Pharma Deals In Offing

(RTTNews) - Struggling with relatively anemic pipelines and looming patent expirations, cash-rich drug giants are scouring the landscape for possible acquisitions to help boost their pipeline and plug impending revenue gaps due to outgoing blockbusters.

According to healthcare research and publishing firm Irving Levin Associates Inc., last year, a total of 523 M&A (merger and acquisition) deals were reported by the health care technology segment, which includes Biotechnology, e-Health, Medical Devices and Pharmaceuticals, reflecting a decline of 10% from 2007. In terms of dollars spent, the value of the deals in the health care technology segment in 2008 was $205.1 billion, up 17% from 2007.

As recently as January 26, drug giant Pfizer Inc. (PFE | Quote | Chart | News | PowerRating) agreed to acquire Wyeth for $68 billion in a deal that could be the third largest ever in the pharmaceutical sector. In light of the global financial meltdown, the market for initial public stock offerings remains bleak and valuations of potential takeover targets have become very attractive, favoring the buyers. .... So will 2009 shape up as a year of sweeping pharma deals?

Swiss pharma company Roche Holding AG, which owns a majority controlling stake in Genentech Inc. (DNA | Quote | Chart | News | PowerRating), has long been eyeing the remainder of the company. Roche acquired a major stake in Genentech in 1990 and currently owns a 55.8% stake in the company. Roche initially tabled its proposal on July 21, 2008, offering $89 per share or a total of approximately $43.7 billion in cash for the 44% of Genentech that it doesn't already own.

Genentech's stable of drugs include blockbusters like Rituxan, Herceptin, Avastin and Tarceva, and Roche could gain a complete control over the sales of these drugs if it acquires Genentech. Currently, Roche sells these drugs outside of the U.S., while Genentech markets these drugs in the U.S. Roche derives nearly 40% of its sales from Genentech's drugs.

A late-stage study of Avastin plus chemotherapy in patients with early-stage colon cancer is currently underway and the final results of the study are expected in mid-2009. U.S. sales of Avastin rose 17% in 2008 to $2.69 billion. Some analysts expect Avastin sales to more than double if it gets approved as a treatment for early-stage colon cancer patients.

Genentech plans to add a total of 30 new molecular entities into clinical development by the end of 2010. According to the company, currently there are 20 new molecules in the development pipeline, most of which target novel mechanisms based on promising biology. In 2009, the company expects to receive four FDA approvals and anticipate filing more than ten regulatory applications for new indications.

Sales of Roche's antiviral Tamiflu have taken a beating of late after peak pandemic stockpiling sales of 2.1 billion Swiss francs in 2006. Tamiflu sales dropped 11% to 1.9 billion Swiss francs in 2007. A potential acquisition of Genentech would boost Roche's product portfolio and pipeline, more so at a much needed time.

However, Genentech had already rebuffed Roche's offer last August noting that the price tag was too low.

While investors were hoping Roche to come back to the negotiating table with a sweetened bid, in a surprise move, Roche on Friday made a new lower offer reaching out directly to Genentech shareholders in a hostile takeover bid. The revised bid is $86.50 per share -- $2.50 less than the initial offer, which was earlier rejected by Genentech. Genentech has urged its shareholders to reject Roche's revised lower offer.

Ever since Roche's offer in July of 2008, Genentech stock moved ahead steadily and hit a high of $99.14 in August. But the shares lost all the gains after the bid was stalled and was down almost to its pre-buyout offer level of around $77 by November end. However, there has been a substantial recovery since December of 2008. On Friday, January 30, 2009 Genentech shares closed the trading session at $81.24.

According to industry observers, the Roche-Genentech deal is imminent and it is only the question of when?

Yet another deal on the cards could be that of Dutch vaccine maker Crucell NV (CRXL | Quote | Chart | News | PowerRating). Crucell's core portfolio includes Quinvaxem (for diphtheria, tetanus, whooping cough, hepatitis B and Haemophilus influenza type b); travel vaccines Epaxal - the only aluminium-free hepatitis A vaccine, Dukoral, which is effective against diarrhea caused by cholera; Inflexal - a virosomal adjuvanted Influenza vaccine; MoRu-Viraten - a vaccine for protection against measles and rubella in children, adolescents and adults to prevent diarrhea caused by cholera.

Crucell had been in preliminary talks over a possible takeover by Wyeth in a deal reportedly valued at over $1.35 billion. Analysts had speculated that the merger talks could trigger a bidding war -- with Novartis AG (NVS | Quote | Chart | News | PowerRating) and Sanofi Aventis (SNY | Quote | Chart | News | PowerRating) launching rival bids. Merck (MRK | Quote | Chart | News | PowerRating) and GlaxoSmithKline, which also have a vaccine division, could also be interested in Crucell, according to some analysts.

Crucell posted its first-ever quarterly profit on November 11, 2008, which was the company's third quarter of 2008. Net income for the third quarter was €12.3 million or €0.19 per share, compared to a net loss of €4.5 million or €0.07 per share in the same period of 2007. Combined total revenue and other operating income for the quarter rose to €82.1 million from €62.6 million in the same quarter of 2007. The company attributed the 31% increase in revenue (38% in constant currencies) to strong sales of pediatric vaccines as well as license income.

Buoyed by its strong third-quarter results, the company boosted its 2008 revenue growth outlook to 25%-30% in constant currencies from its prior guidance of 20% growth.

Crucell shares rose nearly 28% to $20.50 on January 7 after it confirmed that it is in preliminary negotiations to be acquired by Wyeth. The stock was trading above $20 till January 23 before the Pfizer-Wyeth deal was announced. Crucell stock closed Friday's session at $18.17.

Now, with Wyeth agreeing to a buyout by Pfizer and withdrawing from negotiations concerning a possible business combination with Crucell, the largest pure-play vaccine maker may look to other suitors, if there are any in its wings.

Merck & Co. Inc. (MRK | Quote | Chart | News | PowerRating) is also looking for acquisitions this year to enhance its growth. The company's blockbuster osteoporosis drug Fosamax lost patent exclusivity in February 2008. With regulatory setbacks and patent expiration of one of its blockbuster drugs Fosamax, Merck suffered some of the biggest blows in 2008. Merck's blockbuster asthma drug Singulair is slated to lose patent protection in 2012. To top it all, the demise of potential blockbusters like experimental anti-obesity drug Taranabant and investigational cholesterol drug Cordaptive, has tossed a wrench into the company's efforts to boost its bottom line. At the Goldman Sachs Global Healthcare Conference in New York On January 7, Merck's CEO Richard Clark said, "Merck is "aggressively looking" at all types of acquisitions."

Analysts also expect Johnson & Johnson (JNJ | Quote | Chart | News | PowerRating), which recently completed its $1.07 billion acquisition of breast implant maker Mentor Corp. to loosen its purse strings to craft a major deal. The company's blockbuster antipsychotic Risperdal lost patent protection in June of 2008. Global sales of the drug plunged 37.8% to $2.12 billion last year, due to entry of generic rivals.

GlaxoSmithKline plc's (GSK | Quote | Chart | News | PowerRating) Lamictal, a drug that treats seizures and bipolar disorder, lost patent protection in July of 2008. In 2007, the drug raked in sales of £1,097 million, up 18% over 2006. The British drug maker's Valtrex, a treatment for herpes is slated to go off patent this year. In 2007, the drug generated sales of £934 million, up 18% compared to 2006. Unlike other major pharmaceutical companies that are opting for mega-deals, GlaxoSmithKline said it is interested in smaller, targeted acquisitions.

..... So there are great deals out there for 2009?

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