Drugmakers' `Arms Race' May Spur Biotechnology Deals
Drugmakers' `Arms Race' May Spur Biotechnology Deals
Drugmakers' `Arms Race' May Spur Biotechnology Deals
Vincent Aita of Kilkenny Capital Management says he picks biotechnology stocks on their potential as takeover targets. The strategy is paying off.
The number of biotech deals, including acquisitions and product alliances, rose 32 percent to 232 last year, according to data compiled by Bloomberg. At least four of Aita's holdings, including Serono SA and Kos Pharmaceuticals Inc., were bought by bigger drugmakers. Aita, who manages about $200 million in health stocks, is betting there will be even more transactions in 2007.
``There is an escalating arms race,'' Aita said in an interview at the JPMorgan Healthcare Conference this week in
Pfizer Inc., the world's largest pharmaceuticals maker, and Merck & Co. may buy biotech companies to make up for a scarcity of experimental medicines and expiring patents for best-selling products. On the shopping list are companies with experimental compounds as well as those with new drug-development science and technologies, investors at the conference said.
Last year the number of biotech deals in
Upward Trend
More transactions and higher premiums are likely this year, according to analysts, investors and company executives interviewed this week at the
``Premiums are going up,'' JPMorgan analyst Geoffrey Meacham said in an interview. ``You're seeing a lot of bidding wars.''
Driving the trend are big pharmaceutical companies with billions in cash that need new drugs to ensure growth.
Merck's Deals
Merck, the fourth-largest
Whitehouse Station, New Jersey-based Merck aims to become ``the best biotechnology company,'' Chief Executive Officer Richard Clark said in an interview at this week's meeting. Merck's biotech deals totaled $1.4 billion in 2006.
``It's science and technology and potential companies -- we're looking at all ends of the spectrum,''
Eli Lilly & Co., which is offering $2.28 billion to buy its biotech partner Icos Corp., is spending $1.5 billion this decade on building its own biotechnology operations.
``The price of poker has definitely gone up,'' said John Lechleiter, Indianapolis-based Lilly's president and chief operating officer, at the conference. ``There are too few good assets and too many bidders.''
Amgen Inc., the world's biggest biotechnology company, and Biogen Idec Inc. also are considering acquisitions and alliances.
Biogen
Biogen since May has bought three companies with a combined value exceeding $270 million to reduce reliance on its biggest product, the multiple sclerosis treatment Avonex. Last week, the Cambridge, Massachusetts-based company agreed to pay as much as $120 million for closely held Syntonix Pharmaceuticals, adding experimental treatments for hemophilia.
Merck's shares rose 53 cents, or 1.2 percent, to $44.79 at the close of New York Stock Exchange composite trading. Pfizer added 18 cents to $26.64, and Lilly increased 37 cents to $52.60. Amgen jumped $1.36, or 1.9 percent, to $73.27 in Nasdaq Stock Market composite trading, and Biogen rose 53 cents, or 1 percent, to $50.97.
`Most Active'
The pace of acquisitions ``is the most active in our history,'' Biogen
Premiums over the market price of traded shares also are rising. They ranged from 21 percent for Swiss drugmaker Actelion Ltd.'s purchase of Cotherix Inc., a
``Last year saw the first hostile bid by a biotechnology company,'' in the Genzyme takeover of AnorMed, said Steven Burrill,
``Premiums are running 50 percent to 100 percent, which means the market is undervaluing the stocks,'' Burrill said.
Biotechnology companies raised $20 billion in partnership deals last year, up from $17 billion in 2005, according to Burrill.
Companies already aligned with bigger drugmakers through partnerships are likely takeover targets, said Kilkenny's Aita.
Amgen
Last year Amgen, purchased its partner, Abgenix Inc., to gain control of the cancer drug Vectibix. Genentech Inc., the world's No. 2 biotechnology company, agreed to buy its partner Tanox Inc. in November, gaining the asthma medication Xolair. The $919 million transaction was the first acquisition in Genentech's history.
Biotech companies in partnerships that may be takeover targets include Onyx Pharmaceuticals Inc., which co-markets the Nexavar kidney cancer drug with Bayer AG, and New River Pharmaceuticals Inc., which sold rights to its hyperactivity treatment to London-based Shire Plc, Aita said. Onyx shares rose 24 cents, or 2 percent, to $12.22 at the close of Nasdaq Stock Market trading.
Others include BioMarin Pharmaceutical Inc., which shares a rare-disease drug with Genzyme, and Millennium, which co-markets its Velcade cancer drug with Johnson & Johnson. BioMarin shares gained 33 cents, or 1.9 percent, to $17.67 today and Millennium rose 21 cents, or 1.9 percent, to $11.46.
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