Beyond Borders: Global biotechnology report 2010

Deals
A new landscape
Given the realities of a restricted fundraising
environment for biotechnology
companies, coupled with the continued
need for pharmaceuticals companies to
fill their pipeline gaps, it was reasonable
to expect 2009 to be another strong year
on the transactions front. Instead, M&A
activity declined significantly, and the year
saw only three acquisitions larger than
US$1 billion. Mega-mergers (transactions
larger than US$10 billion) involving biotech
companies were essentially absent, other
than the completion of Roche’s tender for
Genentech, which really began in 2008.
The number of strategic alliances remained
relatively flat compared to the last several
years, while their total potential value
(“biobucks”) declined to 2007 levels.
It is important to put what might appear
to be relatively lackluster totals in context
by pointing out what they are relative to.
Both 2007 and 2008 were exceptionally
strong years from a deals perspective,
with the industry reaching all-time highs
on several fronts. As such, holding ground
on strategic alliances is hardly shabby.
And the distribution of M&As has often
been inherently lumpy, since these are
larger, less frequent transactions, and
since buyers often pause to digest their
acquisitions after making large purchases.
As such, it may well be premature to
over-interpret what could prove to be a
one-year hiatus in the action.
Mega distractions
While the fundamentals driving
transactions haven’t changed, some basic
realities did — particularly for big pharma
(the buy side of most biotech deals). Over
the last several years, companies across
the pharmaceutical industry have been
revising and refining their strategies, and
this resulted in several mega-mergers
in 2009. The action started in January,
when Pfizer announced that it would join
forces with Wyeth. This was followed in
March by Merck’s announcement that it
was merging with Schering-Plough and
the completion of Roche’s tender offer for
the minority stake in Genentech. When
one adds Novartis’ two-step acquisition
from Nestlé of a majority interest in Alcon
(the second step of which closed in 2010),
the total value transferred in just these four
transactions exceeded US$200 billion —
handily surpassing the combined value of all
pharma-biotech acquisitions over the last
decade.
The impact of this consolidation on
deal-making with the biotech industry
extends beyond the use of capital and the
Selected 2009 M&As
Company Country
76 Beyond borders Global biotechnology report 2010
additional debt burden carried by some
companies. In the short term, despite claims
by the mega-merger participants that they
remain open for business with biotech,
it is clear such large transactions create
significant integration challenges that are a
major distraction for management. Beyond
all the inward-focused politics of who will get
what position is the very real need to realize
synergies by rationalizing the product
portfolio and pipeline. Until the dust settles,
it is difficult for business development
functions to move aggressively in pursuit
of new technologies or to credibly argue
that they are the “partner of choice” for
a particular asset. Indeed, none of the
acquirers in these mega-mergers undertook
a significant biotech acquisition in 2009,
although, with the exception of Pfizer, they
did remain active in strategic alliances.
Acquired or
merged company Country
Value
(US$m)
Dainippon Sumitomo Japan Sepracor US 2,600
Bristol-Myers Squibb US Medarex US 2,400
Gilead Sciences US CV Therapeutics US 1,400
Johnson & Johnson US Cougar Biotechnology US 970
H. Lundbeck Denmark Ovation Pharmaceuticals US 900
Onyx Pharmaceuticals US Proteolix US 851
Celgene US Gloucester Pharmaceuticals US 640
Endo Pharmaceuticals US Indevus Pharmaceuticals US 637
Novartis Switzerland CorThera US 620
Alcon Switzerland ESBATech Switzerland 589
sanofi-aventis France Fovea Pharmaceuticals France 514
sanofi-aventis France BiPar Sciences US 500
Source: Ernst & Young, Windhover Information, MedTRACK, BioWorld and company news via NewsAnalyzer