International Inc. , Cytyc Corp. and Digene Corp. ) Indeed, the latter two signed a deal in October to both sell each others products and develop new ones, the first being a product that combines Digene's DNA probe assay for human papillomavirus with Cytyc's ThinPrep Pap smear test.

Increasingly, large chunks of the health care market are turning into an investment banker's dream, although each segment approaches the issue of M&A very differently. Cost-reducing consolidation drives service companies' growth strategies; the potential to acquire a way into new market niches drive strategies in devices--though some strategies, like St. Jude's, are far more focused than others, like Boston Scientific's.

On the other hand, M&A will not drive diagnostics strategies, except in relatively rare instances. And as for the drug industry: new products remain the key to growth. Buying products, not companies, is the most cost-effective way of doing business.

The alliance-based orientation of the drug industry suggests a viability for emerging companies that eludes their counterparts in most other segments. Because of the value of a single drug, pharmaceutical companies are willing to access the skills required to create it without owning the company that developed the skills.

But because medical devices have smaller market potentials and less patent protection, small companies can't afford to share the profits and thus they become alliance-phobic. Acquisition becomes the only medium by which big and small companies can leverage their respective strengths and weaknesses.

As an independent company Target seemed to have achieved as great a success as a small device company possibly could. It had extraordinarily valuable technology serving a major unmet medical need (stroke) and rock-solid patent protection. Yet it only got to $47 million in sales--albeit commanding an acquisition value from Boston Scientific of $1.1 billion.

For biotechs, long-term independence is easier to foresee, particularly for service-oriented companies. The question: without the premium that successful medical device companies can expect from acquirors, can biotechs create the upside from alliances that will take them to sustainable billion-dollar market caps?