Replies to post #65744 on Biotech Values

[DewDiligence]

Bayer Shares Rise on Pfizer Buyout Talk

http://www.reuters.com/article/marketsNews/idINL935823720080909

›Tue Sep 9, 2008 5:19am EDT

FRANKFURT, Sept 9 (Reuters) - Shares in German drugs and chemicals group Bayer (BAYG.DE) rose on market talk of takeover interest from U.S. rival Pfizer (PFE), traders said on Tuesday.

Bayer shares were 3.3 percent higher at 54.44 euros by 0905 GMT, compared with a 0.9 percent rise on the German benchmark DAX .GDAXI index.

Bayer, which has a market capitalisation of around 40 billion euros ($57 billion), declined to comment. Pfizer was not immediately available for comment.

Bayer, which boasts a healthy pipeline of new drugs and an attractive over-the-counter medicines business, has been a rumoured takeover target in the past.

Any acquisition by a pure pharmaceutical company, however, would be complicated, since it would require the break-up of the chemical-drugs hybrid. Bayer is also a top global player in plastics and in agrochemicals.

For Pfizer, buying Bayer would also bring an added complication in that the U.S. group only recently sold off its non-prescription drug business to Johnson & Johnson (JNJ). [I don’t understand the point here—what does one deal have to do with the other?]

Pfizer has a history of doing mega-deals but investors have been disappointed by past acquisitions that have failed to curtail its reliance on ageing blockbusters, including cholesterol fighter Lipitor, which goes off patent in 2011. The company rakes in $13 billion a year for Lipitor and needs new products to offset sales declines of this and other products.‹

[DewDiligence]

Drugmakers Shift Emphasis to Biotech M&A

[This article is best read in conjunction with the table in #msg-31868085.]

http://www.ft.com/cms/s/0/9d620a56-85d6-11dd-a1ac-0000779fd18c.html

›By Andrew Jack
September 19, 2008 04:27

The global credit crunch and the equity meltdown may have caused pain to companies in most sectors, but it has had unexpected benefits for cash-rich established drugmakers such as Shire, the Ireland-based specialty pharmaceutical business.

“It has strengthened our negotiating position,” says Angus Russell, chief executive, who has completed a string of deals in recent years, including a friendly takeover currently being completed of Jerini, a Berlin-based biotech company

Jerini’s relatively low stock market value made outright purchase cheaper and simpler than arranging complex licensing terms for its peptide-based medicines that Shire sought. In other cases, fewer options for funding have made biotech companies keener to do deals quickly with it, where they previously had held out for better pricing.

The pattern has been repeated elsewhere and has helped shift the balance of power away from biotech companies in their discussions with larger pharmaceutical groups that are willing to pay high prices as they compete in their search to find future drugs to replenish thin portfolios.

“In the past few years, it was a sellers’ market driving up valuations for less and less mature technology,” says Tibur Papp, head of advisory at PharmaVentures, a UK-based consultancy. “Now the environment is changing and with a significant impact on biotech finance, it has become more difficult to find partners and good deals.” [I.e., it has become more difficult to find licensing partners as opposed to buyout suitors.]

The tough background, reinforced by the collapse of companies such as Ardana and Phoqus, has sparked reflection on the need for further industry consolidation, such as Thursday’s merger of BTG and Protherics, a move that advisers to both companies stress was conducted from a position of strength.

Better solutions have been found by smaller companies that have given up their hopes to remain independent: Acambis, the vaccines developer, is being acquired by Sanofi-Aventis of France, and Novartis of Switzerland recently acquired Speedel.

More broadly, Neil Mackison, head of European healthcare investment banking at Piper Jaffrey, a middle market investment bank, says: “Companies that are running out of money are looking for new strategies.”

With scant prospect for initial public offerings or follow-up equity financing, and venture capitalists seeking returns of 25-30 per cent, he says that some have turned to “venture debt”, offering coupons that he says are typically “in the high teens”.

Those lucky enough to have medicines on the market are doing more deals with specialist royalty companies to provide cash up-front in exchange for the rights to future sales.

