The Biotechnology industry has seen an immense amount of mergers and acquisitions activity lately. Dealogic reports that pharmaceutical company deal activity is 5% higher for 2011 with $18.5 billion in global transactions as compared to 2010. There are a number of reasons for M&A activity among pharmaceutical companies:
- acquire an existing or potential blockbuster drug
- improve productivity in the research and development department
- enhance efficiencies at the management level
Biotech industry giants are cutting back spending on research and development. These large companies prefer to add in new products and technologies through acquisition of smaller Biotech companies. Many times, these products and technologies have been successfully launched and are selling well in the marketplace which significantly lowers the risks for the acquiring company.
Over the last few years, large pharma companies have been concerned that once the patents run out on their most popular drugs, their profits would plummet. These industry giants have been actively looking for new blockbuster drugs to fill in the gaps left by their former blockbusters as generic drugs take over market share. Pfizer is already in this danger zone since one of its most popular drugs, Lipitor, has not been protected by patents since the fall of 2011. Pfizer has yet to find a replacement for Lipitor which was the best-selling drug of all times. Neogen, a leading nut allergy testing kit distributor, has been buying competitive companies such as VeroMara, BioKits, Interenational Diagnostic System Corp and Geneseek to expand their product line through acquisition.
Many times, the smaller players in the Biotech industry structure their companies to be sold to one of the industry giants. They spend a great deal of time and money ensuring that their patent protection is adequate and provides an attractive portfolio for potential investors. Small businesses have a new piece of legislation on their side. The America Invents Act brings the first major change in the patent system in the last 60 years. Now, the patent system is based on a ‘first to file’ system rather than ‘first to invent’.
In the first few months of 2012, Biotech stocks have continued to bring strong gains to investors. With 20% gains year-to-date, the iShares NASDAQ Biotechnology Index is a strong performer. The America Invents Act should have an ongoing positive impact on the Biotech industry as
“SMALL BIOTECHNOLOGY COMPANIES RELY HEAVILY ON THEIR PATENTS TO ATTRACT INVESTMENT,” AND “THEY WILL BENEFIT FROM THE IMPROVEMENTS TO OUR NATION’S PATENT SYSTEM MADE BY THIS LEGISLATION,”
BIO President and CEO Jim Greenwood stated in a press release.
Below are some highlights of M&A activity in the Biotech field over the last six months that show the volume and quality of transactions in this market:
BIOLEX THERAPEUTICS, INC.: Biolex Therapeutics, a privately held biopharma company created the patent-protected LEX System to manufacture follow-on biologics, hard-to-make therapeutic proteins and optimized monoclonal antibodies. Biolex recently sold several products and a proprietary platform to Synthon, a pharma company based in the Netherlands. In May 2012, the LEX System, an exclusive platform for developing and manufacturing biologics, was part of the package of assets sold to Synthon. There were two potential products sold at the same time: BLX-301, a humanized and glyco-optimized anti-CD20 antibody for the treatment of non-Hodgkin’s B-cell lymphoma and other B-cell malignancies; and BLX-155, a direct-acting thrombolytic designed to dissolve blood clots in patients.
ROCHE HOLDING: Roche Holding made a hostile takeover bid of $6.2 billion for Illumina. As Illumina had forecast revenue for the first three months of 2012 at $270 million, this bid places a valuation of 6 times revenue.
NOVARTIS AG: The largest pharmaceutical company in Europe, Novartis AG acquired Fougera Pharmaceuticals, Inc. in May 2012 for $1.5 billion. Based in Melville, New York, Fougera is owned by private equity funds and reported sales of $429 million in 2011. This transaction establishes Novartis as the market leader in generic skin medications. This transaction has a valuation of approximately 3.5 times revenue.
NEOGEN CORPORATION: The assets of the Igenity animal genomics business were purchased by Neogen Corporation in May 2012 from Merial Limited. The new Igenity division will be incorporated into GeneSeek, a subsidiary of Neogen that holds a top position in global animal genomics.
JAZZ PHARMACEUTICALS PLC: EUSA Pharma, a specialty oncology pharma company based in the United States and United Kingdom, is privately held. In April 2012, Jazz Pharmaceuticals plc, an Irish pharmaceutical company with headquarters in Philadelphia, entered into an agreement to purchase EUSA Pharma in a transcation valued at $700 million. As Jazz expects additional revenue of $210 million in 2013 after this purchase, the transaction valuation is based on approximately 3.3 times revenue.
AMGEN: Global biotechnology conglomerate Amgen entered into an agreement in April 2012 to acquire 95.6% of the stock in Mustafa Nevzat Pharmaceuticals. Mustafa Nevzat, a Turkish pharmaceutical company with over 1,400 trained personnel. The transaction is valued at $700 million. As Mustafa Nevzata’s estimated annual revenue for 2011 was reported to be $200 million, this places the valuation at approximately 3.5 times revenue.
ASTRAZENECA: On April 23, 2012, the European drug maker AstraZeneca agreed to buy the biotechnology company Ardea Biosciences for $1.26 billion, Ardea’s clinically most advanced product candidate, lesinurad (formerly known as RDEA594), is currently in Phase III development as a potential treatment for the chronic management of hyperuricaemia in patients with gout. Ardea’s revenue for Q1 2012 is $1.5 million, this place the valuation at 210 times of revenue.
HUMAN GENOME SCIENCES: GlaxoSmithKline, one of the largest drugmakers in the United Kingdom, made an unsolicited takeover bid of $2.59 billion for Human Genome Sciences. With projected revenue for 2012 of $200 million for Human Genome Sciences, this places the valuation at approximately 13 times revenue.
BIOSEARCH TECHNOLOGIES, INC.: Biosearch Technologies, Inc. is a market leader for supplying sophisticated oligonucleotide components to the rapidly growing molecular diagnostics industry. In February 2012, Biosearch purchased the global rights from the University of Medicine and Dentistry of New Jersey (UMDNJ) to United States Patent 6,150,097, titled “Nucleic Acid Detection Probes Having Non-FRET Fluorescence Quenching and Kits and Assays Including Such Probes,” as well as counterpart patents in Australia, Canada, France, Germany, Great Britain, Italy, and Japan, that disclose and claim, inter alia, probes having quenchers and fluorophores that are not FRET pairs, as well as their use. In this transaction, Biosearch also purchased rights to sublicense the non-FRET probes patents to companies that may wish to commercialize current and future non-FRET probe-based products.
BODE TECHNOLOGY: A market leader for providing forensic DNA services, Bode Technology acquired Chromosomal Laboratories in February 2012. Chromosomal Laboratories provides DNA testing for immigration and private paternity.
SANOFI-AVENTIS SA: Sanofi-Aventis SA entered into an agreement to purchase Genzyme Corp at $20.1 billion in February 2012. Sanofi-Aventis has now become the largest provider of drugmaker treatments for rare diseases in France. Genzyme’s 2010 annual revenue was reported at $722 million. This transaction has a revenue multiple of 4.7 times sales, compared with an average of 4.3 for revenue multiples in biotech over the past five years, according to US data from Bloomberg.