Pharma-Biotech Sector Hopes Merger & Acquisition Buying Spree Can Cure Financial Pains

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Reported by Annette Kreuger, Industrial Info Resources (Sugar Land, Texas) -- In addition to developing drugs for the marketplace the old fashioned way, with benefit of labs and scientists, pharma-biotech companies are increasingly turning to cash to pay for mergers and acquisitions that will hopefully fill their pipelines. A number of factors, including the afore-mentioned meager pipelines, poor R&D productivity, expiring patents, and public and regulatory pressure over safety, are stimulating merger and acquisition (M&A) activity within the industry. Pharmaceutical companies are increasingly turning to the biotech sector for growth, hoping to acquire fresh platform technologies, as well as promising early-stage drug candidates. A series of strategic alliances and partnerships is also being employed by pharma-biotech companies to achieve this goal.

Among the major M&A activities in 2007 was UK giant AstraZeneca's (NYSE:AZN) $15.7 billion agreement to buy biotech MedImmune (Gaithersburg, Maryland), maker of influenza vaccine Flumist and pediatric respiratory drug Synagis. The purchase more than tripled AstraZeneca's biologic pipeline percentage to just less than 30% and enlarged its total pipeline by 45 projects to 163 projects. The company also acquired MedImmune's expansive research and manufacturing capacity in Maryland, which is currently undergoing the first phase of an expansion project that could top $500 million in capital investment.

Another major 2007 deal was Schering-Plough's (NYSE: SGP) (Kenilworth, New Jersey) $4.4 billion purchase of Organon BioSciences, parent of Organon and Intervet -- the human and animal healthcare businesses of Swiss drugmaker Akzo Nobel. Intervet, with sales of about $1.5 billion in 2006, is one of the top three animal healthcare companies in the world. Its products include canine vaccines, a dewormer for large and small animals, a bovine biological for disease control and eradication, and a poultry vaccine to keep flocks free from infectious disease. The deal added biological research and manufacturing capacity for Schering-Plough at several sites in the U.S. and Europe.

The largest of M&A activity within the generics sector last year was Mylan Laboratories' (NYSE: MYL) (Canonsburg, Pennsylvania) mid-2007 purchase of the generics unit of Germany's Merck KGaA -- which is a completely separate company from Merck & Company (NYSE:MRK) (Whitehouse Station, New Jersey), as the two companies were divided almost 100 years ago because of World War I anti-German sentiment. The $6.7 billion deal bought Mylan a generic portfolio of more than 400 products that spurred 2006 revenues of $2.45 billion. The transaction helped Mylan leap from being the world's sixth-largest generics company to fourth place. It also assisted Merck KGaA in paying off the debt from its own $13.7 billion acquisition of Serono (Geneva, Switzerland) in January 2007.

While thus far lacking any of the billion dollar price tags of 2007, 2008 has evidenced no slowdown in M&A activity. A brief look over the past month or so has revealed a number of noteworthy transactions already on the books. Emergent BioSolutions Inc. (NYSE:EBS) has been busy indeed, as its agreement to purchase Protein Sciences Corporation (Meriden, Connecticut) and all of its operations, which includes FluBlok, a Phase III recombinant influenza vaccine candidate, and certain other assets. This deal follows closely on the heels of Emergent's buy of Vaxgen and all of it assets and rights related to its recombinant protective antigen (rPA) anthrax vaccine product candidate. Under the terms of the transaction, Emergent paid VaxGen $2 million upon execution of the definitive agreement and may be obligated to pay up to an additional $8 million in milestone payments, plus specified percentages of future net sales.

Globalization is alive and well in the case of India's Jubilant Organosys Ltd's purchase of Quebec's DRAXIS Health Incorporated that was completed last month. The sale provides Jubilant with products in three categories: sterile products, non-sterile products and radiopharmaceuticals. Sterile products include liquid and freeze-dried (lyophilized) injectables plus sterile ointments and creams. Non-sterile products are produced as solid oral and semi-solid dosage forms. Radiopharmaceuticals are used for both therapeutic and diagnostic molecular imaging applications

The most recent activity is last week's announcement that Bristol-Myers Squibb Company (NYSE: BMY) and Kosan Biosciences Inc. (NASDAQ: KOSN) signed a definitive merger agreement providing for the acquisition of Kosan, a cancer therapeutics company, by Bristol-Myers Squibb, for $5.50 per share in cash. The transaction, with a net aggregate purchase price of approximately $190 million, has been unanimously approved by the boards of directors of both companies. The acquisition of Kosan will enhance Bristol-Myers Squibb's pipeline with compounds in two important classes of anticancer agents: novel Hsp90 (heat shock protein 90) inhibitors and epothilones.

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