In 2012, M&A activity will likely remain a key focus for big pharma firms. [© Andy Dean - Fotolia.com]
The past few years have certainly gotten the biotech industry used to seeing multiple acquisition deals well over $1 billion, particularly among drug developers. While M&A activity was strong in 2011, the number of those huge blockbuster agreements seems to be lower.
One reason is probably because while the last few years have seen some drug giants combine (think Merck & Co. with Schering-Plough and Pfizer with Wyeth), this year companies seem to have looked more toward smaller, niche firms—even among the biggest deals in the therapeutic space.
Another interesting trend: A review of the top 25 mergers and acquisitions for the 10-year period ending December 31, 2009, by Irving Levin Associates, revealed that 76% of the biotechnology companies targeted were producing revenues at the time the deals were announced. Well, this year, the third spot went to the acquisition of a company that doesn’t have a marketed product and it’s most advanced program is in Phase II.
“They’re thinking about development-stage assets, which tend to be smaller transactions, and that’s really refering to the second half of this decade and beyond,” explained Eugene Rozelman, principal at Canaccord Genuity, told GEN. Commenting on those buying noncommercial assets, Rozelman said, “a lot of these companies are starting to focus on programs in new therapeutic areas, in some cases, and they’re also looking to bolster existing efforts.”
1: Sanofi/Genzyme—$20.1 billion
Sanofi’s pursuit of Genzyme began in July 2010 with $18.5 billion and ended this February with $20.1 billion. To win over Genzyme, Sanofi upped its bid from $69 per share to $74 in cash per share plus contingent value rights (CVRs). The French pharma giant’s attraction was based on the American company’s stronghold in biologics for orphan diseases.
The deal was worth about $20.1 billion before CVR conversion. Genzyme stakeholders will receive one CVR per share, each worth up to $14 in cash. The total is mainly linked to milestones related to late-stage Lemtrada™ for multiple sclerosis and 2011 production volumes for enzyme replacement drugs Cerezyme for Gaucher disease and Fabrazyme for Fabry disease.
Genzyme’s supply woes for these two drugs began in July 2009, and the most positive statement in Sanofi’s third quarter earnings report, issued November 1, was: “Genzyme continues to expect an improving Cerezyme supply outlook from February 2012 forward.” Genzyme had reportedly reduced global supply allocations between October 2011 through January 2012.
With Fabrazyme, Genzyme reportedly maintained its supply to current patients at a reduced dose throughout 2011. To return to normal supply levels, which includes new patients, Genzyme will have to leverage its new facility in Framingham; the first products are expected in the first quarter of 2012. Sanofi was cautious in its third quarter statement, saying “it will take time to obtain all global regulatory approvals and build inventory.”
Genzyme will also focus on multiple sclerosis (MS). Regulatory approval of and sales milestones for alemtuzumab in MS are central to the CVR agreement. On November 14, Genzyme said filing in the U.S. and EU was expected during Q1 2012.
2: Takeda/Nycomed—€9.6 billion
Takeda Pharmaceuticals’ €9.6 billion purchase of Nycomed, except its U.S. dermatology subsidiary, put the firm in the number two spot for 2011. Takeda, a Japanese firm with a strong presence in the U.S., was drawn to Nycomed for its sales reach in Europe and emerging markets. Takeda has said that it’s gone from having a sales network in 28 countries to roughly 70 countries.
With a portfolio of branded medicines in respiratory and inflammatory diseases, gastroenterology, pain, osteoporosis, and tissue management plus OTC products, growth is expected to come from COPD treatment Daxas. It gained EU approval in July 2010 and FDA approval this February.
When Takeda announced the acquisition of Nycomed on May 19 it said the deal would add about €2.8 billion to its cash flow including sales from Daxas. The merger closed this September, and Takeda’s next few quarters will have more to show as the drug gains market share in Europe and the U.S.
3: Gilead/Pharmasset—$11 billion
Gilead Sciences’ willingness to put down big bucks for a company acquisition is interesting for two reasons: it’s the first time a biopharma company has represented this side of the buying table in our list of blockbuster acquisitions (since 2007) and it’s also the only deal among the top five to take place in the second quarter.
Gilead paid $11 billion for Pharmasset, gaining oral HCV treatments. Gilead’s own HCV pipeline comprises seven unique molecules in various stages of clinical development, with three separate all-oral Phase II programs. Gilead is most known for its HIV franchise and expects the acquisition to dilute its earnings through 2014.
By paying $137 in cash per share, Gilead offered an 89% premium over the firm’s closing price the day before the deal announcement. Why such a big premium? Analysts have speculated that it was likely to avoid a bidding war, as HCV drug developers have become hotter targets for those with the purses to entertain high-stakes M&A activity.
4: Teva/Cephalon—$6.8 billion
Speaking of bidding wars, Teva fought off Valeant Pharmaceuticals for Cephalon, paying $6.8 billion. Teva proposed $81.50 per share in May, two months after Valeant made its $73 per share pitch public after efforts to negotiate with Cephalon’s directors failed.
The Cephalon buy is part of the Israeli-based generics giant’s strategy to bolster its branded franchise. This is a bit ironic, since all the other major acquisitions have been driven in at least some part by the fear of generics taking over more market share as their branded counterparts come off patent.
Teva is no stranger to the big-spender club, though. Last year it paid €3.625 billion for ratiopharm, Germany’s second-largest generics producer. In 2008, the company ponied up $7.46 billion for another generic firm, Barr Pharmaceuticals, in another bidding war.
5: Forest/Clinical Data—$1.2 billion
Forest Laboratories’ inclusion on our top-five acquisition list for 2011 signals its need, similar to Sanofi, Takeda, and Gilead, to survive the patent cliff faced by a number of its drugs. It shelled out $1.2 billion to purchase specialty pharmaceuticals firm Clinical Data.
Forest’s eye is mainly on revenues from Clinical Data’s recently launched Viibryd for major depressive disorder. The acquisition cost would go up by another $6 per share depending on Viibryd’s sales performance.
The contingent payments that Clinical Data stakeholders could earn over the initial $30 per share will be maximal if the drug achieves net sales of $1.5 billion within the first seven years of launch. The drug launched in the U.S. in August and recorded sales of $5.3 million in the second quarter of Forest’s fiscal 2012, which ended September 30. Forest already has two antidepressants on the market: Celexa and Lexapro. Sales of Lexapro were $596.1 million for Q2 2012.
A review of the past few years is one way of looking at how much companies are spending to buy other companies. In 2010, the top-five list closed out with Astellas’ $4 billion purchase of OSI Pharmaceuticals; in 2009, that spot went to Dainippon Sumitomo Pharma’s $2.6 billion buy of Sepracor; and in 2008, Daiichi Sankyo ranked fifth when it spent $4.6 billion on Ranbaxy. Forest closed the 2011 list at $1.2 billion, and this year’s top spender paid about half of last year’s.
Goldman Sachs expects more M&A activity to continue into 2012. On December 15, it issued a report predicting that M&A will remain a key focus of the industry, especially by big pharma companies looking to replenish their product portfolios as well as sell off noncore assets.
Two of the top three biotech companies have gotten picked up since 2009, making pharma giants cough up large sums of money of between $20 billion and $46 billion. The number one revenue earner among biotechs, Amgen, has a market cap of around $55.52 billion, making buying it a tall order.
There still remains, though, a number of other biotech options for the picking in 2012, if not through straight out acquisitions, then through more collaborations or joint ventures. Whether or not it turns out to be a year of mega mergers, the economics of today’s market will drive the industry toward more partnering and consolidation.