Mid-Priced Biotechnology Companies bloom as

 M&A Targets in 2013 (Part 1 of 2)

by Bernadette Tansey

At the annual health care conference run by JP Morgan in San Francisco this week, and at satellite events surrounding it every year, hundreds of biotechnology companies showcased their work to investors who might advance them the capital to keep going. But the companies’ CEOs are also pitching their value to an equally important part of the audience—big pharmaceutical businesses or mature biotechs on the hunt for smaller outfits they can snap up as acquisitions.

So it’s not surprising that the buzz of the conference centered on what these big buyers may do in the months to come.

Investment capital can keep biotechnology companies alive for years—even decades—as they strive to convert interesting science into lucrative drugs or devices. But an acquisition by a larger partner yields a sudden and often welcome payout for venture capital firms and other investors who otherwise would have to wait for the companies they support to complete an initial public offering.

“Every VC would tell you their preferred exit (from an investment) would be the sale of the company rather than the capital markets,” said Glen Giovannetti, Global Life Sciences Leader for Ernst & Young.

The big questions are which companies are buying, how much they’re willing to spend, and what types of companies they’re looking to snap up.

Pharmaceutical companies that lost patent protection recently on their biggest sellers are under urgent pressure to shore up their revenues to keep pace with industry growth, according to an Ernst & Young report released this week. Pfizer, for example, saw its blockbuster cholesterol-lowering drug Lipitor go off-patent in late 2011.

But there’s a limit to how much these companies can spend. Top biotech firms such as Amgen (NASDAQ: AMGN) of Thousand Oaks, CA—with a market capitalization of more than $67 billion—are probably too expensive for most suitors’ taste right now.

But Ernst & Young predicts a heightened demand among big buyers for lesser-priced companies in the range of $5 billion to $20 billion—and bidding wars could drive up premiums on those acquisitions. The accounting firm predicts a rise in those “bolt-on” purchases that could immediately beef up revenues for the successful bidder.

“That’s certainly the talk here this week,” says Giovannetti, one of the thousands attending the JP Morgan conference. He pointed to Novartis CEO Joe Jimenez’s predictions about his company’s M&A plans in an interview with Bloomberg at the conference. Jimenez said the Swiss drug giant would seek acquisitions costing no more than $4 billion.

Those modest Novartis plans are consistent with the downward trends found by the San Francisco biotechnology investment bank Burrill & Co. in a survey of 2012 M&A activity published on the eve of the conference. The highest deal value in 2012 was Nestle’s acquisition of a Pfizer infant nutrition unit for $11.8 billion, compared with 2011, when two top acquisitions exceeded $20 billion and several more were higher than $10 billion. 

Although the number of global M&A deals in the life sciences increased in 2012, their total value dropped 31 percent to $109.4 billion, Burrill found.

If the big drug companies could spend more to fuel their growth, they probably would...

Fuente: Xconomy