Will Biopharma Acquisitions Never Cease?

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In both the size and quantity of proposed deals, the past 24 months have been busier than ever for biopharma dealmakers. From industry giants like Genentech and Biogen Idec (Nasdaq: BIIB  ) to tiny players such as Mirus Bio, nearly every such drugmaker has generated at least rumors of a takeover. 

Why now?
There are many factors coming together to make biopharmaceutical drugmakers attractive acquisition targets right now, but two particularly stand out. First, big pharmas like Pfizer (NYSE: PFE  ) , Bristol-Myers Squibb, and Eli Lilly (NYSE: LLY  ) are currently flush with cash. However, they're also facing patent expirations and rising generic competition against some of their best-selling flagship drugs.

These drugmakers' cash has to go somewhere, either through acquisitions, share buybacks, dividend payments, or paying down debt. Some of these options don't make very much sense right now; with interest rates at historical lows, for example, now's not the time for big pharma to pare down their debt levels. In addition, some drugmakers park a good portion of their cash outside the U.S. for tax reasons, making foreign biopharma acquisitions more attractive.

Given their complex molecular nature and manufacturing processes, many biologically derived drugs and vaccines have innate natural protections against generic competition. In many cases, it can be nearly impossible to make a generic copy of a biopharmaceutical drug, even after its patents have run out.

There are plenty of smaller variables at work, too:

  • The weak dollar means foreign large-cap pharmaceutical firms can acquire U.S. drugmakers more cheaply.
  • The biopharma industry has matured in the last 10 years.
  • Biopharma technologies enjoy increasing validation.

All in all, the the environment for biopharma deals has never been stronger.

What does Big Pharma want?
As with many previous deals for small-molecule drugmakers in the past, big pharma has generally offered its biggest premiums and juiciest deals to mid-sized biopharmaceutical firms with mature assets.

Here's a chart of some of the biggest biopharma acquisitions or proposed deals in the past 24 months:

The deal

Share-price premium*

Main reason for offer

Genentech acquired Tanox for $919 million.


To gain rights to Tanox's share of the asthma drug Xolair

AstraZeneca acquired MedImmune for $15.6 billion .


To get Synagis and vaccines

Takeda acquired Millennium Pharmaceuticals for $8.8 billion.


Multiple-myeloma drug Velcade plus biologics pipeline

Bristol-Myers proposed to buy ImClone Systems (Nasdaq: IMCL  ) for $4.5 billion.


Cancer drug Erbitux plus biologics pipeline

Roche proposed to buy Genentech for $43.7 billion.


To gain more control over Genentech

*Compared to the day before the offer was made.

In addition to heated acquitision activity, drugmakers have forged a slew of record-breaking partnership deals for biopharmaceutical assets. For example, in 2006 GlaxoSmithKline struck a deal with Genmab, worth as much as $2.1 billion, for one of the latter company's late-stage monoclonal antibody drug candidates.

Many of these deals involved drug developers working with technologies that competitors have previously validated, but in recent months, large-cap pharma has even started to bite on new unproven technologies like Cell Genesys' GVAX cancer vaccine. However, these deals have generally drawn smaller amounts of up-front cash (and some bad outcomes, too).

What tempting targets remain?
Even as the biopharmaceutical sector grows by leaps and bounds in the 21st century, with drugs like Millennium's Velcade, Genentech's Avastin, and ImClone's Erbitux entering the market, there are still very few independent pure-play biopharmas. This fact alone boosts these companies' attractiveness to would-be acquirers.

Here's a partial list of some of the juiciest biopharma assets potentially still up for grabs:


Current market capitalization

What they have to offer

Seattle Genetics (Nasdaq: SGEN  )

$880 million

2 compounds in later-stage testing, antibody-drug conjugate technology

Alexion Pharmaceuticals

$3.5 billion

One drug already approved to treat a rare genetic disorder, multiple label-expanding studies under way


$950 million

Seven compounds in at least phase 3 testing that could generate royalties, fully human monoclonal antibody technology

Momenta Pharmaceuticals (Nasdaq: MNTA  )

$530 million

Technology to potentially develop a range of biosimilar drugs

Regeneron Pharmaceuticals

$1.7 billion

One approved compound, another that could compete broadly with Genentech's Avastin

Other drugmakers also have interesting biopharmaceutical assets, like Biogen Idec, Elan (NYSE: ELN  ) , and Genzyme. But for a variety of reasons, including their large size or the nature of their existing partnership agreements, they'd be more difficult for a potential buyer to acquire.

A year from now, I'll be very surprised if every drugmaker on the above list remains independent. There are only so many mature biopharma assets to go around, and as the past months have shown us, big pharma isn't afraid to snap them up.

Motley Fool Rule Breakers is always on the hunt for hot drug stocks and other cutting-edge picks. Momenta is one of the newsletter's picks. Find out why, and see all of our latest discoveries, with a 30-day free trial subscription.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Pfizer is an active Inside Value pick. Pfizer, Eli Lilly, and GlaxoSmithKline are active Income Investor picks. Biogen is an active Stock Advisor pick. The Fool has an A+ disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 01, 2008, at 5:27 PM, Brettze wrote:

    Big Pharma like Pfizer and Merck is of different technology than biotechs like Amgen and Genetech. Big Pharma is clueless about biotechoology at large..

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