Healthcare’s Appetite for Acquistions
Posted on: August 11, 2008 - Email Article - Printable Version
Healthcare, more specifically Pharma is showing an appetite for deal making as four major companies are courting potential acquisitions. This hunger signals a change in the environment as signs of consolidation surface. If we look at this year’s activity, IPOs were at an all time low and the majority of the sectors did not see much M&A activity. The Healthcare sector, most specifically Biotechnology and Pharmaceuticals saw a burst of M&A interest in the past month.
Deal #1: Novartis and Speedel (7/15/08)
Amount: 1.01 Billion Swiss Fancs ($980 million)
The Swiss giant has had a rough 12 months, facing significant setbacks on three of its products. Following its major acquisition of eye care company, Alcan, Novartis [NVS: 48.98, -0.56 (-1.13%)] further expanded by it’s purchase of biopharma house Speedel. Already having a majority stake in the company, Novartis is paying a 94% premium over 7/14’s closing price. Speedel trades on the Swiss exchange and saw its shares jump 94% while Novartis saw a 0.4% decline when the deal was revealed.
Currently, Speedel shareholders are voting on the deal as management urges them to accept, believing that the deal fairly values the company. Novartis will gain experts on cardiovascular drugs including Speedel’s only drug, Tekturna. Citigroup estimates $51 million in revenues from Tekturna in Q2, which should be quite attractive to Novartis. The biopharma expertise in heart care should help the ailing Novartis speed its growth and deter the negative effects of generics.
Deal #2: Roche and Genentech (7/22/08)
Amount: $43.7 billion
Roche, came out and offered an $89/share offer for the 44% of California biotechnology company Genentech [DNA: 83.00, +0.40 (+0.48%)] it does not currently own. As we notice, the market values Genentech at a higher price as shares currently trade north of $90. Gaining perspective on the situation, Genentech one of the most successful biotech firms around enjoys its independence and potentially may not accept the offer. It will be interesting to see this play out as a large player can potentially be taken out by an international company.
Deal #3: Teva and Barr (7/18/08)
Amount: $7.46 billion
I discussed this deal earlier, as Israeli Generic Giant Teva [TEVA: 42.82, +0.17 (+0.40%)] reached out to acquire Barr Pharmaceuticals [BRL: 0.00, 0.00 (0.00%)]. Teva wishes to strengthen it’s grip in the generic drug market. The acquisition of Barr brings about 100 drugs that Teva can add to it’s portfolio of over 300. The synergies from this acquisition can improve operations and provide cost savings that were not evident previously. The generics are pressuring pharmaceutical companies with their product offerings that provide more affordable treatments and this move will turn up the heat. Teva’s biologic segment compliments the generic segment well and the company can use a global supply chain to deliver its low cost products. I like the generic sub-sector, continue to keep an eye on this group they are set to impress.
Deal #4: Bristol Meyers Squibb and ImClone (7/31/08)
Amount: $4.5 billion
The latest in the slew of deals, the self proclaimed “next generation biopharma” company seeks to add to it’s armada of biotechnology talent by acquiring Carl Icahn’s ImClone [IMCL: 0.00, N/A (N/A)]. Bristol Meyers Squibb [BMY: 23.23, -0.65 (-2.72%)] has already acquired Adnexus Therapeutics, a biologic expert and seeks to further expand it’s knowledge base. Pharmaceuticals are looking more and more to biotech to sustain growth and keep off the generic competition. ImClone seems to believe that BMS’s offer is too low for the remaining 83% BMS does not own. Icahn is also “disturbed” by the BMS’s director on ImClone’s board who could have access to confidential information about ImClone’s upcoming compound IMC-11F8. The market seems to believe ImClone is worth more than the $60/share offer with a price run up of over 35%. The deal depends on the rights to ImClone’s pipeline, it will be interesting to see how Icahn negotiates with BMS.
Opinions
I am excited to see such activity during an economic low. Lending has really dried up, but cash rich corporations are able to continue investing in their future as we see here. If you look at the list, the majority of the acquirers have stakes in their target companies. I found this interesting that companies are hesitant to bid for companies they do not have a track record with, these companies want some guarantee that their investments will be fruitful. This shows prudence as the corporations realize they need to handle their cash reserves strategically since credit is hard to come by. I also want to point out that the weak dollar is appealing to foreign investors, like Teva and Roche as they attempt to find unlocked value in their industries. The Teva and Barr is a great deal as generics continue to gain market share from pharmaceuticals with their inexpensive products. I think Genentech will continue to stay independent, but ImClone will eventually fall for it’s suitor. The latest activity should keep Healthcare interesting as growth problems are addressed through M&A.
-Santosh Sankar
Disclaimer: None
The Following Stocks Were Mentioned In This Article: BMY, BRL, DNA, IMCL, NVS, RHHBY.PK, SPDHF.PK, TEVA
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It should be interesting to see if domestic M&A activity, particularly in healthcare, picks up with the stronger dollar
Vinay Ayalas last blog post..Healthcare’s Appetite for Acquistions
You hear about how this is happening in the commodity-related markets. For example: big oil refiners & drillers acquiring the wild-catters or large metal miners picking up specialized metal exploration companies to extend their portfolio. There are a lot of other consolidation stories that go somewhat under the radar though, and I think healthcare is really overlooked. Thanks for the informative post Santosh!
Mylan looks very attractive as a takeover target as they are the third largest generic drugmaker in the world and has been strategically finding ways to rid of their debt. Maybe Pfizer will buy MYL since they have stayed in the dark while most other large healthcare companies have gone out and made a move.
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