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kolos (ID#: 564) Something to think about.. 3/27/01 17:52 3354066
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Acquisitions
Bios Beware
Tue, Mar. 27, 2001 15:16
By Crystal Quast, Canada-iNvest.com
The rumour mill is churning fast and furious as investors try to guess which biotech could be the next to be swallowed up.
Johnson & Johnson’s (JNJ) announcement Tuesday that it will buy drug maker Alza (AZA) for $10.5 billion in stock sparked the latest round of speculation.
Now investors are scanning the horizon for the next big deal.
Felicia Reed, an analyst with Adam Harkness, says that while this deal may not signal a new wave of consolidation in the industry, there could be more mergers around the corner.
“It’s an illustration of the trends we’re seeing in biotech with pharmaceutical companies looking for more products to supplement their pipelines that aren’t that strong because they have products coming off patent.”
This was exactly the case in this latest pairing. The deal will pump up JNJ’s product pipeline, which some analysts say has dragged recently, by giving it access to new drugs and new ways to deliver medicine.
Mehta Partners analyst Mark Revera says that the most likely mergers will result from larger pharmaceuticals looking to fill their relatively weak phase three pipelines with another company’s offerings. “How they are going to be addressing that gap is going to be the big driver at this point as opposed to any kind of synergies or cost savings.”
Still, the New York-based Mehta isn’t so sure a new wave is about the sweep the sector.
“It’s hard to tell because two years ago there was a similar situation when JNJ bought Centocor. There were rumblings that that was going to be the big start of a consolidation wave that really didn’t happen in terms of the large pharmas going out and buying up the biotech and product companies.”
That’s not to say that Revera is ruling out the possibility of another merger in the industry.
“GlaxoSmithKline (GSK) has mentioned that Biogen (BGEN) might be an interesting acquisition target for someone, maybe themselves. There also may be some increased activity with mature biotechs like Alza that have a good technology base and products that are on the market or close to market and have some good incremental benefit to bring.”
Revera also mentioned Genzyme as a possible target for some of the larger companies looking to boost their product offerings. “They’ve done well in the last year or so. Or Shire (SHPGY), there are several in that line.”
George Mahmourides, an analyst with Groome Capital agrees M&A action may heat up in Canada as well.
“The slump in the biotech market in terms of investment also signals that this is another attractive means of getting financing,” says the Montreal-based analyst.
Mahmourides was quick to point out that many biotechs raised money in the equity markets before the indexes started their downward spiral.
“A lot of companies are sitting on a lot of money. Acquiring another company is a way of jump starting yourself. Buying yourself into a new technology, buying yourself into a new niche, buying yourself time, buying yourself revenues.”
Since most companies will test the waters before diving in, Mahmourides thinks there will be a surge in strategic alliances as a prelude to more firm deals. “You don’t just go and buy a company off the shelf.”
Mahmourides says all of the large cap Canadian companies like QLT Phototherapuetics (QLT), Axcan Pharma (AXP ), and Haemacure (HAE) could all be potential candidates. “When you see companies like these (AXP, HAE) coming out with shareholder protection plans, that should give you the signal that they may be aware that they may be swallowed up.” |
