For those in DNAP and other biotech related SICs- an interesting PR:
biz.yahoo.com
Monday September 11, 5:47 pm Eastern Time
Flush with cash, biotechs turn from hunted to hunters
By David Brinkerhoff and Edward Tobin
NEW YORK, Sept 11 (Reuters) - Blessed with high valuations and hoards of cash, maturing biotech firms such as Genzyme General Corp. (NasdaqNM:GENZ - news) and Elan Corp. Plc (NYSE:ELN - news) are scooping up their smaller biotech brethren and the trend is likely to continue amid Wall Street's excitement over the genomic revolution, analysts
said.
The spate of takeovers on Monday, including Human Genome Sciences' (NasdaqNM:HGSI- news) small acquisition of Principia Pharmaceutical, showcase the drive by biotech leaders to expand their portfolio of drugs and technologies thanks to financial wherewithal that has grown sharply in the last 18 months.
``One of the things that's changed significantly in the last year is that a lot of the larger biotech companies -- and Human Genome Sciences is a good example of that -- have lots of cash in addition to being fairly high-priced stock. They have a lot more flexibility in doing these kinds of things,'' Jim McCamant, editor of California-based Medical Technology Stock Letter, said.
``They took advantage of the hot market for biotech stocks to raise a lot of money,'' he said. According to investment bank Robertson Stephens, the sector has raised a record-shattering $17 billion so far this year.
``Compared to years past, it's not even close,'' biotech analyst Michael King of Robertson Stephens said, adding that raising $2 billion a year was a feat as recently as the mid-1990s.
WHY SPEND IT?
Biotech market capitalisations have zoomed since 1998 as investors deemed the sector one of the hottest areas of technology, by some estimations even supplanting the Internet as a hope for sizzling future gains. Their hopes have been kept alive by the recent decoding of the human genome, the list of 3 billion chemical pairs that make up the blueprint of life.
``Biotech stock prices are much higher than they were two or three years ago,'' said Mario Corso of Dutch bank ABN Amro.
``Certainly, it is to their benefit to use that rich currency when they have it. The larger biotechs are more of the hunters rather than the the hunted.''
Earlier on Monday, Dublin's acquisitive Elan continued its buying streak by agreeing to pay $2 billion in stock for Dura Pharmaceuticals Inc. (NasdaqNM:DURA - news), a high-profile San Diego company that specialises in new methods of delivering drugs that can make existing medicines safer and more effective.
Genzyme General plans to plunk down nearly $1 billion in stock and cash for fellow Mass.-based GelTex Pharmaceuticals Inc. (NasdaqNM:GELX - news) in a move to fully profit from Renagel, a potential blockbuster kidney disease drug that both companies now jointly sell.
Biotechs were once content to hand off their research and early-stage experimental medicines to big drug companies for fees and moderate future royalties. But as they enter adolescence or maturity, they are striving to become full-fledged drug companies in their own right. Companies like Elan and Genzyme General, and larger biotechs such as Amgen Inc. (NasdaqNM:AMGN - news) and Genentech Inc. (NYSE:DNA - news), have profitable products on the market and promising pipelines.
To realise their ambitions, Corso said biotechs can expand more quickly through acquisitions than by waiting for payoffs from their own internal research.
``It takes years and is expensive to devise your own research capabilities in a given area,'' Corso said.
In the case of Genzyme, Robertson Stephens' King said it is acquiring Renagel and other products and can achieve ``a fair bit'' of cost savings by melding its operations with neighbouring GelTex.
And with fat wallets and valuable stock prices, Genzyme was able to go after Renagel.
``Genzyme became convinced that this was a really good product so they said let's court them,'' McCamant said.
BIG PHARMA CAUTIOUS ON TAKEOVER FRONT
Industry experts said big pharmaceutical companies -- which Wall Street expect to turn double-digit profits for years to come -- are more cautious about buying biotechs because of the risk such acquisitions could dilute their earnings.
``The consolidators in this business are going to be the Genentechs, the Millenniums (NasdaqNM:MLNM - news), the Human Genome Sciences of the world, much more so than the pharmaceutical companies,'' analyst King said, ``because (big pharmaceutical companies) can not get the same incremental growth out of these acquisitions than (biotech) companies can because of their size.''
Even so, nobody suggests that big pharmaceutical companies will drop out of the hunt for biotechs and their cutting edge technology. Last year, Pharmacia Corp. acquired Calif.-based Sugen in order to get its hands on the company's promising anti-cancer pipeline.
Likewise, Johnson & Johnson (NYSE:JNJ - news) scooped up Centocor, to acquire its popular drug ReoPro, used after heart attacks and strokes to prevent blood clots.
But big pharma has perhaps been distracted by mergers in the past year, analysts said, including British drug makers Glaxo Wellcome Plc (quote from Yahoo! UK & Ireland: GLXO.L) SmithKline Beecham Plc (quote from Yahoo! UK & Ireland: SB.L), still awaiting U.S. regulatory clearance.
``It's going to be biotech or semi-biotech companies like Elan making the buys, not the large pharma companies which are so busy with their own mergers and fighting expiration of patents,'' McCamant said. |
