Bankers pitching biotech acquisitions to Bayer must fight hard

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You might be excused for thinking that Bayer’s $2.9bn acquisition of Algeta marked an abrupt change to the normally conservative German group’s M&A strategy. Not so fast, cautions Bayer’s chairman, Marijn Dekkers.

“Past behaviour is no indication of future behaviour,” he told today’s annual press conference in Leverkusen, Germany. Still, it cannot be denied that acquisitions in general remain on the company’s agenda, as illustrated by Bayer’s move yesterday to buy the Chinese OTC specialist Dihon.

The Algeta acquisition, which has now crossed the mandatory level of acceptances to enable Bayer to squeeze out the remaining shareholders, is an interesting one for a company that historically has not tended to buy out its small biotech partners.

Isolated case?

“Our interest was grounded in Xofigo,” said Mr Dekkers, adding that when you believe so strongly in a product and are able to obtain an attractive price for both companies’ investors it makes sense to pull the M&A trigger. But he refused to say that this isolated case necessarily meant that deal bankers should suddenly start pitching M&A ideas to the group and its other biotech partners.

One illustration of Bayer’s conservatism was its apparent reluctance to acquire its long-standing partner Onyx Pharmaceuticals, which eventually fell to Amgen last year for $10.4bn. Not that this was an entirely bad outcome for Bayer, of course – the German group boasted a €77m ($106m) gain on the sale of Onyx shares to the acquiring company.

In prepared remarks Mr Dekkers said he would continue to supplement Bayer’s organic growth through small and medium-sized acquisitions in the life sciences, which also includes the company’s crop protection business in addition to prescription drugs, OTC products and devices.

Regarding Dihon, Mr Dekkers said the Chinese company’s strength in dermatology was a particular attraction, as was its fit with Bayer’s emerging market strategy. This includes, for instance, taking brands established in markets like Russia and funnelling them into additional countries like China.

And in China itself Dihon will give Bayer’s products added reach into new cities, said Mr Dekkers. Beyond these markets, Mr Dekkers said the group’s emerging markets strategy would focus on Brazil, Thailand and the Philippines, and Africa.

Terms of the Dihon acquisition have not been disclosed but, with sales standing at a reported €123m last year, estimates that the business was bought for €500m must surely be wide of the mark. The figure implies a very high profit multiple for a company that sells over-the-counter products.

Bankers will take heart that Bayer still has the firepower to do M&A, even though it might take more convincing than other companies. Thanks to cash generation the company’s net debt fell €300m to €6.7bn last year.

For now Mr Dekkers is sticking to the no-comment line on specific future acquisitions. “But if the possibility is there," he said, "we’ll take a serious look.”

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