Should Any Big Pharma Buy Bausch & Lomb?

Shearing off unwanted businesses has been the name of the game among big pharma players recently, most notably with Abbott Labs'  (NYSE: ABT  ) spinoff of its pharmaceutical business. With other companies dropping animal health, consumer health, and other divisions, what company would want to take on a hefty acquisition in this time of cost-cutting?

That's exactly what's on the table, however, with the potential sale of specialized, privately held eye-care giant Bausch & Lomb. The company offers projected 2013 earnings of around $800 million, according to some sources, an attractive number to be sure for companies that have been rumored to be interested, such as Pfizer (NYSE: PFE  ) and Sanofi (NYSE: SNY  ) . However, with private equity firm Warburg Pincus looking to get $10 billion on a sale, is this hefty buy even worth it for big pharma's biggest players?

Johnson & Johnson: Take a pass
The easiest suitor to come up with is Johnson & Johnson (NYSE: JNJ  ) , the do-everything health care colossus that seemingly could absorb Bausch & Lomb without a hitch.

Even though rumors have surfaced that J&J's potentially interested -- and although the company seemingly has plenty of synergies to capitalize on with the purchase (J&J's own soft contact lens business is the market leader) -- there isn't a pressing need or urgency to buy Bausch & Lomb right now.

The company handles 73% of sales in North America and Europe, with little exposure to the emerging markets that could help J&J's sales growth. Johnson & Johnson saw non-U.S. Western Hemisphere revenues grow more than 11% over the first nine months of last year, with Asia-Pacific sales growing 4.5%. With more than $14 billion in sales in those two regions over that time frame, J&J would barely receive a boost in geographical areas it needs to focus on developing.

With Johnson & Johnson's $20 billion acquisition of Synthes last year, it seems even less likely that the company would want to take on yet another eight-digit purchase so soon after the last.

Too radical a move for Abbott
Scratch J&J. How about the most talked-about Big Pharma player of the last few weeks, Abbott? With the spinoff of AbbVie (NYSE: ABBV  ) , Abbott seems like just the right fit for Bausch & Lomb at first glance as it looks to boost its consumer health, generic pharmaceutical, and medical device businesses.

Bausch & Lomb's pharmaceutical business counts for nearly 40% of its sales, however -- business that won't help Abbott's post-branded pharmaceuticals life. Abbott could always sell Bausch & Lomb's branded pharmaceuticals off to AbbVie or another suitor, but it seems like an extra hurdle for a company that's still going through a period of major transition.

That's the other key as to why Abbott doesn't make sense. Do investors really want to see this company make a huge, multibillion-dollar splash so soon after radically changing its business? I'm all for an aggressive Abbott making moves to lock in future growth, but with the ophthalmology market's projected growth around a mere 5% for the period between 2011 to 2018, it's doubtful that the hefty price Warburg Pincus is asking would be worth it.

A nonsensical purchase for Pfizer
Pfizer is another company that has been rumored to be buzzing around the Bausch & Lomb bandwagon, but this big pharma giant may be the company least suited to pulling the acquisition trigger.

Pfizer's already ditched its nutrition businesses for big bucks and is looking at spinning off its animal health business. Quickly slowing sales of blockbuster drug Lipitor are to blame, with the company looking to make up revenues after the product lost patent protection. Lipitor's sales  fell 56% through the first nine months of the year, costing the company billions.

With Pfizer looking to make up revenues and focusing intensely on its pharmaceutical business, it makes no sense at all for the company to add Bausch & Lomb to its portfolio -- particularly for $10 billion. Slow growth really won't help balance the high-stakes game of branded pharmaceuticals that Pfizer's moving more and more toward, and with a relatively small consumer health care business -- Pfizer's division only accounted for around 5% of total revenues through the first nine months of 2012 -- the company would be better off looking for higher-reward buyout targets.

A question of priorities at Merck
Lastly, we get to Merck (NYSE: MRK  ) . This big pharma giant hasn't followed the footsteps of Pfizer and Abbott in divesting businesses, instead keeping all its divisions together after a very good 2012. Would Bausch & Lomb help the company to an even brighter future?

To be fair, Merck's non-pharmaceutical sales pale in comparison to its pharma division. The company's consumer health branch only sold $1.6 billion through the first nine months of 2012; while that did mark 5% year-over-year growth, it still barely affected the company's overall sales.

Merck CEO Kenneth Frazier did mention last week, however, that a potential purchase of Bausch & Lomb "is something worth thinking about." Adding Bausch & Lomb would certainly give a huge boost to Merck's consumer health branch, and if Frazier wants to expand that division -- the CEO has expressed satisfaction  with Merck's diversified health care portfolio -- an acquisition would be a quick way to infuse some revenue power.

Landing spots are few and far between
In all, there's no perfect fit for Bausch & Lomb among the big pharma players. With companies like Abbott and Pfizer spinning off divisions to giants like Johnson & Johnson not in need of a major acquisition right now, Warburg Pincus may have to find an alternate route to getting rid of Bausch & Lomb. The eye care company could certainly add brand power and hefty revenues to a suitor, but at a hefty cost. Also, with the sector in transition over the ongoing patent cliff, health care reform, and even sequestration's return in a few months, it's a risky time to be making $10 billion purchases for low-growth rewards.


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