Analysts See More Biotech M&A in 2007
I wish I was smart enough to be an analyst.
No news here for us. Posting for archival purposes.
Tuesday December 26, 3:35 pm ET
By Damian Troise, AP Business Writer
Biotech Industry Poised to Continue Buyout Trend on Promising Technology, Developing Pipelines
NEW YORK (AP) -- Who will be the next biotech takeover target? That's the question Wall Street is asking as a year of innovative developments and heated competition in several of the industry's markets draws to a close.
This was the sector's second active year in a row in terms of buyouts, as large biotechnology and pharmaceutical companies went beyond licensing agreements to fill out development and product pipelines. So far in 2006, there have been 15 M&A transactions with biotech companies, just one fewer than in 2005.
"The huge premiums that big pharma is willing to pay for biotech innovation reflects their pipeline problems," said G. Steven Burrill, chief executive of San Francisco-based Burrill & Co., a life sciences venture capital firm.
Drugs typically cost between $1.2 billion and $1.8 billion to bring to market and can take up to 15 years to develop, Burrill said in a Dec. 1 report reviewing the sector. Buyouts are a "cheap and efficient" way for companies to cut both time and costs.
They might not seem so cheap at first glance though.
This year, Foster City, Calif.-based Gilead Sciences Inc. bought Westminister, Colo.-based Myogen for $2.5 billion. Cambridge, Mass.-based Genzyme Corp. beat cross-town rival Millennium Pharmaceuticals to buy Canadian drug developer AnorMed Inc. for $584 million. Merck & Co. is buying San Francisco-based Sirna Therapeutics Inc. for $1.1 billion and Abbott Laboratories agreed to pay $3.7 billion for Kos Pharmaceuticals Inc.
The hefty prices suggest buyers are becoming more aggressive, said Merrill Lynch analyst Eric Ende, in a note to investors. Venture capitalists are pushing deals harder, he said, and licensing agreements are becoming more expensive, prompting partners to become potential suitors.
"The capital markets have become increasingly accessible for biotech companies," says Ende, "which has allowed large-cap biotech companies to build war chests for cash for acquisitions."
The backdrop to this surge in buyout deals is the growing competition between biotechnology companies. Genentech Inc. received FDA approval for its age-related macular degeneration drug Lucentis in June, pitting it against OSI Pharmaceuticals' Macugen. Meanwhile, Regeneron Pharmaceuticals is in late-stage development for its own treatment.
Genentech again made a splash in the lung cancer market after receiving expanded approval for Avastin. The drug is pitted against another newcomer, Amgen's Vectibix, which is poised to take market share from Imclone's Erbitux. Merck's Januvia, a dpp4 inhibitor, entered the market against Byetta, made by Amylin Pharmaceuticals and Eli Lilly, and Novartis and OSI are working on drugs of their own.
The competition is also being fueled by new developments in targeted gene therapy, such as DPP4 inhibitors and RNAi technology. These next-generation treatments are helping small biotechnology companies gain more licensing agreements -- and attention from large biotech companies and big pharma.
Ende believes the acquisition trend will continue in 2007, due to increasingly expensive licensing deals, strong balance sheets at biotech companies, shifting management philosophy, and continuing pressure from venture capitalists.
