'Pharmaceuticals' Archive
Perhaps Martha Stewart should have held onto that ImClone stock a little longer. Not only would she have avoided jail time, but she might have earned a little more bang for her buck. Bristol-Myers Squibb’s $4.5 billion bid to acquire the 83% of ImClone it doesn’t already own values the company’s shares at $60 a pop (ironically, the same price that triggered Martha’s stock ditch in 2001). But speculation over the deal has already raised the stock’s price tag above that bar and ImClone has hinted that it may seek a higher offer.
BMS’s unsolicited takeover attempt marks the second large biotech takeover attempt by a big-name pharmaceutical firm this summer (the first was Roche’s bid for Genentech) and is part of the larger and seemingly intensifying trend of the pharma industry’s shift towards biopharmaceuticals. (It’s a sign of the times, but also of dwindling revenues from traditional drugs.)
What is BMS hoping to gain through the purchase? While ImClone only has one commercial product (cancer treatment Erbitux, which is approved to treat colorectal, head, and neck cancers), that single product brings in over $1 billion in annual revenue. ImClone also has a pipeline of similar antibody-based cancer drugs, and it is pursuing additional indications for Erbitux. If the company’s development candidates make it to market ImClone will also hold a corner on treatments for lung, pancreatic, breast, prostate, and ovarian cancers.
So despite a history laden with patent disputes, management shake-ups, and stock-trading scandals, ImClone represents an opportunity for growth to the struggling BMS. Whether ImClone accepts the offer is another question. The biotech indicates that it may decide on another course to maximize shareholder value, such as the separation of its Erbitux and development operations into two companies. The deal’s success will also largely depend on the opinion of ImClone chairman Carl Icahn, the formidable investor who has already voiced his doubts on the BMS offer.
The world of monoclonal antibodies and genetic testing may seem far removed from the realm of mortgage-backed securities and the other bogeymen of the current credit crisis, but the biotech industry is still feeling the fear. Despite an increasing number of profitable biotech companies, like Genentech and Applied Biosystems, the industry is still dominated by unprofitable start-ups that rely heavily on venture funding and capital from the public markets. And the economic environment being what it is, companies are having a hard time going public or getting attractive acquisition offers from larger life sciences companies.
That leaves the venture capitalists in a bind. Venture capital firms like to cash out their investments – either through IPOs or sales of a company – in about five to seven years. But with “exit opportunities” limited right now, they are having to put more of their money into bankrolling later-stage biotech companies while they wait for a better IPO environment or a juicy acquisition deal to come along.
The good news is, venture firms are still ponying up lots of cash. The MoneyTree report for the second quarter of 2008 (produced by PriceWaterhouseCoopers and the National Venture Capital Association) shows that overall funding from venture capital firms has held steady so far this year. But there is a difference in where all that money is going and what it’s being used for.
According to the report, investment in life sciences companies (which includes both biotech and medical device firms) went down 14% in the quarter. Perhaps more importantly, the amount of money going into later-stage companies – the ones that at another time would probably be going public – has gone up, potentially leaving the next crop of new, innovative start-ups without the money to, well, start up.
So what’s the solution to the capital quandary? Some analysts think that, with the IPO option not available, the life sciences sector will see more mergers and acquisitions in the vein of Thermo Fisher Scientific’s acquisition of Open Biosystems (a maker of RNA research tools) and Invitrogen’s proposed merger with Applied Biosystems Group. Experts are also optimistic about the growth of emerging markets like India and China and the likely increase in funding from government sources like the NIH. But even with those bright spots, early-stage biotechnology companies may have to get creative when it comes to finding the money to fund their innovations.
There’s a lot of speculation circulating about whether leading biotechnology firm Genentech will accept pharmaceutical giant Roche’s $43.7 billion takeover bid, the largest pharma/biotech merger price tag in several years.
The offer came as a surprise for Genentech, which has maintained a unique culture despite Roche’s controlling ownership stake. If Roche’s offer is accepted, the pharmaceutical giant says that it wants to keep Genentech independent so as not to squelch its innovative atmosphere. I imagine that Genentech executives and employees are wondering whether this goal is realistic though, especially since Roche has also announced its intention to integrate some US functions to cut costs.
Also at issue is the popular opinion that the offer is undervalued, only giving a 9% premium over Genentech’s stock value. Some analysts and investors are betting that Roche will have to up its offer before Genentech will commit, while others feel that Roche will use its advantage as majority shareholder to keep the price down.
