Biotech Values

[DewDiligence]

Buy or Be Bought

[From Tuesday’s Boston Globe.]

http://www.boston.com/business/healthcare/articles/2009/09/22/inverness_deal_biogen_idec_offer_reflect_acquisition_fever_among_biotech_firms

›By Robert Weisman
September 22, 2009

That appears to be the new mantra for the Massachusetts life sciences industry, where the strengthening economy and rising stock market have sparked a small wave of acquisitions.

Yesterday alone, Waltham’s Inverness Medical Innovations Inc. agreed to purchase a Seattle company, while Cambridge’s Biogen Idec Inc. launched a hostile tender offer for a California company.

With another biotech company, Sepracor Inc. of Marlborough, agreeing earlier this month to be sold to a Japanese pharmaceutical giant, the scramble for merger partners is on.

A company’s size and the breadth of its product pipeline are key to staying independent in this environment, said Kevin J. Gorman, managing partner at the Burlington consulting firm Putnam Associates.

“You need to get critical mass,’’ Gorman said. “The bigger the animal, the fewer the predators.’’

Although each deal is different, several factors are driving the bump in takeovers among biotech, medical device, and diagnostic firms that had been holding off on mergers. Small companies need cash, big ones are seeking to expand their product lines, capital markets are loosening, and early fears about a health care overhaul leading to price controls or patent restrictions now seem unfounded.

Together, these factors have unleashed a spurt of pent-up deal demand that is likely to continue, industry insiders said.

This month’s deals involving Massachusetts companies follow an 18-month lull in which only one state life sciences merger was completed in the second quarter, two in the first quarter, and two in all of 2008, according to data compiled by the Thomson Reuters research firm in New York for the National Venture Capital Association.

Inverness, a medical testing and device firm that snapped up more than a dozen companies in 2007, yesterday said it would acquire Seattle’s Free & Clear Inc., which designs Web-based programs addressing chronic diseases like tobacco use, for $100 million in cash and $30 million in future payments contingent on next year’s revenue. The deal is expected to be completed by Monday.

Biogen Idec, meanwhile, made an unsolicited bid on Sept. 4 for Facet Biotech Corp. of Redwood City, Calif., a company with which it has been jointly developing drugs for multiple sclerosis and cancer. That bid was rebuffed by Facet’s board on Sept. 8, but yesterday Biogen Idec said it was commencing a $365 million cash tender offer for Facet - in effect, going over the heads of Facet’s directors and taking its bid directly to stockowners. The offer expires Oct. 19.

By acquiring its California partner, Biogen would own 100 percent of the rights to the revenue stream for daclizumab, their treatment for multiple sclerosis, a disease that is the largest target of Biogen Idec products. “The proposed transaction makes compelling business sense,’’ said Biogen Idec spokeswoman Jennifer Neiman.

In the biggest recent deal, Sepracor, a drug maker best known for its Lunesta sleep aid, agreed on Sept. 3 to be purchased by Dainippon Sumitomo Pharma Co. of Japan for $2.6 billion. The deal marked the second time in the past year that a Massachusetts biotech company was acquired by a Japanese buyer. Last year, Takeda Pharmaceutical Co. bought Millennium Pharmaceuticals of Cambridge for $8.8 billion, the state’s largest biotechnology deal ever.

“There’s no doubt that the industry is rolling up,’’ said Robert Coughlin, president of the Massachusetts Biotechnology Council, a trade group in Cambridge. “You’re seeing large companies buy large companies to streamline operations, and you’re seeing large companies buy small companies to keep their pipelines from drying up.’’

Although the Sepracor deal is scheduled to close by the end of the year, disgruntled investors have filed two lawsuits - the most recent lodged yesterday in US District Court in Massachusetts - alleging the terms of the acquisition are detrimental to shareholders. A Sepracor spokeswoman declined to comment on the suits.

Coughlin said the merger trend is “something we certainly keep our eye on,’’ noting that his council much prefers Massachusetts companies to be acquirers, as opposed to having distant owners take over local businesses. But he said the Takeda purchase of Millennium has boosted its local workforce because the Japanese company consolidated its oncology business at Millennium, while using the company to gain a foothold in the North American market. “We see more investment coming in than jobs going out,’’ Coughlin said.

Of particular concern to state business leaders is the continued independence of Biogen Idec and Genzyme Corp., the two largest biotechnology companies based in Massachusetts.

Even as Biogen Idec presses its bid for Facet, the Biogen Idec board now includes two representatives of shareholder activist Carl Icahn, who has proposed selling or breaking up the company.

Meanwhile, some analysts have speculated that Genzyme, also based in Cambridge, could be a takeover target if it fails to get under control recent production problems at its Allston plant, where scientists discovered a virus last spring. The problems caused Genzyme’s share price to tumble over the summer, but it has since rebounded.

Share prices of many other biotechnology companies, especially smaller ones that went public before the economic downturn, remain relatively low - making them more vulnerable to takeover.

And the buyers are circling.

“When you’ve had a cycle of fear and now we’re seeing real signs that growth is coming,’’ said Gorman at Putnam Associates, “if you can pick up an asset that fits your strategy, and you can pick it up at a decent price, why not?”‹