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Biotech / Medical : Munch-a-Biotech Today -- Ignore unavailable to you. Want to Upgrade?

To: Vector1 who wrote (805)	1/19/2000 9:17:00 AM
From: Biomaven	Respond to of 3158

Here's a take on the effect on biotechs of the mega-mergers. Makes the point that biotechs could pick up some of the cast-off products or people. (Sometimes these cast-offs make good of course - VPHM's pleconaril is a currently high-profile example). Headline: ANALYSIS-Drug merger frenzy to consolidate biotech ====================================================================== By Arindam Nag LONDON, Jan 19 (Reuters) - The current spate of drug mergers is likely to be a catalyst for more consolidation in the biotech sector as big pharmaceutical groups with deep pockets shop around for quality research to boost their product range. Monday's announced merger between Glaxo Wellcome (ISEL:GLXO) and SmithKline Beecham Plc (ISEL:SB) will create a research powerhouse -- and analysts and bankers say a handsome share of its expenditure could find its way to the biotech sector. Glaxo and SmithKline together spent 2.1 billion pounds ($3.4 billion) on research and development in 1998 while Pfizer (NYSE:PFE) and Warner Lambert (NYSE:WLA), which are currently in merger talks, had a budget of 1.6 billion pounds. Recently created Aventis (NYSE:AVE) and AstraZeneca Plc (ISEL:AZN) accounted for another 1.4 billion pounds each. One key factor driving these mergers is depletion in product pipeline. Evaluate, a UK consulting firm, forecasts that by 2003 patents will expire on around 40 drugs with sales of over $25 billion. Among them are some high profile drugs like Losec, the peptic ulcer drug from AstraZeneca, and Vasotec, the anti-hypertension therapy of Merck and Co (NYSE:MRK). "This is bound to trigger more links with biotech companies," says Ronald Openshaw, director corporate finance of WestLB Panmure. ACQUISITIONS OR AGREEMENTS Analysts say that links with the biotech sector will take two forms. One would be straightforward acquisitions where a biotech firm has good products but has been unable to raise the money from the capital market. Recent examples have been Pharmacia & Upjohn's (NYSE:PNU) acquisition of Sugen, Merck's purchase of Sibia and the takeover of Diatide by Schering AG (FSE:SCHG). A recent study by WestLB Panmure says biotech companies whose lead product has faltered represent an attractive buying opportunity for big pharmaceutical firms in a tough financing environment where fund managers prefer to pump more money into the high-tech sector rather than biotechnology. Another way would be more links through corporate relationships on science and technology. Bankers say biotech companies, both in the U.S. and Europe, receive a third of their necessary funding via this route. But with the number of drug companies shrinking, the field is getting smaller. "Big drug companies will get choosy and that's not very good for biotechs," said Dennis Purcell, managing director at Hambrecht & Quist, the U.S. investment bank. The trigger for this would be quickening of the pace of consolidation among biotechs in search of critical mass. Analysts say that in 1999 U.S. biotech stocks with a capitalisation of less that $500 million underperformed their larger peers. Panmure says this was due to reduced interest from institutional shareholders in smaller cap companies. SOME BIOTECHS GETTING BIGGER Celltech Group Plc (ISEL:CCH) in the UK, capitalised at 1.12 billion pounds, has seen its stock liquidity rise over three times since its takeover of Chiroscience, analysts say. A similar picture emerged with Proteus/TAb (ISEL:TAB) and Core Healthcare and CeNes (ISEL:CEN) in the UK and Millennium (NASDAQ:MLNM)/Leukosite and Genzyme Cell GeneSys Inc (NASDAQ:CEGE) in the U.S. The U.S., home of the world's biggest biotech industry, recorded no biotech mergers in 1996, four in 1997, seven a year later and over 40 last year. The trend in Europe is catching up. While mergers have tended to happen among companies focused on therapeutic areas, analysts say deals would also take place in genomics and discovery technologies. Biotech companies would not only strive to achieve more products but would also try to lay their hands on cash, a relatively scarce commodity today in the biotech sector, analysts say. David Porter of Nomura Securities said the combination of scientific talent and cash would now become precious currency as some of the merged drug companies shed some of their products currently under development. "Some of them would fit in well for some biotech companies," Porter said. GLAXO SMITHKLINE TO REVIEW PROJECTS Glaxo SmithKline said on Monday it would review some of the 60 biotech alliances the merger would bring. "We could buy some of these products if they fit in with our strategy," said Rolf Stahel, chief executive of Shire Pharmaceuticals (ISEL:SHP), which has almost doubled in size to a two billion pound company after it recently bought Roberts Pharmaceuticals. New companies could also be created by scientific talent that exits from big groups. One such, Actelion, founded in 1997 by former managers of Hoffmann-La Roche, will soon be listed on the Swiss SWX New Market. The company is working on cardiovascular and arterio-sclerotic disorders. "Many biotech companies are salivating at the prospect of getting extra projects, extra drugs in clinical trials and expert mangement coming out of big pharmas," says Genghis Lloyd-Harris of CS First Boston. arindam.nag@reuters.com)) ($1=.6106 Pound) ($1=.6104 Pound) Copyright 2000, Reuters News Service Peter