That leaves two options: licensing earlier with partners, at a point when less clear-cut clinical trial data mean the prospect of lower prices; and takeovers. “Mergers and acquisitions are definitely top of the agenda, far more than in the past four or five years,” he says.

Given the increasing recognition by large pharmaceutical groups of the need to seek products outside their own laboratories, and sector-wide concerns about a series of existing best-selling products coming off patent in the next few years, biotech companies with promising products are still able to command good prices.

“Products remain the lifeblood of the industry, and the opportunities for low- and mid-hanging fruit are getting fewer,” stresses Robin Campbell, an analyst with Jefferies. “There is a degree of corporate anorexia within big pharma, with their research centres being picked apart, and that means in-licensing and business development people have greater say.”

He also points out that relative valuations of the more promising biotech and pharmaceutical companies have been improving recently, as investors divest from financial institutions and seek more defensive stocks.

Aisling Burnand, head of the BioIndustry Association, the UK trade body, argues: “The fundamentals of the sector are still quite strong. Biotechs have not necessarily been worse impacted than any other sector and are more seasoned in belt-tightening than many.”

But many biotech businesses have few products of uncertain quality. John Mayo, head of Celtic Pharma, a company that buys experimental medicines for resale, argues that big pharma remains suspicious because such drugs are often “hairy”, supported by insufficient clinical trial data to win regulatory approval [hello, RPRX].

As an adviser to the sector says: “The biotech sector needs to consolidate. There are too many bit players with a single product in the clinic, all the infrastructure costs of PLCs, and a £400,000 ($722,597) salary for the chief executive. But egos and valuations get in the way.”‹

[DewDiligence]

Recent Biotech Buyouts at a Large Premium

[Added Zentiva deal. Table excludes hostile deals not
yet consummated such as Roche-DNA and BMY-IMCL.]

 
 Acquired         Premium    Deal         iHub  
 Company  Buyer   to Market  Value  Date  Reference  
 KOSN     BMY       233%     $190M  5/08  #msg-29647147 
 COLY     PFE       167%     $165M 11/07  #msg-24600805 
 IOMI     Intercell 147%     $190M  5/08  #msg-29232165  
 BTRX     Stiefel   136%     $150M  6/08  #msg-30201906 
 SGXP     LLY       119%     $64M   7/08  #msg-30547648 
 ENCY     PFE       118%     $350M  2/08  #msg-26978155 
 TRCA     Ipsen     104%     $660M  6/08  #msg-29795183  
 Speedel  NVS        94%     $880M  7/08  #msg-30588524 
 SIRT     GSK        85%     $620M  4/08  #msg-28705020  
 Ventana  Roche      72%     $3.4B  1/08  #msg-30912677 
 Jerini   Shire     *71%     $520M  7/08  #msg-30452872 
 Acambis  SNY        64%     $550M  7/08  #msg-30990498 
 SCRX     Shionogi   61%     $1.4B  9/08  #msg-31859174 
 MEDI     AZN      ‡‡53%     $15.2B 4/07  #msg-19020387 
 MLNM     Takeda     53%     $8.8B  4/08  #msg-28365383 
 LEVP     VPHM     ††49%     $440M  7/08  #msg-30704409 
 PHRM     CELG       46%     $2.9B 11/07  #msg-24645394      
 BRL      TEVA     **42%     $9.0B  7/08  #msg-30792830 
 MOGN     Eisai      39%     $3.9B 12/07  #msg-25163775  
 CGPI     Galderma   30%     $420M  2/08  #msg-28286522 
 APPX     Fresenius †29%     $940M  7/08  #msg-30498388 
 Zentiva  SNY      ‡‡26%     $2.6B  9/08  #msg-32327005 
 ARI.to   Roche     ‡15%     $190M  7/08  #msg-30904056 
  
 *199% premium to volume-weighted 
 price during preceding 3 months. 
  
 **Premium based on 7/16/08 close;  
 $9B price includes assumption of debt. 
  
 †Premium reaches 63% if earn-out met. 
  
 ††Premium reaches 103% if earn-out met; 
 base price subject to collar. 
  
 ‡Number is misleading inasmuch as Arius announced in 
 May 2008 that it was pursued by an unnamed suitor. 
  
 ‡‡Premium relative to commencement of bidding.