Bankers appear to be in agreement that mergers and acquisitions are set to increase in 2010 as big pharma scrambles to snap up promising biotechs before valuations creep up in a strengthening economy. However, they also concur that further mega-mergers are unlikely to happen as all possible combinations have been studied and deemed unfeasible.
Big pharma’s rush to renew unexciting portfolios will continue to drive smaller deals; in Europe bankers have diagnostics group Qiagen, allergy specialist Stallergenes and Danish biotech NeuroSearch on their watch list this year. However, unlike 2009, improving financial and capital markets are making it easier for potential prey to raise cash, providing them with greater bargaining power should they wish to sell their business.
“Last year, there were lots of desperate biotechs seeking cash and while the big guys were combing through them, they were happy to wait for a better price in case markets worsened,” recalls a senior healthcare banker in London. “That is no longer the case. The capital markets are improving and prices are stabilising so those that wanted to make a move last year will want to do it now.”
Forced into action
US bankers agree, saying that some firms may be forced to launch bids soon to secure a valuable asset before its price increases.
“Assets are not getting any cheaper and the IPO window is opening up, giving small and midcap firms more fundraising options,” says one senior New York banker. “This may force some acquirers to make their bids now or lose out on a great opportunity.”
Whether it does it now or later, big pharma is likely to make more bolt-on acquisitions in 2010 than it did last year, market observers concur. Indeed, some say that the recent mega-merger cycle is over.
“All the giant deals that could have been done have been done,” says the US banker. “Everyone in the last 12 to 18 months has looked at possible combinations due to the other mega-mergers taking place and have decided not to pursue them,” adding, “these things happen in cycles and waves and there may not be another one for some time.”
The US healthcare reform has also been more benign than expected, and might even come to nothing, easing the pressure to create huge companies that can cope with a tougher and more competitive commercial environment.
Another reason why mega-mergers will likely decline in popularity are the investment banks themselves. Starved of deals in last year’s tougher economy, many focused on pitching transactions in the defensive pharma sector where cash-rich firms could afford to bankroll mergers and pay the hefty transaction fees.
The improving economy means banks can now look to other sectors for big deals, as well as pursuing smaller transactions within the pharma industry, for example pitching midcaps to the larger companies.
So what could some of these deals be? Recently, Qiagen and Stallergenes have been rumoured as possible targets for big pharma. One deal that is drawing a lot of attention in Europe is the auction of German generics maker Ratiopharm, with a number of bidders expected to submit offers in the region of €3bn by the end of next week (Vantage Exclusive - Four rush to table Ratiopharm offers before February 5 deadline, January 20, 2010).
Qiagen, which operates in the fast-growing molecular diagnostics space, is understood to be generating interest from a number of large players, although with a current market value of $5.2bn any takeover deal would not be considered small fry. Roche’s $3.1bn acquisition of Ventana in 2008, a recent collaboration struck by AstraZeneca with Denmark’s Dako and Qiagen’s own diagnostics deals with companies including Merck & Co, illustrate how big pharma is becoming increasingly interested in this space.
Qiagen raised $640m from a stock sale last September and has since spent $204m on three company acquisitions, with plans to spend a further $200m-$500m in the next 12 months. According to consensus forecasts, the Dutch company’s sales are forecast to surpass $1bn in 2010, while profits could rise 23%.
On the block?
Meanwhile France’s Wendel family may this year find a buyer for its 47% stake in Stallergenes, which has been on the block for some time, analysts say.
Europe’s second-largest maker of allergy drugs, Stallergenes recently won European approval to sell its hayfever allergy pill, Oralair (Event – Stallergene’s Europe victory is the start of US ambitions, November 27, 2009).
A US partner is being sought for Oralair and house dust mite product, Actair, so it is possible those partnership talks could evolve into a full-blown takeover.
In other potential M&A activity, observers say Neurosearch, mooted as a takeover target last year, could change hands in 2010.
The CNS specialist already has a number of partnerships with big pharma groups and has been linked specifically to Glaxo, which holds a 5% stake in the company, and Eli Lilly.
The company is on the threshold of two major catalysts this year, phase III data for Huntington’s disease candidate, Huntexil, and a licensing deal for phase III obesity pill, tesofensine (NeuroSearch raises the stakes ahead of pivotal events, October 26, 2009).
An analysis by EP Vantage last year certainly appeared to point towards a growing appetite for big pharma to strike takeover deals in the last few years (Vantage Point - Is big pharma spending its way out of trouble?,October 2, 2009).
Where possible big pharma will still prefer to strike licensing deals, to share the risk and avoid earnings dilution, but deals are still happening. Bankers are understandably bullish on this activity continuing; the deals pay their wages and it is in their interest to talk up this sort of activity.
But one other driver of deal making is likely to have a big influence this year, the return to the table of companies that last year were otherwise engaged in mega-mergers: Roche, Pfizer and Merck and to a certain extent Novartis with Alcon. Without this distraction their attention could now be focused on the smaller end of the scale.
by guest contributor, Ivan Castano