Roche has thus far been satisfied with its controlling interest in Genentech, which has allowed it to reap profits from the division while avoiding management duties. The shift in strategy is less of a surprise, however, when you consider current competitive and consolidation trends in the pharmaceutical/generic/biotech industries, as well as the rise of foreign investments in US assets.
Roche itself has made several acquisitions in its quest to remain in the top ranks of drug companies, especially in the areas of biotechnology and diagnostics. (It also recently bumped up its stake in another majority-owned subsidiary, Japan’s Chugai Pharmaceutical.) Like many other pharma companies, Roche is looking to biotechnology firms to bolster its product offerings in the face of generic competition. Generic firms are also joining forces to get ahead of the game.
Though Roche will probably have to raise the stakes, it’s highly likely that Genentech will eventually end up taking the bait in this situation, if for no other reason than to secure its position in the increasingly challenging marketplace. However, let’s not completely discount that the California company may yet fight for its (partial) freedom with San Francisco flair.
Hot on the heels of Fresenius’ proposal to buy APP Pharmaceuticals, consolidation in the generics industry continues unabated with two giants in the sector agreeing to make a match. The world’s largest generic drugmaker, Israel’s Teva Pharmaceutical Industries, announced Friday it would buy Barr Pharmaceuticals, a US-based player with about $2.5 billion in sales in 2007.
Teva is paying a cool $7.5 billion for Barr, in a deal most agree makes sense for the Israeli firm. The acquisition of Barr expands Teva’s market share in the US (particularly in the area of oral contraceptives, Barr’s bread and butter) and gives it presence in fast-growing markets in Central and Eastern Europe, markets Barr entered in 2006 with its own acquisition of Croatian firm PLIVA.
Additionally, the deal adds Barr’s proprietary prescription drug unit Duramed to Teva’s small portfolio of brand-name drugs and expands Teva’s efforts in the nascent field of biogenerics (off-brand versions of difficult-to-replicate biological drugs). Barr’s efforts with biogeneric development — another operation gained with the PLIVA acquisition — will complement Teva’s purchase earlier this year of CoGenesys, a privately held biotech firm formerly part of Human Genome Sciences.
Teva has already been in expansion mode in 2008. In addition to buying CoGenesys, it is in the process of acquiring Bentley Pharmaceuticals’ Spanish drug business. The buying spree is part and parcel of Teva’s intention (announced this year) to reach $20 billion in annual revenue with 20% profit margins by 2012.
The Teva/Barr deal is just the latest (and biggest) in a run of acquisitions and mergers in the generics sector, which is growing at a considerably faster clip than the brand-name pharmaceuticals industry. Last year Mylan bought Merck KGaA’s generics business, a business Teva also made a bid on, for $6.7 billion. And this year, we’ve already seen big deals between Daiichi Sankyo and Ranbaxy, and Fresenius and APP. Nobody expects the trend to stop — only question is, who will be next?
Counting itself one of the luckiest girls in town this week, APP Pharmaceuticals got a $3.7 billion engagement ring from Fresenius SE, the German health care group best known for its worldwide network of dialysis clinics.
Fresenius is acquiring APP Pharmaceuticals and its stable of generic injectable drugs to expand its Fresenius Kabi unit, which makes infusion therapies such as intravenous nutrition and blood volume replacement products. The acquisition gets Fresenius Kabi into the North American market, where APP has operated exclusively, and gives APP the ability to go global. Fresenius has agreed to the nearly $4 billion cash payment, as well as additional payments if financial targets are met. It will also assume nearly a billion dollars in APP’s debt.
APP Pharmaceuticals makes generic injectable drugs like the blood thinner heparin, as well as intravenously administered pain and cancer drugs. It became the US’s largest supplier of heparin in 2008 after tainted batches of the drug imported from China (and sold by Baxter International) were withdrawn from the market.
The deal is yet another sign of the growing interest in generics, particularly in the US market, where two-thirds of all prescriptions are filled by a generic equivalent. It follows newspaper reports last month indicating the intentions of Chinese drugmakers to enter the US, as well as Daiichi Sankyo’s agreement to acquire a controlling interest in Indian generic maker Ranbaxy, which also has a significant North American presence.
Incidentally, if APP is the luckiest girl in town, then its founder and former CEO Patrick Soon-Shiong is certainly the luckiest boy. Soon-Shiong, already named one of Forbes’ richest Americans last year, owns more than 80% of the firm, which was spun off from Abraxis BioScience in 2007. (Soon-Shiong owns a controlling stake in that company as well.) And he will get a payout of up to $3.8 billion, according to the LA Times, if all goes according to plan.