|Send to printer »|
Insight & Intelligence : Jan 4, 2012
M&A Activity Likely to Stay Hot in 2012 Though Blockbusters May Be Fewer
Companies are looking down the road to padding their pipelines for long-term growth.!--h2>
Over the past three years, the most obvious blockbuster mergers, the proverbial low-hanging fruit, have been picked. Yet merger and acquisition activity should continue in 2012 as biopharma giants continue to fill holes in their product pipelines by pursuing deals with smaller companies.
While a handful of potentially viable mega mergers could yet emerge in the biopharma space, drug developers seem to now be looking beyond acquiring companies that can safeguard from loss of revenues due to patent cliffs to those that can fill their depleted pipelines and bolster long-term revenue streams. More deals to purchase companies in the development stage are expected rather than firms already generating revenues.
Overall most believe that M&A activity in 2012 will be high. On December 21, G. Steven Burrill, CEO of Burrill & Company, predicted another busy year for M&A activity. Six days earlier, Goldman Sachs also issued a report suggesting M&A will remain a key focus of the biopharma industry.
“Large pharmaceutical companies will continue to break down the distinctions between pharmaceutical, biotech, generic, biosimilars, and diagnostics companies by acquiring companies across the spectrum,” Burrill predicted. “They will need to compete with larger biotechs, who will become more aggressive buyers of innovative companies.
“Nontraditional life science companies will also move deeper into the space. Look for a major tech company establishing itself in the bioinformatics space through an acquisition. Several mid-cap life science companies are likely targets for acquisition in 2012. That will heat up activity in the sector.”
Goldman Sachs identified several companies as being most likely candidates to be taken over this year:
Other companies cited in months of recent news reports include Bristol-Myers Squibb, whose market capitalization of $59.8 billion has fluctuated in recent years to as low as $40 billion. Pharma giants like BMS with market caps closer to $50 billion are in the second stratum compared with top-tier giants that have a market cap of $100 billion or more.
“That smaller subset of pharma companies could be potential acquisition targets, because it’s all about complementary infrastructure and cutting costs where it’s duplicative,” explained Eugene Rozelman, principal at Canaccord Genuity. “It’s not absurd to think that Bristol is a potential target.”
He added that BMS’ product portfolio is better managed than those of many larger rivals and thus didn’t face steep patent cliffs as some other pharma companies. BMS has been acquiring promising products or entire companies through its so-called “string of pearls” strategy.
Forest Laboratories, which focuses on primary care, is another potential target, as well as Acorda Therapeutics, which has the MS treatment Ampyra. Rozelman notes that Ampyra’s infrastructure in treating central nervous system diseases could be a good fit for either pharma or specialty pharma.
Impetus for Activity
Many of the same factors that resulted in 2011’s acquisitions will drive M&A activity this year. For example, last year Sanofi capped a months-long, publicly speculated courtship of Genzyme with a $20.1 million offer. The deal was completed in April, and in October Sanofi reported that Genzyme would serve as the new company’s rare disease and multiple sclerosis unit.
“This was a very complementary deal for both in regard to geographic presence,” Rozelman pointed out. “Sanofi historically lacked scale in the U.S., so it used partners like Bristol-Myers Squibb to distribute products like Plavix and Avapro. More importantly, this deal with Genzyme allowed Sanofi to really shift its mix from its patent-challenged blockbuster drugs to key growth platforms.”
Alan Carr, Needham & Co. biotech analyst, has pegged increased M&A activity in 2012 to two factors: efforts to reduce red tape for drug developers pursuing FDA review and an overall improved outlook on the market. “If the regulatory environment improves, which we believe may gradually occur, increased M&A activity could follow,” Carr wrote in a December 23 note to investors.
Volatility overseas, however, will continue to dampen U.S. markets. Additionally, efforts to cut red tape are unlikely to go as far as industry wants. So the drivers of increased M&A activity in 2012 most likely won’t be Wall Street or some sort of kinder, gentler FDA.
More than likely, mergers and acquisitions in 2012 will be driven by the same factors that have stoked activity in recent years—pharma’s desire for revenues given patent expiries, their need to bolster R&D pipelines, and their paradigm shift into the world of biologic development. Biotech drug developers, particularly the larger companies, will also compete on the M&A stage as they try to diversify their disease and technology focus.
Alex Philippidis is senior news editor at Genetic Engineering & Biotechnology News.
© 2016 Genetic Engineering & Biotechnology News, All Rights Reserved